Page 49 - Banking Finance January 2024

ARTICLE

tech driven, cutting the processing time and allows the
portals fast disbursals.

If lending terms After primary
and conditions are checks/due
acceptable then diligence platform
one may apply for approves the loan
loan application
Application Approval

Fund Review
Transfer
Source: Experian: Fintech led digital lending: Coming of Age
Once loan
application gets Various lenders
will review loan
Process of P2P Lending sufficient investors application
fund is transferred
elctronically
Usually a P2P portal or website facilitates the entire process.
Both investors and borrowers register themselves at P2P Advantages of peer-to-peer lending
portal by opening an account. Borrowers are classified into
various credit risk categories based on the credit assessment platforms
model designed by the portal after analyzing several data P2P lending sites offer better rate of returns than bank
points like qualification, occupation, credit history, income, deposits to its investors. It also offers availability of credit
social media activities and app usage etc. Data-driven to those borrowers which do not have access to bank
approach, allows investors to have multiple options to finance. Since entire process is online hence these
choose from pool of credit worthy potential borrowers. companies operate with lower operational expenses
resulting in lower fee to borrowers. Platform facilitation fee
Borrowers post their funding needs at the portal which is usually ranges between 1-3%. Cutting edge technology helps
visible to all the investors registered at the portal along with to render fast and quality service with customized products.
the assigned risk category to the particular borrower. Many P2P platforms offer higher rate of returns which may
Interest rates and terms of finance are mostly decided by even go to 20%-30%.Needless to say that these investments
the portals. Investors may choose from any borrower class are much riskier than the bank deposits and carry default
most suitable to their individual risk appetite. risk which is directly borne by the individual investors.

Borrowers may also increase the rate of interest to attract
more investors which increases the probability of getting an
advance. Upon accepting the offer by both the parties
lending transaction is carried out. Matching of the offers is
technology driven.

P2P portals use electronic KYCs most of the time which saves
on cost and time. Loan underwriting is data driven by way
of proprietary algorithms. Loan documents are generated
digitally and digital execution of loan documents may also
be explored by these portals as it significantly reduces the Interest Income from P2P lending is taxable just like any
handling, storage and retrieval costs. Disbursement is other source of interest income such as FDs. So if someone
effected through digital banking while collection is done falls under 20% tax bracket, post tax rate of return in above
largely through e-mandates. Entire process is digital and example would arrived at 11.20%.

BANKING FINANCE | JANUARY | 2024 | 43