June 20, 2015
It is estimated that India may be one of the biggest offline peer-to-peer (P2P) lending markets in the world as more than 50% of all credit is circulated amongst friends, families and communities. Online P2P lending is a new concept in India, a country dominated by banks. In the last few years, platforms like Lending Club in the US and Zopa in the UK have become popular and are disrupting traditional banking systems.
In the last couple of years, Indians have witnessed the emergence of pioneering technology-enabled P2P lending platforms such as Faircent.com, Lendenclub.com, Rangde.org, Milaap.org and i-lend.in.
Led by Rajat Gandhi, Faircent has raised $250,000 from Singapore-based M&S Partners. According to VCCircle, the deal values Faircent at $8 million. Previously in January, 2015, the firm had raised an undisclosed amount of angel funding from the promoters of Fusion Microfinance, Devesh Sachdev and Ashish Tiwari. At the time, the enterprise value was $4 million, according to The Economic Times.
M&S Partners is a financial advisory firm for IPO, M&A, operations, marketing, business development and global business expansion. The Singapore-based firm is led by Hiro Mashita.
Faircent started its operations in July, 2014 and claims to process over INR 80 lakh worth of loans every month on the platform through an open bidding model. Faircent.com is catering to the increasing and substantial urban middle-class, both as a source of cheap credit and a lucrative investment option.
This is not the first time that a Singapore-based firm has been interested to invest in an online peer-to-peer lending platform. Another major online P2P lending platform i-lend.in had earlier raised INR 7.5 million from Singapore-based Angaros Capital.
According to data compiled by BankBazaar.com, personal loan rates in Indian banks can vary between 13.5% and 22% with a minimum application amount of INR 50,000 for some banks. There are willing borrowers in India who have to pay much more for personal loans in spite of having decent credit worthiness. Online P2P lending platforms are expected to make things easy for borrowers and willing investors. It is expected to create a win-win situation for both parties involved.
Until now, the central bank in India (RBI) has not regulated peer-to-peer lending in India. Although there is something called a CIBIL Score in India (like the FICO Score in US), the awareness is very low. A large number of borrowers do not have a CIBIL Score. This is a major threat for the P2P lending market in India as systems are not transparent. A classic example is China’s P2P lending market. P2P lending platforms in China had grown from 50 in 2011 to 1575 in 2014 because of the lack of stringent regulations. The region has also witnessed explosive growth in the number of frauds. More than 270 platforms failed in 2014 with investors losing their money. The same might repeat in India if authorities do not come up with regulations pertaining to peer-to-peer lending.
GrowthPraxis estimates the unorganized personal loan market to be around INR 2 lakh cores including loans against gold and credit cards.