PEER POWER
Business Today India|July 23, 2023
PEER-TO-PEER (P2P) LENDING PLATFORMS HAVE GAINED IN POPULARITY BY ENTICING USERS WITH ANNUAL RETURNS AS HIGH AS 12 PER CENT. BUT INVESTORS NEED TO EXERCISE CAUTION BEFORE DIVING HEADLONG INTO THIS TO AVOID UNPLEASANT SURPRISES
TEENA JAIN KAUSHAL
PEER POWER

NOIDA-BASED AKASH GARG has built a fairly diversified investment portfolio. From fixed deposits to gold, to equities, and real estate, his investments span various asset classes. But he is always on the lookout for alternative investment avenues beyond the traditional ones-options that can offer him higher returns within the boundaries set by regulators, of course.

So, when a friend introduced him to peer-to-peer (P2P) lending a few months ago, he was intrigued. This is a method by which an investor lends directly to borrowers, but unlike with the moneylenders of yore, there is an added layer of a technology-powered intermediary to facilitate this transaction.

Excited, Garg signed up. "While my fixed deposit provides a return of 7 percent, the P2P lending platform offers me a return of up to 12 percent, along with the added advantage of free withdrawals anytime," he says.

In simple terms, P2P lending is a transaction in which a person lends to another person through a Reserve Bank of India (RBI)-regulated non-banking financial company (NBFC) platform. Borrowers apply for loans on these platforms instead of traditional banks, and they are matched with individual investors willing to lend. The platforms act as intermediaries, facilitating this transaction and managing repayments, and charge a fee in the range of 1-3 per cent for their efforts.

For an investor, a P2P platform offers a potentially higher rate of return than a fixed deposit with a bank, though it does not guarantee this. The platform also identifies and vets the borrower. For the borrower, the platform provides an alternative source of funds with potentially fewer hassles than the elaborate process required to access funds from a bank.

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