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Investors earned 12% on LenDenClub’s P2P platform since July 2022, says Co-Founder Bhavin Patel

Investors earned 12% on LenDenClub’s P2P platform since July 2022, says Co-Founder Bhavin Patel

In an interview with BT, Bhavin Patel, Co-Founder and CEO of LenDenClub, talks about how P2P lending works and its expected growth

Teena Jain Kaushal
Teena Jain Kaushal
  • Updated Jul 13, 2023 11:24 AM IST
Investors earned 12% on LenDenClub’s P2P platform since July 2022, says Co-Founder Bhavin PatelBhavin Patel, Co-Founder and CEO of LenDenClub, a P2P Lending NBFC

While FDs are offering you around 7-9%, P2P lending platforms earn you as much as 12 per cent. Bhavin Patel, Co-Founder and CEO of LenDenClub, a P2P Lending NBFC, talks to Business Today about how the platform works and what one should consider while lending and borrowing on it

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BT: What returns can one expect from investing on P2P platforms? Do the promised returns change midway? 

BP: The returns that can be earned by investing in a Peer-to-Peer (P2P) lending can vary for each platform. At LenDenClub, investors have earned up to 12% per annum returns since the launch of FMPP in July 2022 and the average returns earned in March were 11.91%. In general, across platforms, an investor can each 9–12% based on the investment tenures of the loans.  

BT: How does P2P lending work?  

BP: In simple words, P2P lending is when an individual/company gives a loan to another individual/company via RBI regulated NBFC-P2P (P2P lending) platforms. Instead of borrowing money from a traditional bank or financial institution, borrowers can apply for a loan through a P2P lending platform, which then matches them with individual investors willing to lend money. P2P lending platforms act as intermediaries between borrowers and investors, facilitating the loan process and managing the repayment process.  

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BT: How are lenders and borrowers matched?   

BP: At LenDenClub we deploy robust AI and ML algorithms to provide lenders’ funds to creditworthy borrowers. The technology helps hyper-diversify funds to as low as Re 1, which tremendously mitigates risk while enabling the lender to earn high returns on their investment. For example, if Rs 1 lakh is divided into 50,000 loans with just a Rs 2 exposure per loan, it will not impact on the returns of the portfolio. These borrowers and lenders are matched based on the tenure of the loans and if there are any other criteria set by the lender/investor.  

BT: What happens if one defaults on payment?   

BP: As mentioned above, LenDenClub uses robust technology to hyper-diversify funds to as low as Re 1 which has been a boon for investors as the funds invested by individuals get diversified into a vast pool of borrowers, owing to which the default rate decreases drastically. So, even if a borrower defaults, the amount invested in them would be so low that it would not greatly affect the overall returns that the investor would receive. This helps them enjoy strong risk-adjusted returns while protecting their money against unpleasant surprises brought on by default borrowers. 

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BT: What fine prints of P2P lending should an investor know before selecting a platform?  

BP: Before investing, the investor’s top priority should be to ensure that the P2P lending platform is registered with the Reserve Bank of India (RBI). Additionally, it is important to thoroughly research the platform’s track record, reputation, NPA disclosure under portfolio performance page and customer reviews. A trustworthy platform should offer transparent information about borrowers, including credit profiles, loan purposes, and interest rates. Clear disclosure of fees, charges, and potential risks is essential. Evaluating the platform's default rate and confirming whether it allows diversification of investments across thousands of loans are also crucial considerations.  

Also read: Rise of P2P lending platforms: Why users need to exercise caution before diving into it

BT: Under what scenarios does an investor lose his or her money? Is it a fully regulated space?

BP: All investment assets are subject to different risk levels. P2P lending entails the risk of borrower default, or the borrower failing to make interest and/or principal payments. A P2P platform can help lenders recover money if a borrower defaults and can also take legal action against the defaulter. However, sometimes it may not yield any result. The investor might lose that sum or all of their investment in such a case. Fraud, platform failure, and a lack of liquidity are additional risks. All these three risks persist in every P2P lending platform, but it is important for investors to understand how the platform is mitigating the risks. Hence, it is advisable to invest in a P2P platform that is registered with RBI, having NBFC-P2P license and adheres to all regulations 

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BT: How has P2P market evolved over the years?  

BP: The P2P lending market in India has evolved from being a relatively new concept to a regulated and thriving industry. As the investment landscape has experienced a change in the way wealth creation is approached, investors are looking for ways to increase their returns. Initially it was pursued as just a new experiment. However, now, they have started considering it as an essential part of their portfolio. It helps them achieve almost 1-1.5% higher return at their overall investment portfolio level and the numbers too suggest the same. Till date, across the P2P lending platforms, at least 30-35 lakh investors have opened their investment account. It might look like a smaller number compared to mutual fund investors. However, it is a big number if treated independently. All P2P lending platforms in India, would have invested approximately Rs 20,000 crore worth of loans and an outstanding combined AUM of approximately Rs 4,000 crore. That also suggests a fast growth of the sector. These numbers also suggest that 80% of the invested money on P2P platforms have gone back to their investors. It’s a big achievement, isn’t it?  

BT: How much is the industry expected to grow?  

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BP: The Indian P2P lending market is expected to grow to Rs 75,000–80,000 crore worth of origination by 2025; however, I believe that this will happen before 2025. It has already reached a point where the future growth will be much steeper and easier. LenDenClub has a growing customer base of more than 85 lakhs and soon we will reach the 1 crore mark in terms of the number of users. At an industry level, we expect P2P lending platforms to reach the 1.5 crores mark (which is 1% of Indian population) by the end of 2024.  

Published on: Jul 12, 2023 5:42 PM IST
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