Explained: Why CRED Mint is not new to India
The Fintech CRED platform announced on Friday the launch of a peer-to-peer (P2P) lending function called CRED Mint – a service that will allow business users to lend money to other users and make 9% interest per annum on the amounts they lend.
What is the P2P loan?
P2P loans are nothing new. In 2017, the Reserve Bank of India placed this service under its regulatory supervision. Even then, there were more than 20 P2P lending players in the market, but RBI regulations ensured that only the most serious with waterproof business models remained in the industry. In P2P loans, users sitting on unused money grant loans to potential borrowers identified by the service provider. These lenders then receive payments from the borrowers on a fixed basis, either all at once or in equivalent monthly installments.
Who are the players in the P2P loan segment?
After RBI released its regulations in 2017, the space saw a wave of fundraising involving some of the existing players in the segment. Some of the major companies operating in this space include RupeeCircle, Finzy, IndiaMoneyMart, etc. For its P2P lending function, CRED has partnered with the RBI-approved non-bank finance company, Liquiloans.
What are the risks associated with the P2P loan?
One of the biggest risks associated with this type of loan is loan default. Since P2P loan is a form of unsecured loan, there is no collateral offered by the borrower for the repayment of the lender in the event of default. However, the unsecured nature of the loan is also the reason for the high return on investment compared to other debt instruments.
What role will CRED play there?
Like most technology companies in the lending industry, whether P2P or otherwise, their primary role is to analyze the data of potential borrowers to decide their creditworthiness. This is the model also followed in the buy now-pay-later system where tech companies partner with banks or NBFCs to provide them with a database of creditworthy people who can be targeted for a loan. Fintech companies are usually willing to pay a commission for this. CRED founder Kunal Shah said in a tweet on Friday that CRED Cash – the company’s loan product for “high-trust CRED members” – had a loan portfolio of Rs 2,415 crore to date. with a default rate of less than 1%.
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