As Reserve Bank of India proposes to regulate peer-to-peer (P2P) lending, the industry is looking for scaling up of operations, while attracting foreign investors.
Peer-to-peer lending, which is still in its nascent stage in India, has been sailing through an experimental phase over the last five-six years. At present, there are about four to five established P2P lending firms, like Rang De, Milaap and Micrograam, which have been traditionally rural-centric in approach. However, over the past one-and-a-half years, several new urban-centric P2P firms have come up, like i-lend and Faircent. While rural-centric P2P lenders mostly facilitate social lending through microfinance organizations, the urban-centric ones follow a classical model, in which interest of lenders and borrowers are matched through an online platform without involvement of an intermediary for actual disbursements. Typically, loans in case of urban-centric P2P firms are for needs such as repayment of credit card dues, personal consumption and even micro level businesses.
Several urban-centric P2P lenders have seen a brisk growth in a short span of time. For example, Delhi-based Faircent, which started operations about 18 months back, expects a disbursement to touch around Rs 60 crore by the end of this financial year. By the end of next financial year, the company expects its disbursements to cross Rs 200-300 crore, said Rajat Gandhi, founder and CEO, Faircent. Last year, the company got investments of about $1 million, with one of the investors being Mohandas Pai, former director at Infosys.
i-lend, Hyderabad-based P2P platform has been following a conservative approach in lending, expects a capital infusion of about Rs 6-10 crore soon. While so far, the company has disbursed about Rs 1 crore as loan, it expects that in 18 months after the capital infusion, the disbursements would touch about Rs 125-150 crore.
"We have been slightly conservative in growth. In the next five to six years, the P2P lending has a potential to lend as much as Rs 30000 crore. So far, we have been testing waters. Now, that the sector will be regulated and recognized, we expect many investors to come up and we too are looking to raise a couple of million dollars as investments. Post the fund infusion, we expect, within 18 months, our disbursements to touch about Rs 125-150 crore," said V V S S B Shankar, founder and director, i-lend.
While so far, i-lend had its operations concentrated in Hyderabad, it recently expanded operations to Chandigarh and Chennai.
"At present our margins are 4 per cent, as we charge three percent from borrowers and one percent from lenders. Against this, an MFI would charge around 12-14 per cent. Much of our costs used to go towards verification, about Rs 400-450 per account. Hence, scaling up operations to new cities was not viable. However, now we have moved to 100 per cent online verification, which has made our operations scalable," said Shankar.
Micrograam, a rural-centric P2P firm, has so far disbursed around Rs 20 crore. By the end of this financial year, the company expects disbursements to touch about Rs 50-75 crore. The company was in advanced stages of discussion for raising about Rs 25 crore from investors, said Rangan Vardan, founder, Micrograam. Over the next three years, the company expected, its disbursements to touch nearly Rs 200 crore, he added. In 2014, the company had roped in V Balakrishnan, former Chief Financial Officer of Infosys, as its chairman.
Rang De, one of the oldest P2P platforms in India, which started around 2008, disbursed around 13.20 crore in FY16. In 2012, Dipamkara Web Ventures Private Limited, a Hyderabad-based start-up working in the social lending space, launched www.i-lend.in. The company, which already has blessings of Singapore-based firm Angaros Group, expects disbursements to touch around Rs 30 crore this financial year.
"We are looking for philanthropic investors, and have been consciously shying away from entities like private equity investors," said N K Ramakrishna, co-founder and CEO.
At present, interest rates for borrowers in most P2P platforms vary between 17-20 per cent. In a typical rural-centric P2P model, a website publishes a list of loan seekers from NGOs or an MFIs. A prospective lender chooses the borrower of his or her choice, makes payments through an online platform and gets monthly or quarterly payments on the loan, with 6-8 per cent return. The MFIs or the NGOs, which are in charge of monitoring the loans, also take care of disbursements and collections at the ground level, and get about 6-7 per cent returns. The facilitating online platforms retain 2-5 per cent as their own fees. Thus, the end cost for a borrower comes anywhere between 17-20 per cent.