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How do P2P platforms assess the creditworthiness of borrowers?

The borrowers are checked, verified on many grounds before they are listed on the platform.

, ET Online|
Nov 02, 2018, 11.08 AM IST
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The peer-to-peer (P2P) lending world is made up of three elements: The lender, the borrower and the platform. Based on the concept of crowdfunding, a P2P platform makes it convenient for people to find borrowers interested in taking unsecured loans.

The borrowers are checked, verified on many grounds before they are listed on the platform. P2P companies follow different parameters to evaluate the borrower with identity, risk profile and credit history being the major factors.
A borrower is required to furnish his PAN, address proof, bank statement and income details with the lending platform. Most of the P2P platforms ask for an annual income of Rs 2-3 lakh for salaried class.

After online deliberations, P2P companies undertake rigorous verification of the borrower at his residence as well as workplace.

“If he is a good borrower, we can make him live within two to three hours. If he (the borrower) is in a remote place, it may take up to 48 hours, post the physical verification,” says Rajat Gandhi, Founder & CEO, Faircent.com. Unlike banks, P2P platforms do not solely rely on salary slips and Form 16 for giving personal loans. Self-employed individuals can also avail unsecured loans on the platform, provided they fulfil the eligibility criteria.

“In case of self-employed individuals, earning Rs 5 lakh annually, we check whether they have been filing ITR on a regular basis or not. They can be given loans once their bank statement is verified along with their proof of identity and address,” says Apoorv Gawde, CIO and Head of Product, Finzy.

Social Media Footprints
Online lending companies may also refer to unconventional sources like Facebook, Twitter and e-commerce sites to assess a borrower’s credit worthiness. This means, if you have checked for credit card offers and personal loans too often, it may not leave a great impression with these data-driven lending firms.

Most P2P lending companies use technologies like data analytics, social modelling to understand the borrower profile. P2P companies look at alternative means to verify applicant’s personal details, cash flow and repayment record.

Risk Categorisation
People with credit score below 700 are highly unlikely to get a bank loan. But P2P companies divide borrowers in different categories -- namely very high risk, high risk, medium risk, low risk and very low risk. Depending on an individual’s financial history, income and repaying capacity- the borrower is given a rating by the concerned platform.

Borrowers with very high risk profiles have a higher income-to--debt ratio. Thus, a high probability of paying back but the volatility could be on the higher side. Such borrowers are more likely to be ignored by banks and financial institutions. Similarly, very low risk or minimum risk profiles offer the lowest rate of return for the lenders and may be every bank’s delight.

No Blacklists in P2P
Banks generally have a specific list of areas and profiles which they do not entertain. P2P companies look at every borrower as an individual and try to offer customised loans as per his or her requirement.

But this doesn’t mean that anybody can get a loan on P2P. Despite the flexibility, the KYC norms and credit assessment algorithm is in place. “We get about 40,000 applications out of which only 1500 people go live. That is, only 5 percent are approved,” adds Gandhi of Faircent.

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