- By Rajiv M Ranjan
Credit and Finance for MSMEs: Non-Banking Financial Companies – Peer to Peer (NBFC-P2Ps) have become engines of support for aspiring entrepreneurs by helping them to face the hardships of financial risk in a hope of success. They have assisted several aspiring entrepreneurs from rural areas in the recent past. For instance, Babita Devi is a tailor living in the small town of Balarahi near Madhubani in Bihar. Six months ago, she and her husband were struggling to meet their expenses. But then their situation improved when an NBFC-P2P company lent her Rs 35,000 with which she started a small setup of tailoring at her house. Today, the 40-year-old is a self-made entrepreneur who earns around Rs 400 a day. Her husband, too, helps in running the business and her family is now in a better financial position.
Another, Jivachhi Devi, who used to work as domestic help in Khirhar near Madhubani in Bihar, has a similar story. She took a loan of Rs 40,000 from an NBFC-P2P company with which she set up a small restaurant for snacks. Her daily income then shot up from around Rs 200 to Rs 450. Enumerated below are reasons explaining how and why an NBFC-P2P company is successful in establishing P2P lending in rural areas:
Lower interest rates
P2P lending provides loan at lower rates in a space wherein there are limited options available, hence suitable for aspiring small businesses in the rural villages. It also reduces the intermediary margin to a great extent.
Banks certainly have a wider coverage across the country, but a limited interior penetration which has risen the problem of credit deficiency in such areas. After discovering the gap, NBFC-P2Ps are essentially tapping such hinterlands to facilitate reach with better accessibility options like the presence of contact centre, field officers visiting interior areas, DSAs/ Business Partners spreading word of mouth about benefits as compared to other available options.
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Alternative Supply of Credit
NBFC-P2Ps are helping individuals to channelize their savings into an asset-class that helps them to earn more than from a traditional financial institution. The formation of this alternative supply of credit is transferring benefits to rural borrowers and it is encouraging them not to approach the un-organized sector for borrowing.
The element of ease associated with P2P lending is one of the essential reasons for increasing its popularity in rural India. On the other hand, the traditional sources of financing are time taking and cumbersome. For entrepreneurs in rural India, which are usually small, time is often the essential criteria for acquiring funds. NBFC-P2P platforms have cut through many processes leading to faster and hassle-free.
The demand for lending facilities similar to NBFC P2Ps in rural India is touted to increase manifold in future, and it is a boon for the aspiring entrepreneurs. The onset of NBFC P2P in these areas has been seen as the driver of growth for the businesses of some and it will touch many owning its popularity in rural areas.
(Rajiv M Ranjan is the Secretary at Association of NBFC P2P Platforms and Founder Chairman & Director at PaisaDukan. Views expressed are the author’s own.)