Non-performing assets or NPAs have been making the headlines of late as bank after bank reel under the burden of bad debts. The numbers are staggering and unheard of in a country like India, which is known to maintain a tight ship when it comes to financial institutions. Consider this – the gross NPAs of listed companies have touched Rs 5.91 lakh crore as of March 2016 and as many as 14 banks have suffered huge losses. India's has $121 billion bad debt problem and about 90% of it is on the books of state-owned banks. Some estimates show that our bad debt situation is almost the size of the $ 170-billion New Zealand economy.

Why did we let this happen? This is because despite having safeguards, financial institutions often fall prey to the same old trick of making a quick buck. So, the big question is how can P2P sites guard against bad loans?

More Tech – Tech underpins a P2P site and can be a big factor in preventing bad loans. One of the biggest factor in lending is the fact that there are many variables involved - the credit history of the borrower, to economic conditions – there are a number of factors that can lead to bad loans. This is where tech can play a significant part in assisting individuals in making the right lending decisions. At Faircent we have built a very robust tech-enabled, under-writing and credit-assessment mechanism which differentiates us from the rest.

More intuitive – Today, complex algorithms can look at thousands of data points to capture the best picture of a borrower. From social networks, to lifestyle behaviors, each and every data point has some valuable information about a borrower. The ability of a P2P site to make sense of that data, pick up parts that are relevant and use it to arrive at a lending decision can successfully prevent bad loans.

Real time – One of the biggest problems with lending is the duration of the loan. Generally, a few years are involved and within that time frame a borrower’s profile may have changed. For example, a borrower may lose his job, acquire a medical condition among a host of other events that may have an impact on his or her repaying capacity. A person’s life is not static and a P2P site that has the ability to track key events on a real time basis and red-flag certain events, can go a long way in preventing bad loans. There is then the question of boom and bust cycle that every economy goes through. The world has become an uncertain place economically after 2009 and P2P lending needs the robustness in its operations to deal with such economic cycles. At Faircent, we realize that P2P platforms need systems that can deal with such cycles and maybe even predict the occurrence before it actually happens.

Less human intervention and less subjectivity – As far as possible, key aspects of lending should be automated so that there is as less human intervention as possible. This leads to less subjectivity for the platform to exercise and the decision to lend or not lend finally resides with the lender. For a platform the absolute and only responsibility is to ensure a fair and accurate picture of the borrower and that is possible when the systems and processes have the least amount of human intervention.

Checking greed and robust reporting – Why is it desirable to have the least amount of human intervention? That is because a person is susceptible to greed and falter. From the housing mortgage crisis of 2009 to many other banking collapses around the world, human greed to maximize returns through any means has led to inexplicable pain. Checking greed and building robust reporting systems is paramount to prevent bad loans in the sector.

P2P across the world is at an interesting crossroad. With RBI announcing guidelines and bringing the sector under some prudent regulations, all eyes are set on this sector to lead India into the next round of growth that includes all strata of society. Responsible P2P lending sites like Faircent are committed to ensure the same by providing the best to their lenders and borrowers.