P2P Lending

Peer to Peer Lending and Crowdfunding

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The world is facing a financial crisis in recent times. The interesting aspect about this economic condition is the growth of the creative or the alternative form of financing. During the recession, which still continues, credit and other conventional forms of financing receive the major setback. As a result of which entrepreneurs or other people who are in need of quick money start looking towards newer and less traditional forms of finance. In this process, the financial intermediaries like the banks and the other institutions are typically not present.

Peer-to-peer lending is a process of money transaction directly between individuals. In this process, the borrower and the lender never meet. The basic process for this financial transaction is very simple. The borrower registers on one of the peer-to-peer websites and then his requirement is matched with a number of lenders who are interested in investing based on the borrower and the rate of interest.

Why P2P?

P2P lending is the most creative way of investing your money. It earns great returns along with generating a monthly flow of cash that can be again reinvested and even higher returns can be acquired.

  • Sustained high returns: High returns on a regular basis make this process of lending a much sought-after investment option for investors who are looking for a creative way of investing their hard-earned money. It is also a diversification tool for the high net worth individuals and institutions.
  • Monthly flow of cash: P2P lending is the sole high return instrument capable of fetching monthly cash flows with payments of interest. Unlike other traditional forms of investment, cash flow is also not restrained by any maturity period and can start immediately after the investment process is completed.
  • No or low risks: The traditional instruments of investment like forex, equity, commodities are subject to high market risks. They also have high unpredictability inherent to them. This results in actual or national losses. Peer to peer lending is entirely different from them in this way, as it offers no volatility with guaranteed returns.

P2P lending in India

There are many P2P platforms which connect borrowers and lenders together. Through this process, the lenders can earn high rates of interest which they may not get from mutual funds or fixed deposits. Also, the platforms give an option of getting money to those borrowers who failed to get money from conventional sources.

The Reserve bank of India regulates the lending platforms to protect the interest of both the lenders as well as the borrowers. Due to this protected and regulated environment, this mode of lending is gradually getting catapulted to newer heights in India.

It is the time to invest in innovative portfolios

The investors are always on a lookout for better and reliable sources of investment. They also want to ensure that the interest rates received are the highest. Thus, they opt for a well-balanced portfolio wherein other than conventional forms of investment will have some creative opportunity as well. There is an advantage of having a routine look at all the available options as different assets will be able to produce different results.

Peer to peer lending often tops the list of creative forms of investment. As already discussed, investing in P2P lending has various benefits, which can be enjoyed only when the risk is taken.

Crowdfunding

In the same vein, crowdfunding has also evolved in recent years. Crowdfunding or crowd financing, like P2P, involves getting the resources to finance a project without the involvement of a typical financial intermediary. The only difference lies in the fact that the lenders often do not engage in crowdfunding only for financial gains. Often the lenders act as donors, in this process. When it is a typical transaction, an entrepreneur can just visit a crowdfunding site, propose the amount needed for a certain requirement and receive the funds accordingly. The crowd funders may or may not get their money back, though their money is not considered to be donations. The crowdfunding sites generally make a profit by getting a small percentage from the projects funded, before the entrepreneurs get a hold of the money.

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