I started some companies, sold some, some got bust and finally had some substantial amount left in my bank account. I have to be honest, though I never really saved money or blow it off while in job, but this was a windfall by my standards and I looked to park my money and earn some decent interest from it.
Plus this starting companies and selling them or bearing their failures was too much for me and after being worn down by work, I looked around to see where to invest my money and earn without substantially doing anything!
As you know from my previous post, after a lot of searching around and getting inspired from Mr M’s success, I zeroed on to private money lending or P2P lending which can give a smashing 24-36% interest rate!
As discussed i-lend, loanmeet, faircent, lendbox,lenden etc are some of the leading p2P portals in India which help borrowers meet the ones who have excess funds at their disposal. But the closer I looked, the messed up it all seemed. These web portals don’t take any responsibility of debt repayment, they at best have a RBI approved recovery agency on contract! Like i-lend has stated this very clearly on their website, “ i-lend is only a marketplace connecting borrowers and lenders to facilitate a loan transaction between them. i-lend does not guarantee borrower loans nor does it guarantee repayments to lenders“.
This can be easily seen on the disclaimer put up on other such websites. The fact that they are not regulated makes it harder for them to look for better recovery efforts those available to banks and NBFCs.
The borrower is asked to sign a promissory note which is just a contract between a buyer and seller, and in my experience once your borrower has defaulted, it won’t be easy to recover the dues exercising this option. None of the existing P2P portal is becoming a part in this process and that’s a worry, because once your borrower has defaulted, practically you are on your own.
Putting up a portal with borrower and lender dashboards is pretty easy. That’s simple application in PHP. But, forming a P2P portal shouldn’t be just that ! To look more than just that, the existing portals in India have resorted to some fancy integrations for example, using Yodlee, Perfios or partnering with Lenddo etc. Though it may seem all tech and sophisticated to you, here is the thing.
The trouble is Yodlee is not adjusted for Indian markets, and at best is suitable for short term loan repayment predictions or read payday loans here. Perfios is good(in fact great!) if you want to extract borrower\’s bank account statement alone and look into that, but gives limited insights (I know, seen their both raw XML and processed PDF version). Lenddo uses social data and other non traditional data points to analyze the borrowers, but I for one doubt this evaluation method, as Lenddo initially used to finance based on its algorithm, then wound up their business in Jan 2015 and started selling its software as a service to other lenders!! Was it bogged down by defaults ? How reliable is your social network? Read more about them here.
Then again, all these P2P portals charge money/fees upfront for listing your requirements and then a success fee both from lenders and borrowers . In terms of business, that\’s a no brainer! In fact, where is the risk in that for the P2P portal? There is no correlation between successful loan repayments on the platform and portal’s revenues limiting the portal’s incentive for successful loan repayments through its portal.
Using post dated cheques alone will not solve the issue of defaults. When I was in bank, I used to see a lot of creditors hanging around with unpaid cheques. At best, you can reach to courts and then there is that long court procedure taking the incentive of investment away. The loan repayments should go through the portal itself and borrower selection should be prudent much like on the lines of LendingClub. I haven’t come across any loan defaults data shared by any of the portal on their websites and going by how tough times the bank are having, this picture can’t be that good.
Then again, if you see their global counterparts like ZOPA, they take some part of their profits in a fund to help the lenders whose loans have been defaulted by the borrowers, giving some sense of responsibility on their part. Apart from LendenClub.com, none has this functionality and even for LenDen, I can’t comment since it just rolled out this functionality.
Most important of all, do they know how to evaluate the borrowers? Almost everyone of them is saying about how only 10% of the borrowers who apply for loan get approved to be listed on their profile. But, how do they assess that?
Consider this statement written on i-lend, “While i-lend is not provided official access to Credit scores we have done one better and have developed a methodology through a partner company which scores people on their social behaviors. So by looking at their behaviors across various social media like FB , Linkedin, Google + etc we now assign a credit score and this credit score has been matched with existing credit scores from the bureaus and comes out favorably” !!
That again setting individual interest rates is not done by the lending platform, but it depends on the market dynamics ! A rate at which lender and borrower agrees to, truly a case of ‘Democratizing loans’.
Add to this the fact that RBI still hasn’t given its mandate on P2P portals forcing VCs to just wait and watch the game from the sidelines. This limits investment and hence innovation on their part. But, some of the best brains are working on these portals and you never know, someone can pull a Lendingclub or ZOPA here.
Till that time, I am happy keeping my money under my mattress.
Disclaimer: Neither I nor my company is competing anywhere with P2P portals in India.