Lending on peer-to-peer platforms is fraught with higher risks

Investors can earn as much as 12-36 per cent, but limiting the amount to each borrower will help contain losses

Peer-to-peer or P2P lending has emerged as an alternative option for investors who wish to earn higher rates of return than what traditional fixed-income instruments can offer. However, lending on these platforms also entails higher risk, which investors need to be aware of before venturing into this relatively new investment avenue.

Though P2P lending has been around for four-five years, it gained impetus after the Reserve Bank of India (RBI) came out with guidelines on P2P lending last year. The government recognised P2P players as Non-Banking Financial Company-Peer to Peer Lending Platform (NBFC-P2P). They are to act as facilitators or intermediaries