- P2P consumer lending
- P2P SME lending
- P2P Real Estate lending
- P2P consumer balance sheet lending
- P2P SME balance sheet lending
In balance sheet lending, the P2P company takes legal authority and basically is borrowing from lenders and loaning to borrowers. The loan transaction is reflected in their balance sheet.
P2P platform evaluates the credit score of borrowers based on not just past credit performance, but also individual entities future. The credit grading is usually on a 7 point scale. Interest for a loan request is fixed based on the borrower’s credit score. There most probably might be securitization of these assets. Few countries have certain restrictions to avoid P2P lending burst, like setting up a separate emergency fund, investing part of fees in insurance etc.
Furthermore, P2P companies have their own credit rating computing mechanism. Since borrower takes a loan for personal use, he/she is free to use it for any means, including lending on P2P platform. This is like creating CDS tranches all over again. Most of the P2P lending companies are unlisted, except three – one each in US, UK and China. Quite a few banks have strategic partnership with few P2P platforms. Another interesting thing in P2P lending is that borrowers have no strict obligation to disclose the purpose of the loan being taken.
US : Current market size is around 6Bn Dollars. Around 75% of loans is consumer lending and rest Industry lending. Its long run growth averages to around 200%.
Europe : P2P lending companies are treated as banks, and come fully under the ambit of the regulations. It has a relatively mature market with market size touching 3Bn Euros (growing at around 120%).
UK : This has a 50-50 share of lending to personal consumer lending and corporate lending.
China : It has a 75-25 market distribution of loans to personal and SME. Off late, this sector is being regulated strongly due to certain scams that emerged.
India : RBI has recently released a guideline that mandates these companies operating in India to take NBFC certificate. Hence minimum capital is the requirement.
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