P2P lending platforms started operations in 2014 but remained an unregulated space till 2017, whereby, the Reserve Bank of India released the master guidelines for P2P lending platforms, formally acknowledging and bringing P2P lending platforms under the Governance of RBI as non-banking financial companies (NBFC-P2P).
Although P2P lending is booming globally, it’s in the nascent stage in India. Cost effectiveness, faster turnaround time (Low TAT), 24X7 availability across India and ease of operations are few of the reasons as to why P2P lending platforms are continuously gaining prominence in India among borrowers and lenders.
OMLP2P, founded by Pramod Kumar Akhramka and Surendra Kumar Jalan, was the first lending platform to apply for registration and the online lending platform received its NBFC-P2P licence in June, 2018.
Manish Joshi from NewsBarons provides excerpts of an interaction with Pramod Kumar Akhramka who informs ‘In a country like India, where masses are yet to be a part of financial inclusions and where MSME’s and others are yet to receive the desired credit (financial) support, P2P platforms will act as a catalyst to channelize the investment (finance) from one end of the society to deprived masses and Micro and Small Business entities’.
NB: Tell us about OMLP2P platform and its USP?
Pramod: OMLP2P is a peer to peer lending platform where we connect well researched credit worthy borrowers with lenders (investors). We verify and assess the credit risk profile of the borrowers using bureau score and our own proprietary algorithm to come to identify the eligibility of the borrowers and interest rate to be charged.
We have developed our own proprietary credit algorithm and bureau score for credit assessment of borrowers in association with CRIF Highmark and this has been tested on millions of data over a period to validate the algorithm. This algorithm helps OMLP2P to assess all types of borrowers, including borrowers with no bureau score (first time borrowers), borrowers with less credit history (borrower who has borrowed occasionally). This also helps them to do the pricing of the loan commensurate to the risk profile of the borrowers. With the help of their proprietary algorithm, own bureau score and credit bureau score, OMLP2P checks the eligibility and pricing of the loan to be listed on their platform, which is scientific and completely in line with the alignment of interest of both the borrowers and lenders.
We take care of more than 100 critical parameters for credit assessment of applicants so that only rightful loan proposals get listed on our platform.
NB: Define the role of technology in P2P lending?
Pramod: OMLP2P is a complete online technology based lending platform. Starting from on-boarding of the customers, doing KYC, credit assessment of the borrowers to identify their eligibility, fixation of interest rate, signing of agreement, collection of EMIs, payment of EMI’s to lender, etc. (almost all the activities) are tech-enabled system driven. Thus,providing cost & time efficiency, ease of borrowing and lending to the customers from the comfort of their own space. With the technological advancement, privacy and security are some of the key concerns in the financial sector. We have SSL security and CISA certification, which makes the platform safe and secure.
NB: What is the size of loan and the basic requirements to avail loan on OMLP2P platform?
Pramod: The size of the loan on our platform varies from INR 25,000 to INR 10 lakh. One needs to sign up and complete the registration process.
After detailed due diligence and verification of the borrower’s proposal from our system, the approved loans are listed on the website for investors (lenders) to fund. Once the funding commitments from investors are in place, loan agreement gets executed and the loan amount gets disbursed directly to the borrower’s bank account.
All the transactions and fund movement on our platform happen through secured Escrow account being managed by bank owned SEBI approved Trustee. This ensures complete safety of the money movement and utilisation, for the purpose it has been placed.
NB: How does the platform verify the credit worthiness of the borrowers?
Pramod: The platform has its own proprietary credit algorithm. All the loan proposals are being evaluated by the system through the proprietary credit algorithm and our own bureau-based scoring. Loan proposals are being assessed on more than 100 critical key parameters for being eligible to be listed on the platform.
Both, the ability and intent of the borrowers are being assessed through various qualitative, subjective and objective parameters before being approved and listed for funding. Only the proposals, which pass through stringent evaluation process gets listed on the platform. Based on the assessment, our system assigns a risk category to every borrower and prices them suitably.
NB: How do investors secure their investment and returns on your platform?
Pramod: As per the guidelines of RBI, all loans at OMLP2P lending platform are unsecured in nature; however at OMLP2P, we leave no stone unturned to ensure the safety of investors money lent through our platform. We have well defined, researched and tested borrower selection criteria to safeguard the lenders money. We have also associated ourselves with one of the leading solicitors and law firms to draft legal agreements to protect the legal interest of our investors. We have strong system-based collection mechanism as well as the availability of our associate partners in all the locations we serve to liaison with the borrowers for collection / recovery of the loan EMIs. We have legal team to initiate and take legal action u/s 138 and other provisions for the recovery.
