2016 might just be the year for the rise of FinTech startups in India. As the country is gradually easing up to digital transactions, banking and financial service companies are seeing technology as their new best friend. P2P lending is one such area that is appearing to be promising to several entrepreneurs. Tapping the same opportunity is Noida-based startup i2ifunding.
Founded by Vaibhav Pandey and Neha Aggarwal, i2ifunding which went live in October 2015, is an online market place for unsecured loans where a borrower posts his loan requirement and multiple investors can fund the loan project. The personal loan can be used for multiple purposes which include purchase of consumer durable, debt consolidation (i.e. repayment of credit card debt etc.), medical expenses, education expenses, marriage expenses etc.
“Our vision is to make i2ifunding the most trusted P2P platform in India where borrowers can get personal loans at lower rates and investors can earn higher return on their investment”, says the team.
How does it Work?
Once the borrower is registered and has shared his/her documents, the company performs the credit risk evaluation using its proprietary credit risk model to evaluate risk. Based on this, a benchmark interest rate is assigned to the borrower below which borrower cannot post his/her loan request.
Investors registered on its platform can then browse through borrower profile and fund part of the loan request. They can get an opportunity to earn higher returns and diversify their risk by investing small amounts in multiple loan requests.
What Problems are Being Catered to by i2ifunding?
Elaborating on the problems that lie in the market in this sector, Vaibhav said, “In India, Peer to Peer lending has been in occurrence from decades in offline mode and in informal manner. Therefore, participation on lending side was restricted to very few people having muscle power. This also resulted in increased cost of borrowing for borrowers.”
He added that the company is trying to formalize activity and bring more retail investors to this platform by providing them with various services like background verification of borrowers, risk assessment, opportunity to diversify the risk by investing small proportion of different loan requests, monitoring of EMI payments etc. As a result, i2ifunding is creating a win-win situation for both borrowers and investors.
What are its Offerings to the Users?
Opportunity to Earn Higher ‘Risk Adjusted Returns’– i2i provides investors an opportunity to invest in loan requests of retail borrowers with interest rates up to 25%.
Online Process for Quick, Transparent and Seamless User Experience – i2i endeavors to be one of the leading technology based main stream modes of financing by moving away from prevalent legacy systems. It aims to provide seamless user experience in terms of ease of transaction, ability to view and download detailed account statements, transaction analysis and many more features. An investor can fund a loan project in a few steps.
Opportunity to Build a Strong and Diversified Portfolio – Investors can invest small amounts into multiple loan projects and can create a diversified portfolio depending upon his risk appetite.
Investor Protection Fund – To mitigate biggest concerns of retail investors Investor protection fund has been created to provide guarantee on principal amount lent. Depending on the risk category of the loan, 75% to 100% of principal amount will be refunded by i2i to investors in case of any default. Investors need to pay an upfront fee which will be used to build this fund.
One Loan One Interest Rate – It reduces the time required for funding as there is little scope for negotiation. Even if borrower increases the interest rate, benefit is passed on to all the investors, existing as well as new ones.
Proprietary Credit Score Model used to screen the loans – It takes into consideration 30+ parameters to analyze each loan ensuring that each loan has been properly evaluated before being listed.
‘Benchmark’ Interest Rate for each borrower – Each borrower is assigned a risk category and i2i Recommended Interest Rate commensurate to the credit profile. Users can rely on the platform for loan assessment as they may not have resources to do proper credit evaluation.
No Prepayment Penalty – Borrowers can prepay their loans at their own convenience without any charges whatsoever and as many times as they wish. They just need to contact i2i and choose one of the various options and proceed to prepay.
What Kind of Background Check does the Company do on Both the Parties? What Measures has it Taken for Return Assurance?
For investors, the company verifies PAN number, contact number and address. Moreover, all the transactions happen from saving bank accounts to saving bank accounts only. Therefore KYC norms are also taken care of.
For borrowers, it verifies documents ranging from PAN card, salary slip, bank account statement, education certificates, credit card statements, address proof, CIBIL score verification, house ownership documents and any other document depending upon the need when credit risk evaluation is performed. The company also conducts physical verification of borrowers before the loan disbursal.
The company facilitates a loan agreement between borrower and investors to protect interest of investors. Borrower also provides undated cheques for each investor, which can be used in case of delay or default. Loan agreement is legally enforceable in court of law. Borrowers also provide a promissory note to each investor.
To cover investors’ risk, the company also backs it up with a principal protection fund-Investor protection fund, which is a corpus created by collecting a protection fund fee from investors depending upon the risk category of borrowers where they have made investment.
Monetization Model and Traction Details
The company charges an initial registration fee from borrowers and lenders. Lenders are also charged a fund management fee of 1% of amount they want to invest using the platform.
Borrowers are charged a loan processing fee before the physical verification process which is a % of loan amount, depending upon the risk category assigned to borrower.
The company claims to have more than 230+ registrations within 3 months of its launch. It has already disbursed 16 loans out of 110 applications received.
What Scope does this Sector Hold in India?
Large urban market potential is of ~$110+ billion of which $16 billion is in informal lending.
Informal lending is typically at high interest rates – 3% to 5% per month resulting in 40% to 80% annualized rates. Its market excludes most of the retail investors and P2P can provide them access to this attractive investment opportunity for higher returns. P2P lending will enable these borrowers to get loans at lower interest rate in a hassle free and transparent way.
With the growth of service sector, the population of the urban seeker segment, which is the company’s target market (3.9 Lakhs to 9.75 lakhs annual income), is expected to be the most rapidly growing.