The latest buzz in the micro finance sector is p2p lending and borrowing.
With interest rates, particularly for personal loans on a steep upward climb, is this the right time for peer to peer loan organizations to get going?
Definitions first. Peer to peer lending is like borrowing from friends and family. The Internet enables the circle to expand beyond just friends and family. The premise is simple; get together a set of people willing to lend small amounts and a set of those who need to borrow small amounts. Have them state their need and their ability to repay. Now have the investors bid for the business at a rate they specify. You need not bid for the whole amount that a borrower needs. You can bid to fund a part at a rate you specify. The lowest rate bids are combined to fund the borrower .
The lending company enables the transactions, does credit verifications and works as the actual intermediary.
This area is currently buzzing with activity.
kiva.org is active in the social sector and tries to do loans that change lives. Most of the loans are to small entrepreneurs in Africa and the site currently claims to do a loan every 14 seconds.
YES-secure.com is active in UK.
While Prosper lets prospective borrowers define what interest rates they are willing to pay, Lending club assigns ratings and associated interest rates to loan requests.
While Prosper lets prospective borrowers define what interest rates they are willing to pay, Lending club assigns ratings and associated interest rates to loan requests.
Circle lending became Virgin money
Greennote.com and Fynanz.com focuses on student lending
and Wiseclerk.com is a forum for tracking and discussing various P2P lending organizations and operating on them.
That brings us to our question: Is the time ripe for P2P loan operations to start up in India?
My guess is that they would be classified as NBFC's (Non- Banking Financial Companies). The biggest challenge in starting up would be in getting and publishing credit ratings. Would one or more banks be willing to back end P2P lending companies and provide them with not just funding, but also credit rating information?
Are you interested to be an early mover in this area?
