Remember the greedy moneylender Sukhilala of Nargis-Sunil Dutt starrer Mother India? Well, the moneylending business has undergone a sea change since the times 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 moneylenders and earn cool returns on their investments.
The new moneylenders are smart. They are millennials, not banks. Armed not with complex rule books but gadgets – smartphones or computers – they like to play by rules, thanks to emerging online social lending and borrowing (peer-to-peer) marketplaces like LenDenClub, SaveIN etc.
LenDenClub boasts of a registered base of around 6.5 lakh investors. Even newcomer SaveIn app has witnessed around 50,000 downloads, out of which 70 per cent users comprise the millennial population who are more comfortable transacting digitally and prefer having digital records for such transactions.
A recent report by LenDenClub found that young and tech-savvy Indians are much ahead of the previous generations when it comes to borrowing or even using the platform as lenders. Millennials belonging to the age group of 21-30 years were the most active as lenders (54%) on LenDenClub platform. This was followed by the cohort belonging to the 31-40 years group, accounting for 33% of lenders.
Interestingly, the report said India’s ‘tech capital’ Bengaluru, topped the chart in terms of the highest number of lenders, followed by Mumbai, Hyderabad, Pune and Chennai. The largest number of people having the highest credit demand was also from Bengaluru. The report said that salaried professionals ranging from CXOs to mid-managerial levels topped the chart as investors on the platform. Also, Rs 1.81 lakh was the average investment amount on the platform while Rs 50,000 to 1 lakh was the most preferred amount among lenders.
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Bhavin Patel, Co-founder and CEO of LenDenClub, said the Covid-19 pandemic has accelerated the digital penetration across every industry and the lending sector has also seen a transformation beyond imagination. During the global health crisis, millennials also actively participated as investors availing P2P lending as an aspirational asset class offering lucrative returns.
Jitin Bhasin, Founder and CEO of SaveIN told FE Online, millennials are the most digitally active smartphone audience and the highest contributors to the working class in India, be it salaried or self-employed individuals. “Being highly active in social circles, millennials transact most among each other for short term loans and the ticket size is around Rs.7000 mark,” he said.
But, is it safe to lend online? And what about returns?
“As regulated by RBI, peer-to-peer lending platforms can’t guarantee returns. It carries investment risk similar to other investment instruments like Mutual Fund, FD and Debentures. However, the risk is diversified through very low amounts lent (as low as 500 per investor to any borrower), it does not affect portfolio returns,” LenDenClub told FE Online.
According to Bhasin, the Covid 19 pandemic ushered in a new era of digital transactions as people feared transacting in cash. During the pandemic, people have been relying on each other for emergency and unplanned expenses and that is when digital transactions on SaveIN saw a boost.
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On the basis of the returns seen in the last financial year, LenDenClub said an investor can expect average net returns of an estimated 13 per cent p.a.
“An investor can expect net returns of 12% – 15% p.a. . However, it varies from investor to investor. The key to investing on a peer to peer lending platform is diversification – lending out small-ticket loans (generally Rs 500) per borrower. Given the risk is spread out, the higher lending rates make up for an average of 12-15% p.a,” LenDenClub said in response to a query by FE Online.