Enabling peer-to-peer lending
Faircent uses fintech, analytics, and automation to bring individual borrowers and lenders on the same platform.
Avinash Kumar, a Noida-based medical practitioner, wanted to set up his own clinic. Being a first-time borrower, he was unaware of the procedures to have a loan approved. Faircent.com, a Gurugram-based online peer-to-peer (P2P) lending platform, extended its services to the doctor.
“They helped me through the procedure and provided information at every step. The follow-up was really good,” says Kumar.
Founded by Rajat Gandhi and Vinay Mathews, Faircent was launched in 2014. The P2P platform leverages financial technology, analytics and automation technologies to bring individuals needing funds directly in contact with individuals willing to lend, thus removing the intermediary margins.
Faircent recently closed a Series B round of funding and raised ~250 million in December.
“Faircent has done a terrific job of providing consumers an easy and affordable credit option, as well as offering investors a high-yielding asset class that can easily compete with more traditional investments. The team is now strongly positioned to work alongside the new regulations and lead this revolution in the space. We are happy to continue working with the team to help it leverage its learnings and advanced workflows to grow the market for all the stakeholders involved,” said Mohandas Pai, co-founder, Aarin Capital, and advisor to Faircent.
Product concept
Despite various initiatives from the government, as well as private players, much of the population is yet to benefit from financial inclusion. Many potentially creditworthy borrowers are unable to access formal credit and depend on exploitative lenders.
“Faircent has been addressing this gap by leveraging technology to build a platform that facilitates access to credit for unbanked and under-banked segments,” says Gandhi, founder and chief executive officer, Faircent.
Several facilities like ‘auto-invest’ and ‘lenders’ escrow accounts’ (under the trusteeship of IDBI) provided by Faircent speed the entire process and cut operational cost. They also enable smooth online flow of financial transactions, making it possible for lenders to invest as low as ~750 per loan.
Faircent’s underwriting algorithms evaluate each borrower on about 120 parameters, processed through access to more than 400 data points. For borrowers, annual interest rates start at 12 per cent on a reducing balance and go up to 28 per cent for unsecured loans. Lenders are getting a return of around 18 per cent on average, after defaults. Faircent has non-performing assets of around 4.5 per cent. About 40 per cent of the loans are business loans, followed by debt consolidation and family events.
A lender can start lending by transferring ~10,000 to his account, linked to the escrow account. Automated systems and features of the platform ensure a lender can invest as low as ~750 per loan. A total investment of ~1 million can be made by a lender on the platform. Similarly, a borrower may get between ~10,000 and
~1 million on Faircent’s platform.
Opportunities
P2P lending in India is currently at a nascent stage, but its future is promising. Valued at $3.2 million, the sector is projected to grow exponentially over the next three years, to be worth anywhere between $4 billion and $5 billion. More than 30 specialised P2P lending platforms are operational to tap into this huge market opportunity.
“As the pioneer of the online P2P lending model in India, Faircent has first-mover advantage and is currently the largest P2P lending platform. With more than 200,000 registered borrowers and 20,000 registered lenders, the platform has disbursed about ~280 million in loans. It is disbursing about 400 loans per month,” says Vinay Mathews, founder and chief operating officer, Faircent.
Faircent claims to have a market share of 65-75 per cent in online P2P lending. Faircent charges a certain amount from the borrower and lender as fee. The platform charges 1 per cent from the lender and 2-5 per cent from the borrower on the disbursed amount.
Road ahead
Currently operational in 173 cities, the company has about 20,000 lenders and about 200,000 borrowers listed on its platform. “We are looking to expand our operational footprint from 173 cities to 500 cities in 12-18 months,” Gandhi adds.
Faircent aims to secure the mandated non-banking financial company licence from the Reserve Bank of India latest by April and achieve break-even in the next three years.