 "Peer to peer lending grows silently, as HNI investors see profits")
However, back home, a clutch of domestic P2P companies are not only witnessing a phase of robust growth, but are also attracting high profile individuals, both as investors and lenders.
For instance, last month, Microgram, a small P2P company, has roped in V Balakrishnan, former Chief Financial Officer of Infosys, as its chairman. Recently Milaap Social Ventures, a P2P platform raised Series A round of $1.1 million (around Rs 6.6 crore) from Singapore-based Jungle Ventures and Skype co-founder Toivo Annus. Some of the high profile investors who have joined the board the company include, Jayesh Parekh, one of the founders of Sony Entertainment Television and Hari Kumar, founding partner and CEO of LionRock Capital.
In a typical P2P model, a website publishes a list of loan seekers from NGOs or an MFIs. A prospective lender chooses the borrower of his or her choice, makes payments through an online platform and gets monthly or quarterly payments on the loan, with 6-8% return. The MFIs or the NGO, which is in charge of monitoring the loans, is in charge of disbursements and collections at the ground level, and get about 6-7% retruns. The facilitating online platforms retain 1-5-2% as their own fees. Thus, the end cost for a borrower comes anywhere between 15-16%.
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“Since 2010, we have raised nearly Rs 5.50 crore, of which about Rs 3.50 crore was raised by HNIs,” according to Rangan Varadan, founder, Microgram.
Another homegrown firm, Rang De, is now looking to raise as much about Rs 5 crore, mostly from HNIs in the next few months. In 2012, Dipamkara Web Ventures Private Limited, a Hyderabad-based start-up working in the social lending space, launched www.i-lend.in. The company, which already has blessings of Singapore-based firm Angaros Group, is looking to a raise a second round of equity of about Rs 2 crore.
Notably, even private banks are sensing business opportunity in the business of e-lending, which has hefty margins to offer.
For example, Microgram is in talks with a private bank for funding. Under the business model, the bank would act as a lender, while Microgram through its ground-level partner firm will act as a facilitator. However, a partnership with bank would shrink the margin for both Microgram and its partner, says Varadhan.
At present, a borrower at Microgram gets loan at 14.5-15% interest rate. Of this, the lender (mostly individual) gets a return of about 6%, while the field partner (MFI or NGO) gets about 6 -6.50%. The rest, about 1.50-2% is retained by Microgram as its margin. Almost all the P2P companies follow the same model.
However, according to Vradhan, the bank is seeking a margin of 13%, which not only raises interest rate for the borrower, but also leaves a petty 1-2% margin for both field partner and Microgram.
In India, Kiva, the world’s largest P2P lending platform, based in San Francisco, USA, set the ball rolling for Indian start-ups to experiment with the new P2P business model in 2012. Kiva, famous for the $25 loan (one can lend as little as $25 to a person of his or her choice anywhere in the world), has about 1,049,632 lenders and has funded about $529 million across 73 countries since it inception in 2005. In India, Kiva has been trying to evolve an India-specific business model for quite some time. The main challenge came from the Reserve Bank of India (RBI), which does not allow foreign nationals to lend directly to Indians.
Thus, Kiva had to tweak its peer-to-peer lending model. The money raised from lenders in Kiva had to come in as external commercial borrowings (ECB) to Indians. These individual loans, pooled as ECBs, had to be transferred to a microfinance agency or NGO (called field partners), who, in turn, could lend to actual micro-borrowers.