With investors like Mohandas Pai on board, Faircent, India’s leading P2P lending platform, is looking to empower those willing to take risks for higher returns, and also to provide credit to those shunned by banks and other financial institutions. In an interaction with Shakti Patra, founder & CEO Rajat Gandhi explains why the firm is calibrating growth. Excerpts:
At what rate is peer-to-peer (P2P) lending growing in India and what are the main hurdles to growth?
Every industry takes time. E-commerce, for example, took 15 years to grow in India. And P2P lending is no different. In fact, in any exchange business, anyway, the first and second years witness slow growth. So, I would say these are very early days for P2P lending in India. As far as the biggest hindrance is concerned, I think it’s the lack of awareness.
P2P is a very obvious concept. That it’s a benefit for both lenders and borrowers is drop-dead obvious. So, all that is required for its growth is awareness and trust, both of which take time.
How much money is being lent through your platform and what is the average ticket-size of loans?
We will end FY16 at over R3 crore, maybe even R3.5 crore with a bit of luck. The yields are hovering between 18% and 20%, and the average ticket-size of loans lent through us is about R1.5 lakh.
We are, actually, calibrating our growth. It’s not that we can’t do more than this. But since this is a very different industry in which our relationships with our customers are longer and don’t end after just a buy-sell, we are being very careful to ensure low delinquencies, which are currently at about 1.5%.
Help us understand the profile of your average lender and borrower.
For lenders, we have set criteria. He/she has to be a resident Indian aged over 25 with an annual income of R10 lakh or above. Moreover, he/she needs to have immovable assets and must have dabbled in the stock market. The reason for us setting these criteria is to ensure that the lender has an appetite for risk and the ability to take a hit. For, if you are expecting returns of 20%, you have to assume some risk. Given these criteria, initially, we had a lot of software professionals, people working in an Amazon or a Flipkart, lending through us. Now, we have started getting lots of self employed professionals.
Typically, a lot of our lenders are in the 30-34 age group, people who have worked for six-seven years. Most of them entered the job market in 2008-09 and have some surplus cash. From their perspective, there are a not a lot of asset classes they have seen working. Gold hasn’t worked, neither have stocks. Mutual fund returns have been average. The only asset they have seen giving good returns is property, but even that seems to have topped out. In any case, the ticket size in property investing is very high. So, for them, P2P lending is an amazing asset class, which starts giving returns from the very next month.
Can you elaborate on the bidding process on your platform?
Our model is based on the principle of helping the lender build a portfolio. No lender is allowed to fund more than 20% of a borrower’s requirement, which means every borrower has to be lent by at least five lenders. This system not only forces the borrower to build a portfolio, but also gives more options to a borrower. Moreover, we have a reverse auction model, in which a ceiling is put on the rate of interest for a borrower, and then lenders are asked to make offers. The borrower has the right to accept or reject an offer, which drives the rate of interest down. Our philosophy is simple. We are on the side of the borrower and help the lender make money.
How do you make money in this entire process?
We take 1% from the lender and 2% to 4% from the borrower, depending on his/her risk profile. We also charge a one-time R1,500 registration fee from both lenders and borrowers, which is adjustable against lending/borrowing fees.
How well are you currently funded? What kind of growth can we expect from Faircent in the next one-two years?
We are looking at upwards of R50 crore of disbursements in FY17 and over R1,000-2,000 crore in two-three years. We are on the right path. We have raised money from investors like Mohandas Pai and are well funded. Anyway, fund raising is a continuous process. So, we are always there in the market and also not there!