After pay cuts in corporate sector, youth look to P2P platforms for loans

Amid cuts in salaries in the corporate sector, the demand for loans in peer-to-peer (P2P) lending platforms, which serve mostly subprime borrowers, has increased dramatically.
 

However, with businesses defaulting, lending has significantly slowed.
 

Much of this demand is from young salaried professionals, who are facing pay cuts now.
 

With no upper limit, interest rates in this sphere can go as high as 35 per cent. However, even with high interest rates, many investors are turning down loan proposals.
 

“As there is a lot of delay in salaries, the demand for loans has substantially increased from salaried people, mostly younger professionals who are outside their hometown. In addition, we are also witnessing high demand from small businesses,” said Ekmmeet Singh, chief executive officer, Lenbox. The company is able to meet only about 60 per cent of the demand, and most of the lenders prefer giving loans to micro, small, and medium enterprises (MSMEs).
 

For salaried people, close to 50 per cent of the proposals are being rejected.
 

Also, many P2P platforms have voluntarily extended the moratorium to loans. Notably, P2P platforms only act as a marketplace, while loans are given by lenders individually.

“Queries for loans have increased dramatically. The demand daily has increased two times. While there are investors in the market, it is the question of cash flow. For March, equated monthly instalments (EMIs) have been partly affected. In our system, only 20 per cent of borrowers have availed of the moratorium,” said Amit More, founder, Finzy, a P2P platform offering loans for a longer tenure of 36 months.
 

The defaults are more in the case of loans with a shorter tenure and those that require monthly or quarterly repayments.
 

While many urban-centric P2P lenders have been witnessing more than a 50 per cent default rate over the past month, defaults for rural-focused lenders have been only about 20 per cent.

“There is a severe decline in collection. However, for a rural-centric platform like us, the scenario is much better. Our April collection is 80 per cent. On the supply side there are constraints,” said Rajiv M Ranjan, founder and chief managing director of PaisaDukan.

Before Covid-19, P2P lenders were almost immune to slowdown. A sunrise sector in the Indian financial sector landscape, it has grown more than 10 times in the past one year.
 

According to Rangan Varadan, co-founder of Microgram, while defaults in rural areas are low compared to urban areas, the announcement of a moratorium has led to non-payment. Also, the firm has voluntarily given a three-month moratorium to its borrowers, while going slow on fresh lending.
 

The growth of the P2P sector has been perked up by recognition from the Reserve Bank of India (RBI), which now regulates it under a separate category called P2P NBFC (non-banking finance company).
 

Further, in December 2019, the regulator relaxed P2P lending norms by increasing individual lending limits across platforms from Rs 10 lakh to Rs 50 lakh.
 

According to Abhishek Gandhi, co-founder, RupeeCircle, one of the biggest urban-centric P2P platforms, defaults have been about 30 per cent.
 

In a typical P2P model, a website publishes a list of loan-seekers, often financially excluded customers who borrow mostly from moneylenders. A prospective lender chooses the borrower of his choice, makes payments through an online platform, and gets monthly or quarterly payments on the loan, with an average return of 16-18, going as high as 25 per cent.