P2P Lending in India: A Concept Ahead of its Time

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This is a guest post by an author working in the financial sector in India.

Consumer Peer to Peer or P2P lending (where consumers lend and borrow from each other with the help of an intermediary) has become an important part of the financial services sector in many countries globally. Companies like Lending Club and Prosper in the US, that only started a few years ago are now worth billions of dollars. Many success stories in the west have been replicated in India, making it a belief amongst many that P2P Lending is no different. However, as proven multiple times before, a credit business isn’t the easiest to clone and depends on multiple factors including the regulatory environment, end-user mindset towards credit and intermediaries such as credit bureaus, verification, collection and recovery agencies.

  1. P2P Lending is not regulated in India

indiaThe Indian Banking Regulator, The Reserve Bank of India (RBI) has not regulated peer to peer lending in India. This essentially means that privileges enjoyed by similar platforms globally, namely, access and reporting back to credit bureaus (like CIBIL in India); are not available to a P2P platform in India. These have important repercussions on the performance of loans originated through these platforms and can lead to suboptimal results. For e.g. if lenders are not able to see credit reports, then they will be in an inferior position compared to banks and other financial institutions to make credit assessments. Similarly, without the loan performance being reported back to the bureau, some borrowers may not feel the pressure to re-pay their lenders. Lastly, borrowers looking to build and improve their credit rating do not benefit, as their loan performance is not reported to the credit bureaus (CIBIL).

  1. Little spread between risk-free rates and borrowing rates from banks and other regulated financial institutions (NBFC’s) provides no real benefit to borrowers

A huge difference between the west and India is the difference between the risk-free rate and the borrowing rate. In the US and UK the difference between the two is as much as 12-15 percentage points. In India, the risk free rate is at over 8% and banks lend money starting at 12%. With lenders looking to make returns between 15-16%, the rate for the borrowers gets as high as 20%+ when the platform fee is also taken into account. This makes it unsuitable for lower risk borrowers who can find cheaper loans from banks and non-banking financial companies (NBFC’s). Continue reading →

Interview with Peter Schierenbeck, CMO & co-founder of Lendify

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What is Lendify about?

Lendify is the first and leading peer-to-peer lending platform focused on prime borrowers in the unsecured consumer credit space in Sweden. We have handled loan applications for over SEK 350 MM and more than 3,000 lenders and borrowers have signed up since launch in August 2014.

What are the three main advantages for investors?

  • High risk-adjusted returns.
  • Access to unsecured personal loans extended to prime borrowers in a very low-default rate market (Sweden) with many years of well documented historical data.
  • A new type of investments that further diversifies a mixed investment portfolio.

What are the three main advantages for borrowers?

  • Personalized interest rate.
  • Transparent (all interests and fees are clearly presented and available to all site visitors)
  • Simple and fast process for applying and monitoring (borrowers can log in and see status of payments etc.)

Peter Schierenbeck, LendifyWhat ROI can investors expect?

It is still early days for P2P lending in Sweden but we expect 7% on average.

Lendify received 2M EUR in funding recently. Who are the backers?

Fredrik Wallenberg, Hans Westin & Sten Schröder where the two latter have a great track record in the Swedish consumer lending space.

Is the technical platform self-developed?

Yes, everything is developed in-house.

What was the greatest challenge so far in the course launching Lendify?

Being the first in a market is great, but it also provides challenges out of a marketing and regulatory perspective. Not many people in Sweden are aware of the concept “peer-to-peer lending”, and we work hard to educate people of the concept. Continue reading →

One Year Invested in Zencap

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This is a guest post by German investor Martin R.. The article was written in April.

These days, Zencap celebrates its first anniversary. I’ve been involved right from the beginning and invested the full 10k€ you can invest without having a premium account.

Zencap – my characteristics

Zencap offers investment in corporate loans. You invest 100 EUR in one loan. The total loan is usually between some 10,000 EUR and approximately 200,000€. There are different scoring classes essentially determining the interest rates which are usually located between 5% and a little over 10%. The loan term ranges from 3 months up to 5 years, the main focus being 3 years. As the loans are instalment loans, you will usually have half of your investment plus interests available after 18 months. The nominal interest rates are decreased by 1% through fees for the investor. The loan listings are presented with a short description and have differently detailed documents attached. Some projects have personal sureties.

