The new loan sharks! Not just banks, see who is lending money online now
Remember Nargis-Sunil Dutt Mother India star’s greedy pawnshop Sukhilala? Well, the money lending industry has undergone a drastic change since the days when lenders like Sukhilala literally existed everywhere. Not just commercial banks or RBI-regulated NBFCs, a new class of digital platforms are helping millennials become new pawn shops and earn great returns on their investments.
New lenders are smart. They are millennials, not banks. Armed not with complex rule books but with gadgets – smartphones or computers – they like to play by the rules, thanks to emerging social online (peer-to-peer) lending and borrowing markets like LenDenClub, SaveIN, etc.
LenDenClub boasts of a registered base of around 6.5 lakh of investors. Even the new SaveIn app has registered around 50,000 downloads, of which 70 percent of users constitute the millennial population who are more comfortable with digital transactions and prefer to have digital records for such transactions.
A recent report from LenDenClub found that tech-savvy Indian youth are way ahead of previous generations when it comes to borrowing or even using the platform as lenders. Millennials in the 21-30 age group were the most active as lenders (54%) on the LenDenClub platform. Next come the cohort belonging to the 31-40 age group, representing 33% of lenders.
Interestingly, the report states that India’s “tech capital” Bengaluru tops the table in terms of the number of lenders, followed by Mumbai, Hyderabad, Pune and Chennai. The largest number of people with the highest demand for credit also came from Bengaluru. The report says salaried professionals ranging from CXOs to mid-level management levels top the rankings as investors on the platform. Also, Rs 1.81 lakh was the average amount of investment on the platform, while Rs 50,000 to 1 lakh was the most preferred amount of lenders.
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Bhavin Patel, co-founder and CEO of LenDenClub, said the Covid-19 pandemic has accelerated digital penetration across all industries and the lending industry has also experienced a transformation beyond imagination. During the global health crisis, millennials also actively participated as investors using P2P lending as an ambitious asset class offering lucrative returns.
Jitin Bhasin, Founder and CEO of SaveIN, told FE Online that millennials are the most digitally active smartphone audience and the most important contributors to the working class in India, whether they are employees. or self-employed. “Being very active in social circles, millennials transact the most with each other for short-term loans and the note size is around 7,000 rupees,” he said.
But, is it safe to lend online? And what about returns?
“As regulated by the RBI, peer-to-peer lending platforms cannot guarantee returns. It carries an investment risk similar to that of other investment instruments such as mutual funds, FDs and debentures. However, the risk is diversified with very small amounts loaned (up to 500 per investor to any borrower), this does not affect portfolio returns, ”LenDenClub told FE Online.
According to Bhasin, the Covid 19 pandemic has ushered in a new era of digital transactions, with people fearful of making cash transactions. During the pandemic, people relied on each other for emergency and unforeseen expenses and that’s when digital transactions on SaveIN took off.
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Based on the returns seen over the past year, LenDenClub said that an investor can expect average net returns of around 13% per year.
“An investor can expect net returns of 12% to 15% per year. However, this varies from investor to investor. The key to investing in a peer to peer lending platform is diversification – lending low cost loans (usually Rs 500) per borrower. Because the risk is spread, the higher lending rates average 12-15% per annum, ”LenDenClub said in response to a question from FE Online.