Peer-to-peer lending, also referred to as P2P lending, is an alternative financing method which allows individuals to avail loans from other individuals through online lending platforms. Through these platforms, borrowers who seek unsecured personal loans can get in touch with investors who are willing to lend to them with the intention of earning a higher return on their investments. The P2P lending platforms let investors go through a list of verified borrowers and their details before they lend to them.
Lenders can diversify their investments by lending to multiple borrowers in small amounts. Also known as crowdfunding or social lending, P2P lending is gradually gaining popularity among borrowers and investors in India.
P2P lending is done through a website that connects borrowers and lenders directly. Those who want to lend money, open an account with a P2P platform as a lender. And those who require a loan register themselves as a borrower.
These platforms then evaluate borrowers on various aspects. They don’t limit their evaluation to just credit scores. They perform their checks, including the borrower’s employment, income, credit history, etc. Not just that, using technology extensively, these platforms also capture borrowers’ habits through social media activities, app usage, etc.
Since P2P lending is a form of well, lending, it comes under the Reserve Bank of India (RBI). RBI has set guidelines around how P2P lending platforms need to work. For instance, any company which wants to offer P2P lending services need to register for an NBFC-P2P license from the RBI