peer to peer lending concept

1. Platform where Barrowers and Lenders helping each
other financially.
WELCOME
Peer to peer Lending
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© Dhanax 2015. Anitya Information Solutions Pvt. Ltd.
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Peer to Peer Lending
What is peer to peer lending?
P2P lending is defined by Wikipedia as “the practice of lending money to unrelated individuals, or "peers",
without going through a traditional financial intermediary such as a bank or other traditional financial
institution”.
As the definition suggests, it is an alternative form of lending where people lend to people. This practise has
been going on since time immemorial but the term has now gained popularity due to entry of many platforms
mainly online that facilitate such lending between people.

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Peer to Peer Lending
A few examples of such platforms are Kiva, Zopa, lending club, funding circle etc internationally and DhanaX,
RangDe, Faircent etc in India. In recent years there has been a surge in new P2P platforms across the world in
countries such as Israel, UAE, Sweden, China, New Zealand etc that underlines the need for this form of credit
across the world.
A P2P lending transaction would involve a willing lender and a willing loan seeker (borrower) who mutually
agree on certain conditions like Interest Rate, duration etc. A loan seeker may have many reasons to avail a P2P
loan rather than a traditional loan. These include:
• Flexibility in deciding rates, durations, small loan amounts etc
• Lack of strict norms and paperwork
• Transparency
• Fast execution in case of emergency needs

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Peer to Peer Lending
A lender would primarily look at P2P lending for two basic motivations:
1. Alternate investment (returns in form of interest charged); examples DhanaX, Lending Club, Funding Circle,
Zopa etc
2. Philanthropical; examples Kiva, Rang De etc
For a lender, P2P lending is a quasi fixed investment tool in the sense that it provides a fixed rate of return (that
a lender negotiates with the loan seeker), but one that is significantly higher than fixed deposit although he/she
also takes up a risk that is higher than a Bank FD or a post office bond. On platforms such as DhanaX, a lender
also gets returns in form of Equated Monthly Instalments (EMI) that consist of interest and a portion of principal,
a useful combination of managing savings and expenses.

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Peer to Peer Lending
Before the advent of these P2P platforms, people would take short term interest free loans from people who
were directly or indirectly known to them. This scenario had its limitations for both loan seekers in form of social
stigma, taking a favour, short term durations etc and for lenders in form of lack of legal agreement, lack of
returns etc. These are the problems that online P2P platforms have been able to solve. Moreover, P2P platforms
have been able to scale up this practise by enabling transactions between two individuals who are complete
strangers before coming on to the platform.
Some of the value added functions that P2P platforms perform apart from bringing together lenders and loan
seekers are due diligence on borrowers, facilitating legal agreements and repayments. They also suggest
different ways in which transactions can be structured. Some successful platforms in UK and USA now have tie
ups with institutional investors like banks and other financial institutions to aid faster loans for loan seekers.
They are miles ahead of traditional lending institutions in harnessing technology and as such many innovative
risk assessment methodologies like social media analysis are finding their applicability on these platforms.
Not only are institutions looking to lend through these platforms, many companies like Google are willing to pick
up equity in them by paying considerable sums of money. For equity investors, P2P is an interesting and exciting
opportunity that operates at the forefront of two of their most sought after domains, technology and finance.
P2P clearly has a potential to disrupt lending business while creating a significant new way of investing.