Peer-to-Peer Lending

Subject – Economy

Context – Fintech platform CRED has launched a peer-to-peer lending feature called CRED Mint.

Concept –

P2P lending is a form of crowdfunding; an online platform that matches lenders with borrowers in order to provide unsecured loans. The borrower can either be an individual or a business requiring a loan. A fee is paid to the platform by both the lender and the borrower.
P2P lending is not a new feature. In 2017, the Reserve Bank of India had brought this service under its regulatory purview.
In P2P lending, users sitting on idle money provide loans to potential borrowers identified by the service provider. These lenders then receive payments from the borrowers on a set basis — either one time, or in equated monthly instalments.
Some of the major companies operating in this space include Rupee Circle, Finzy, India Money Mart, etc.

Risks associated with P2P lending –

One of the biggest risks associated with this kind of lending is the non-repayment of loans.
Given that P2P lending is a form of unsecured loan, there is no guarantee put up by the borrower for the lender to redeem in case of a default.
However, the unsecured nature of the loan is also the reason behind the high return on investment compared to other debt instruments.