The Peer-to-Peer (P2P) lending market in India is witnessing a sudden traction with investors getting average returns of 13%. Traditional investment options have of late been not able to satiate the thirst of investors looking for double-digit returns. As a result, the P2P platforms have seen a rise in the number of registered lenders. LenDenClub is an RBI registered NBFC-P2P lending platform, which together investors and borrowers on a single platform. In an interview with Money9, Bhavin Patel, co-founder and CEO, LenDenClub, talks about how the business has fared in the midst of Covid-19 mayhem and the various risks involved along with the various features of the P2P model.
Q: It’s been one year of the pandemic phase in India. How has been the business till now?
Bhavin: By the end of FY21, LenDenClub platform registered a voluptuous growth of 900% and 166% among investors and borrowers respectively as against FY20. Whereas a more tightened credit screening mechanism helped us to put a drastic check on our NPAs’ which was reduced by 32% and brought down to 3.94%. In terms of numbers, we are doing 7 times more today vis-à-vis 15 months back at around 80% of the headcount then. This is big proof of how seamlessly we have adopted technology to our advantage and grew through the challenging pandemic period.
Q: There were reports of harsh recovery measures during the first wave of Covid-19. How is the second wave different? Have there been any defaults?
Bhavin: Defaults have always been a part of the lending business. The intensity changes based on economic cycles or during crises like covid-19. So far, we are in a good position due to our belief in technology & our advanced credit algorithms. We survived the first wave of covid successfully when it had hit us last year. However, it was more challenging as it was an unprecedented event. This year, it will be better than last year as we already have a playbook to follow. Different covid-19 waves may be challenging as there could be lockdowns during each wave. However, this time as well as in future, it will be more predictive; unlike 2020 one. At this moment, we foresee the little impact on loan repayments. However, those are already factored in loan RoI. We expect an almost nil impact on investors’ returns.
Q: Why do you think P2P business is growing as an alternate asset class for the investors?
Bhavin: Peer-2-Peer Lending or P2P Lending is an alternative asset class growing globally, which offers as much diversity and choice. The concept in itself is not new, however, its potential and reach has increased drastically over the last some years. Thanks to the digital push and technological upgrade of retail and HNI investors, they are able to understand new investment classes much faster.
Offering investors an average portfolio 13% XIRR in the last FY, P2P lending is today emerging as one of the most potential alternative investment asset classes. It is performing way better than other fixed-income investment options such as — fixed deposits, mutual funds, etc.
Q: What are the profiles of the investors on your platform, the average amount they invest, and the average range of returns they have made in the past year?
Bhavin: At LenDenClub, investors belonging to the 31-45 years of age bracket dominate the platform for its majority investment volumes. They are typically the mid-age, tech-savvy, population with the financial aptitude of investing money digitally. Salaried professionals along with CXOs to mid-managerial level topped the chart as investors on the platform. While investors on our platform invest anywhere in the range of Rs. 500 to Rs.40,00,000, the average investment amount has been more than a lakh rupees. These investors have been enjoying an average portfolio return of approx. 13%.
Q: There are other avenues available why should one opt for P2P lending to get a credit facility?
Bhavin: India is a vast market, and accessing credit facilities is still a distant dream for many people in the country, especially in tier II, III and rural regions. Consider the case of Gold loans – there are reports that private gold lenders are demanding more collaterals for offering loans to the borrowers and their rates are also exorbitant. The real reason behind this is the unavailability of the legitimacy of their business. In the current time, not everyone will have enough gold to avail credit from the gold investors. In such a scenario, it becomes a better option for loan seekers. Additionally, one need not have to step out to any branch to avail loan. One can get the credit facility simply by applying from a smartphone.
Q: How much is charged from the borrowers and the investors for the services offered?
Bhavin: There are several charges at all stages. However, looking at a business model level, we charge 2% to 5% processing fee from borrowers and 2% fee from investors when they earn their interest income. These rates are return connected. If they get higher returns, we get higher fees. If they earn lesser returns, we make less money. In short, it’s linked to loan performance on the platform.
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