My experiences

are mixed. I’m rather satisfied with a yield of about 5.7% and no payment delays up to now. The payout takes place promptly after the scheduled payment at the 15th of each month. The bidding amounts are straightforwardly drawn through direct debit, however, the period between bidding and drawdown drag on very long from time to time (debiting is just before the first paying out, though). Now and then there are special promotions which increase the yield (see below). Continue reading →

Interview with Patrick de Nonneville, COO of Lendix

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What is Lendix about?

Lendix is an online marketplace for business loans, enabling investors to lend directly to prime small and medium sized enterprises. We started operating in France, making our first loans in April 2015. We’ve made 1.5M EUR of loans in our first month, and are on track for a similar number in May.We lend from 30,000 EUR to 1,000,000 EUR for 18 to 60 months with rates varying from 4% to 9%.

What are the three main advantages for investors?

We offer access to a largely untapped and high quality market, with low defaults and low prepayments. We have the same information as the banks via our Banque de France database membership. Last but not least, we charge no fees to lenders.

Patrick de NonnevilleWhat are the three main advantages for borrowers?

We’re fast, easy and transparent:

– we make offers in 7 business days and our docs are written in plain French

– we guarantee the funding of all the loans we put on the platform

– we require no personal guarantees from the company directors

What ROI can investors expect?

5.5% to 6%.

How did you start Lendix? Is the company funded with venture capital?

Lendix was founded by Olivier Goy in Q3 2014.

France was one of the first countries to lift the legal uncertainties around crowdlending and we saw an opportunity to plug the funding gap that micro and small businesses suffer from. There is a vast amount of capital available to lend, but small businesses find that dealing with banks has become so painful and distracting that they effectively don’t even start the process. Our aim is to surprise borrowers with how painless it is to get a loan.

The company’s shareholders (apart from its leadership) includes a VC, Partech Ventures. Olivier has a long standing relationship with Partech, having worked there himself, and having had Partech has one of the shareholders of the Private Equity company he founded in 2001.

We also have a bank, an asset manager, a family office and a large corporate amongst our backers.

An important point is that Olivier, myself and the other main shareholders of Lendix have skin in the game: we have committed money to our institutional vehicle and lend to every company that comes on the platform, under the same conditions as all the other lenders. Continue reading →

International P2P Lending Marketplaces – Loan Volumes April 2015

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In the chart below are the loan originations for April. I do monitor development of p2p lending figures for many markets. Since I already have most of the data on file I can publish statistics on the monthly loan originations for selected p2p lending services.
Investors living in markets with no or limited choice of local p2p lending services can check this list of marketplaces open to international investors.

P2P Lending volume 05/2015
Table: P2P Lending Volumes in April 2015. Source: own research
Note that volumes have been converted from local currency to Euro for the sake of comparison. Some figures are estimates/approximations.
*Prosper and Lending Club no longer publish origination data for the most recent month

Notice to p2p lending services not listed: Continue reading →

P2P Lending Service Lendico Raises 20M EUR From Rocket Internet and Other Investors

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German P2P Lending Service Lendico raised 20M EUR fromLendico Logo Rocket Internet, Access Industries, HV Holtzbrinck Ventures and a new investor. Lendico will use the raised capital to further develop the p2p loan and SME loan service and to invest in the marketplace technology and the team.

‘We have won another experienced strategic partner, who will join Lendico as a long term investor. Together we share the belief that in order to originate loans to consumers and businesses in future banks are no longer needed’, said Lendico CEO Dominik Steinkühler (own translation; original statement is in German language). ‘To have strong funding is an important strategic advantage in a fast growing market environment. Lendico will use the momentum and strengthen its position as a leading international marketplace lender. Together with our investors we will continue to work on breaking the predominance of banks and offer a better alternative to make loans to consumers and businesses.’ (own translation; original statement is in German language)

Oliver Samwer, CEO Rocket Internet SE stated: „We build Lendico as a digital alternative to banks, when it comes to more affordable and faster loans for businesses and consumers. In the Fintech sector we are at the begin of a development that we already experienced in E-Commerce: Incumbents are outpaced by new digital players. With Lendico we actively push ahead this process.’ (own translation; original statement is in German language)

Update: Lendico did not comment on the identity of the new investor. Unconfirmed sources say that the London hedge fund Arrowgrass Capital invested. Arrowgrass was founded in February 2008 and is already invested in Zopa.