P2P Lending Market Will Give Serious Competition To Existing Financial Institutions: Raghavendra Pratap Singh, i2iFunding
Tell us a bit about the peer to peer lending market in India. Do you see it evolving and maturing in the next few years, and why?
P2P Lending Platform in India is still very much in its nascent stage when compared to other countries like US, UK and China where it has grown to become a multibillion-dollar industry. In India, its a relatively new concept and it will take some time before it reaches its full potential.
RBI has already come up with guidelines last year on 4th Oct 2017 to regulate this sector. As per master guidelines issued by RBI all P2P Lending platform will have to register as NBFC-P2P Lending with RBI. RBI regulations have made this industry a credible alternative financing model, which will give serious competition to existing financial institutions through its innovative solutions.
When i2iFunding started its operation as P2P Lending platform in late 2015, there were merely 2-3 P2P players. But over the last couple of years, this market has witnessed a significant growth and awareness. Currently, we have close to 20 P2P Lending players operating in the India market. Moreover, the loan amount is disbursed every month through P2P lending platforms stands at 10-15 crores in Indian Rupees presently which was below Rs 1 cr just a couple of years back. i2iFunding, itself, disburses loan amount around 1 to 1.5 crores a month, a giant leap from a mere figure of 8 to 10 lakhs back in 2015. P2P Lending is transforming the way people used to take personal loans. It has become significantly easier to get a business/personal loan from a P2P lending platform than any bank or other financial institution. With the recent guidelines of RBI, P2P lending platform in India aims for a greater structured growth.
As a platform, do you simply connect lenders or borrowers, or do you assume the default risks too?
All p2p lending platforms in India are now governed by RBI and they must follow the operational guidelines issued by RBI strictly. As mentioned in the guidelines, platforms cannot assume default risks.
What has been your experience with respect to the creditworthiness of individuals who borrow using P2P platforms? What's your NPA rate?
Currently, we are giving loans to salaried employees from tier-1 cities and self-employed or small business owners of Delhi NCR. Most of the borrowers who apply for loan our platform are subprime borrowers who are either new to credit or who have some issues with their credit score. But with use of technology and alternate data points, we are able to analyse creditworthiness of borrowers in more efficient and faster way. On the average out of 100 applications, only 8-10 get approved.
Initially, our NPAs were bit higher, in the range of 5-6% but after we implemented our automated credit evaluation model, it has come down to 3%. We are expecting it to go further down, once.
Anecdotal evidence suggests that Chines investors are showing a supernormal interest in the P2P lending space. What are your thoughts on this?
In the recent past, more than 6000 P2P Lending platforms were recorded in China, out of which, only 1883 platforms were able to continue operating by the end of March this year. Due to these changes in the Chinese regulatory norms and their economic clampdown, many Chinese investors, realizing the growth trajectory in the Indian economy, are looking towards investing in the Lending industry in India. The Chinese investors have started evaluating various online lending models in the country and P2P Lending is one of them.
With the Reserve Bank of India coming up with the regulations to regulate the Indian P2P lending industry, it is poised to grow significantly in next 5-10 years. Investments from Chinese investors have the potential of giving the sector a major boost. Dedicated P2P industry players are expecting a huge economic upswing from the forthcoming Chinese investments. Instead of just pouring in investments, most of the Chinese investors are also seeking partnership opportunities with Indian P2P Lending platforms, as the Indian ecosystem offers better and clear growth opportunities with early intervention by Indian regulator.
At i2ifunding, we have already had meetings with five Chinese companies out of which three of them are already running successful P2P Lending companies in China. Three of those companies have visited our office and one is expected to visit us in the coming week.
Lastly - what's your business model? How do you earn revenues, and what are your projections for the next five years?
We charge processing fees from both Investors and borrowers. Registration fees for Investors are Rs 500 plus taxes and 1% of the investable amount and applicable taxes thereon which is among lowest in this industry. Borrowers must pay a one-time registration fee of Rs 100 plus taxes. If the loan is approved then, the borrower will have to pay processing charges which vary as per the borrower's risk category and nature of employment. For salaried borrowers, the minimum applicable loan processing fee is Rs 2,000. For the most creditworthy borrower-classified in the category "A"; the loan processing fee can go up to 3% of the loan amount. For the least creditworthy borrower-classified in the category "F" the maximum 6% loan processing fee can be charged. For self-employed borrowers, processing fees range from 4% to 8%. Borrowers don't have to bear any prepayment penalty. Serious users don't have any issue in with the charges levied by us.
India's P2P Lending sector is poised to grow at a rapid pace thanks to favourable demographics, rising computer literacy, internet connectivity and the ongoing wave of digitalisation among others.
After working continually to tighten up our risk processes and understand the market better, i2iFunding is gearing up for a leapfrog jump now. We have crossed the monthly disbursal of Rs 1 Cr and we have set a realistic target of achieving 20-25 times growth over next five years. We are targeting to have a loan book of more than 500 Crs within next 5 years.
We currently have investors from across the country; however, borrowers are mainly from few metros. We want to have a significant presence in all major cities in India in the next five years.
We would also like to add more resources to our existing team especially in sales to meet expansion target. We have already opened one small office in Bangalore and are planning to open more offices in South India, as we have a lot of customers coming from that region.