To minimise the risk associated with investing in P2P lending platforms, we always suggest our investors to spread their investments across various categories of borrowers and make the lending basket of 20-30 loans to generate higher risk adjusted return. Net return on our platform post delinquencies for the FY 2018-2019 was 18.39%, which is significantly higher than other alternate investment opportunities available in the market.
The returns on our platform depend on the credentials and risk profile of the borrowers. We assign rate of interest depending on the borrower profile, which can rangefrom 10.99% to as high as 36%. If the investor has funded money to several borrowers, the final returns on investment will depend on how the investor has spread his investments.
NB: You have been appointed the President of the Association of NBFCP2P Platforms. Tell us about the role of this association?
Pramod: Association of P2P lending platforms aim to broaden the P2P lending industry base by making awareness of the benefits of the platforms to the borrowers and lenders, as well as to ensure that the industry and its players adhere to the best practices and also to help the new players to participate in the industry growth.
NB: How do you compete with other lending platforms like Banks, NBFCs..?
Pramod: P2P is a modern way of lending and borrowing. In India, there are many people who need credit but have no access to credit. It is because the traditional lenders like Banks and NBFCs have their own limitations and cost inefficiency. TAT (turn around time) is considerably high. Low ticket borrowings are not their priority. Moreover, there is a lot of paper work and the loan amount is disbursed after many days. This is where P2P lending platform like OMLP2P comes in because of their technology enabled cost effective low cost operations.
We do not focus on a single credit score rather we take a 360-degree view to determine the credit worthiness of the borrower, who can borrow loans at a competitive rate as compared to alternate sources, like Banks, NBFC’s, private money lenders, etc. Our complete process is online. All you need to do is apply for the loan from your mobile/laptop at any point of the time, upload the required documents and depending upon your eligibility, the money will be in your bank account in 3-5 days, pay EMI’s electronically and you are done. It is that simple. We disburse loans within a period of 3-5 days, which as the time will pass we expect to shrink to 24 hours to 48 hours only. In the coming years, many more borrowers will opt borrowing from P2P lending platforms like OMLP2P than banks or NBFCs.
NB: What is your current geographical reach and please inform us on the expansion plan?
Pramod: We currently have our business establishment at Mumbai, however we are available in 72 locations (cities). All the cities wherein we are currently present to do the business have our associate partners to provide the need-based collection and other allied support. These 72 locations cover around 70% of India’s lending space. We intend to have our presence, in due course, in 100 plus locations, covering 90% of India’s lending space.
NB: Are you looking at raising funds? If yes, please specify the amount.
Pramod: The founders and promoters of OMLP2P have funded all financial requirements of the company, including seed funding as well as angel funding for establishing the business. We along with the industry experts view the industry size to grow to approximate INR 70,000 crores by 2025. Such growth will need support of the regulators as well as large scale efforts and investments by the industry players in marketing for awareness of the P2P industry, Hitech IT platform advancement/up gradation, investment in Artificial intelligence / Machine learning based assessment and operation team build-up.
The management of OMLP2P strongly believe in principle-based leadership in the industry and accordingly funding is required to support the growth of the business, especially in the field of business development (digital marketing), next gen IT platform and infrastructure as well as operation setup.
NB: Please inform on the challenges in this industry?
Pramod: In Oct’17, the Reserve Bank of India (RBI) came out with Guidelines for the P2P lending industry that are supportive to the long term growth, stability and sustenance of the industry. We thank RBI for such supportive guidelines, however, the guidelines have placed severe restrictions on the maximum amount a lender can lend on the platforms, like capping the aggregate exposure of a lender across all the P2P platforms at INR 10 lakhs and capping the exposure of a lender to a single borrower across all P2P platforms at INR 50,000. This is restricting the growth of the industry and causing huge cost pressure on the platforms for the acquisition of lenders. The platforms are struggling, since, unlike the conventional players, P2P lending platforms have to work and spend on acquisition of borrowers and lenders. Such cost and efforts at the growth stage of the business is causing impact on Growth and resources of the platform.
We are hopeful that RBI will be kind enough to understand and appreciate the industry challenges and will relax the guidelines sooner by withdrawing such restrictions.