Interest rates on bank deposits are at a decade low, and those on small savings schemes are close to a 40-year low. This has forced people to look for alternatives, one of which is peer-to-peer, or P2P, lending. Globally, P2P lending has been around for a decade, starting around the 2008 financial crisis. However, in India, it started four-five years ago, but without guidelines or recognition from regulators, which limited its popularity. However, last year, the Reserve Bank of India, or RBI, came out with regulations on P2P lending. Since then, it seems to have picked up pace.

First, let us understand what is P2P lending. As the name suggests, it is lending of money by one person to another with the helo of a collaborator, which is a fintech company. It works under a crowdfunding model where people who want to invest deal with borrowers directly on P2P online platforms created by fintech companies. The government recently gave these P2P players the status of non-banking finance companies, or NBFCs, to act as facilitators or intermediaries. They cannot lend money or take deposits or provide credit guarantee.

"An important benefit of P2P lending is that it gives lenders the autonomy to take decisions on their investments. With the help of transparent data, freely available on the platform, lenders can take informed decisions with respect to building their portfolio. The more diverse the portfolio, the lower the risk. Investors can mitigate risk by investing smaller amounts over large number of loans and choosing borrowers with varied risk buckets, backgrounds and purpose," says Rajat Gandhi, Founder and CEO, Faircent.com.

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