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In the current times where debt funds have failed to generate healthy returns, it has become imperative for MFDs to explore other avenues in the fixed income space. P2P (Peer-to-peer lending) products are one such alternative.
To help MFDs decode the P2P industry, Cafemutual hosted Vinay Mathews, Founder & COO of Faircent, a peer-to-peer lending platform.
Here are the excerpts of their interesting conversation.
P2P lending - P2P lending enables individuals (investors/lenders) to lend money to other creditworthy individuals (borrowers). It creates a marketplace where borrowers can avail of competitive and quicker loans and investors can make returns higher than debt funds and traditional fixed deposits.
Faircent parks investors’ money in a separate bank account which is controlled by an RBI-regulated trustee. The bank disburses to borrowers only on the trustee’s instruction. Such a setup ensures the overall safety of investors’ funds.
Opportunities and returns - P2P products are short duration products. Currently, Faircent offers six investment avenues. These include 3, 6, 12, 24 and 36-month plans where investors receive principal on maturity. The interest amount also gets paid on maturity except in the case of the 24 and 36-month plans, where interest gets paid monthly. Faircent also offers a liquidity product where investors can get their money on demand.
Depending on the product type and investing mode, investors can invest from Rs. 50,000 to Rs. 50 lakh. P2P products offer a maximum of up to 12% returns, which are taxable as interest income. As the transaction is largely between two individuals, TDS plays no role here.
Risks and Mitigants - There is always a probability that borrowers could default on the repayment. However, pre-disbursement checks and post-disbursement monitoring mitigate this risk. Only 5-7% of applicants pass the stringent check procedure and receive the eligible funding. Further, depending on their performance, borrowers are labelled green, amber, red and dark red and are rigorously monitored to keep collections under control.
Further, Faircent currently has its presence in over 1,000 cities and offers a wide geographic spread. This mitigates concentration risk as in the case of purchasing non-convertible debentures of a single entity.
There is also a documented NPA and collection process. However, in case a borrower defaults, seizure of bank accounts/property can help in recovering dues.
MFD empanelment and support - The empanelment process requires MFDs to pay Rs. 5,000 or commit investments of Rs. 5 lakh/5 clients with an investment of Rs. 50,000 each.
MFDs can get in touch with Team Faircent to know more about the empanelment process and commission structure. The team extends not only tech support but also trains empanelled MFDs.
