by Kanika Agarwal

Time and again, financial sector has witnessed changes that have affected the way we live irreversibly. With banks in the ecosystem, financial borrowing and investing became convenient. Money movement started infusing the growth of economy. It was expected that borrowing and lending will become easier. However, that was not to be. A large number of borrowers are still declined by banks. A large number of investors are still hungry for more returns. A large amount of money is required by some. A large amount of money is sitting idle with some. Thus, the need for alternative source of funding. The rising star in this landscape is Peer-to-Peer lending or P2P lending.

“What is needed is not more finance, but better finance.”- Martin Wolf

The impact of P2P lending was validated by traditional banks entering the fray. First, Goldman Sachs set up its own lending unit “Mosaic” for U.S. citizens, the first bank to ever do so. The report from Goldman Sachs explicitly focused on the shift of profits from traditional financing to marketplace financing. In December 2015, J.P. Morgan announced its entry into P2P lending for small businesses via an existing player – OnDeck Capital. In January, as a pilot project, funding was given to 4 million small business customers by JPMorgan through OnDeck Platform.

While US marketplace starts accepting this new alternative, in United Kingdom, government is relying heavily on P2P landscape. Recently, P2P investments have been included under tax-free regulations subject to certain riders. With this announcement, UK economy saw a huge influx of capital as well as platform providers.

When the two giants of the world, United States and United Kingdom are moving aggressively towards this financial disruption, how can India remain behind? Though P2P lending is still at entry level in India, it is moving up the curve very quickly. According to sources, 96% of small business enterprises in India don't receive funding (source) which amounts to more than 40mn rupees. How can credible, promising and budding enterprises meet their fund requirements and grow? It is peer-to-peer lending platforms which comes to their rescue. The reach is not limited to just SMEs, this financial innovation is funding different types of loans from - personal to retail. In past one year, finite number of P2P platforms have risen and are a win-win for all.

It is obvious that P2P lending is the next wave of financial disruption and slowly but surely even RBI through the announcement of a concept note inviting public feedback is recognizing this. We sure have some very interesting times ahead in the P2P lending marketplace.

Data Source: Tradingeconomics.com and redifff.com