Faircent.com, India’s largest online peer-to-peer lending platform, has released its Research and Analytics Report for Q1 2017 with insights drawn from key trends on the platform with respect to lenders, borrowers, and the overall performance of loans as of April 2017. 

• 90% of the lenders on the platform beat defaults and earn gross returns of 18-26% per annum
• Lenders are making higher returns at lower volatility by investing more
• By reinvesting their month-on-month returns Lenders are enhancing their net returns earned
• Younger borrowers have lower payment default rates than the platform average; data also pegs female borrowers to be more prompt with their repayments than male borrowers

With higher returns, P2P lending is attracting a large number of millennials – 60% of the lenders on the platform are less than 35 years old. Lenders are investing more and those with investments worth more than INR 5 lakhs are earning gross returns upwards of 22% per annum with the lowest volatility of returns. Significant increase in timely repayment has led to increase in reinvestment of returns back on to the platform leading to further increase in returns.

Mr. Vinay Mathews, Founder and COO, Faircent.com, commented on the report, “Online P2P lending provides investors much higher yields than investing in stock markets, mutual funds/SIPs etc. with better risk mitigation, which is why it is emerging as a highly attractive and lucrative asset class for Indian investors. Our Q1 report is aimed at providing current and future lenders associated with Faircent.com with a much better understanding of the online P2P lending landscape. This will help them make the most appropriate investment decisions according to their risk appetite and return expectations. Insights gained from key consumer trends and behavioural patterns will also help in creating better and more relevant products.”

Key Trends:

Lending

Based on the investment behavior of lenders on Faircent.com, some strongly validated trends are:

• Top performing lenders (as defined by loss adjusted net annualized returns) on the platform had higher investments over longer investment period and lower average investments invested across more borrowers.
• Top performing lenders on the platform maximized their returns by diversifying investments across different credit score brackets, risk buckets, etc.
• Almost 90% lenders on the platform earned a gross return of 18% to 26% per annum.
• Amongst lenders making investments of over INR 5 lakhs, 71% earned more than 20% Net Annualized Returns (NAR). This lender demographic also had no negative returns.
• For lenders making investments of less than INR 1 lakh, 63% earned more than 20% NAR while 13% made negative NAR.
• For lenders making investments of between INR 1 lakh and INR 5 lakh, 66% made more than 20% NAR while only 7% made negative NAR.
• Volatility of returns was highest for lenders who had invested up to INR 1 lakh, and reduced significantly as the investment amount increased. Lenders investing more than INR 5 lakhs had minimal volatility of returns.
• Increase in reinvestment also led to enhanced net annualized returns for the lenders owing to the compounding and diversifi­cation bene­fits.

Borrowing

• Debt consolidation & business funding were the top reasons for online borrowing.
• 35% of the borrowers were between the ages of 30 to 34 years, 30% between the ages of 25 to 29 years, and 5% between the ages of 20 to 24 years. Only 10% of the borrowers were above the age of 40.
• Single women borrowers made the timeliest repayments.

Millennials are the most active lender and borrower demographics

One of the key trends that the report highlights is the adoption that P2P lending has received amongst younger consumers, who have been the fastest to adapt to this digital disruption and are making the most of it. Most lenders on the platform were young, with 51% belonging to the age bracket of 30 to 39 years. About 36% of lenders were over 40 years, while 13% were below the age of 30 years. A similar trend was evident among borrowers as well, with nearly 75% borrowers listed on the platform falling in the age group of 25 to 34 years. The report also identified younger borrowers as the most responsible segment when it came to repayments, with lower payment default rates than the platform average.

Repayment trends and reinvestment benefits

A consistent and smooth repayment trend represented timely EMI repayment by borrowers, which validated Faircent.com’s efficient operational, collections, and underwriting processes to gauge a borrower’s eligibility and credibility. This led to an increase in trust amongst lenders on the platform, which in turn drove a significant increase in the reinvestment ratio. Reinvestment of returns by lenders was observed to reap great dividends; platform lenders with a reinvestment ratio above 100% generally registered net annualised returns upwards of 25% pa, thanks to greater compounding and portfolio diversification.

More diversification, better returns

Volatility of returns and net returns were observed to be affected by the amount invested by individual lenders in the Faircent.com report. Amongst lenders with investments over INR 5 lakh, 71% earned a net annualised returns (NAR) of more than 20%, while 24% earned a NAR between 10% and 20%. Interestingly, no lender in this bracket earned negative returns. This was attributed to portfolio diversification benefi­ts, which enhanced the rate of returns for lenders by reducing their credit risk exposure. The volatility of returns was observed to increase as the amount invested decreased, with the lender bracket with investments less than INR 1 lakh witnessing the highest negative NAR of 13%. 

Click here to view the full report:

https://www.faircent.com/sites/default/files/Portfolio_Newsletter_Rev_apr.pdf

Click here to read media reports:

http://economictimes.indiatimes.com/small-biz/money/over-90-lenders-in-p2p-lending-earn-gross-returns-of-18-26-per-annum-faircent-report/articleshow/58789339.cms