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The online lending landscape has undergone a tumultuous change in the past few years. The people started taking this industry in a more serious spirit when RBI published this paper, https://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=3164 on peer-to-peer (P2P) lending back in 2016. In the present day and age, there are many companies that are offering platforms to facilitate P2P lending via the internet. These platforms are growing which is shown by the fact that NBFCs (the sector which these platforms belong to) is accounting for almost 10% of all financial assets. (source: http://www.careratings.com/upload/NewsFiles/SplAnalysis/P2P%20lending%20in%20India.pdf) These platforms are taking the advantage of the fact that India has always survived on a rich, people-to-people based banking system long before banks became common place. Even now, banks have their own problems with the lasting impact of demonetization on loan fluidity and the usual delays and formalities that is typical to banking. In the face of all this, the online lending landscape continues to grow.

Here are five facts to know about this arena that explain why this industry is the next big thing.

Five facts about the online lending landscape

1)     It is growing as an investment option

P2P lending is emerging as an attractive investment option for investors of all segments in India. P2P lending allows the common man to invest in the projects or aspirations of another common man. The important factor here is the platform that evaluates the needs of the loan-seeker and the application and adjudges it to be a healthy one to invest in. The evaluation builds trust amongst investors and encourages them to invest their hard-earned money.

2)     Growth of the social score with the credit score

Banks have traditionally been evaluating applications with a credit score. The new breed of NBFCs have started incorporating the ‘social score’ element in the mix. This score is assigned on the basis of the social relevance of what the borrower may be doing. Even if the credit ratings might be low, if the borrower’s work is socially significant, there are chances of the borrower getting more funding as his project grows. This combination of social scores and credit scores is being well utilized by online or digital lending platforms like www.prestloans.com to adjudge loan applications in a much better manner.

3)     Importance of FinTech

A platform for online lending employs web-based information technology to conduct its operations. But that apart, players in this landscape are using sophisticated algorithms and cutting-edge technology infrastructure to reduce the loan processing time and increase the accuracy of evaluating applications. This kind of agility is very important to this sector and any player here leverages technology today to maintain that agility. FinTech is also going to determine the ease with which a platform engages its audience, which impacts the experience and the overall conversion rates.

4)     MSME will greatly benefit from the online lending

MSMEs have operated in a manner that has always been at loggerheads with the slower, more methodical system that banks are known for. The time that it takes to process an application, the overarching reliance on credit scores don’t augur well for MSMEs. Hence these businesses are greatly benefiting from the more flexible and quicker loan options that online lending is bringing in. It is little surprise that the MSME sector is also sporting a growth trajectory that is similar to the other NBFCs are witnessing.

5)     More regulations and interventions will come in

The RBI has already started rolling out regulations for NBFCs. RBI introduced ‘directions on managing risks and code of conduct’ for NBFCs on November 9, 2017 (https://rbi.org.in/Scripts/BS_ViewNBFCNotification.aspx). The RBI updated the same regulations on February 23, 2018 which highlighted the necessity of getting a NBFC registered with the Department of Non-Banking Regulation. There also emerged regulations about the “prudential norms” that included maintaining a cap of INR 10 lakhs as the aggregate exposure of the NBFC: P2P. There are also guidelines related to the transparency and disclosure requirements and fair practices. There have also been recent guidelines that spoke about “a system of Ombudsman for redressal of complaints against deficiency in services concerning deposits, loans and advances and other specified matters”. While this sector is more unregulated than banking, which has mature regulations in place, the growth of this sector and the government’s increased interest in digital India is going to attract more regulations from the RBI for NBFCs.

The online lending landscape is still taking its nascent steps. The industry will take a lot more time to grow into a sector that competes with banks as an equal player. But even then, technological advancements and the general growth of interest in it has already placed it on the map. As more individuals and businesses use the online lending mechanism to borrow money and to make investments and as new technologies and regulations come in, this sector will shape up to assume a form that will only grow in the time to come. Amongst the most promising NBFCS, is Prest loans (www.prestloans.com) which is also one of the fastest growing online lending NBFC for small businesses and MSMEs.