P2P (Peer-to-Peer) lending is the latest phenomenon on the financial landscape taking roots from 2005 onwards. However, many argue that it is like the old practice of private money lending without any intermediation. The origination of P2P lending on digital platforms with online communities gaining popularity in the last one decade or so is the new dimension of this private money lending. It is alternatively called 'Crowd Lending', 'Social Lending' etc reflecting on some of the basic aspects of the model.
Private money lending on WWW without any intermediation of banks / financial institutions and with a website providing an online platform for lender and borrower to engage with each other may be defined as P2P lending. Hence it can be interpreted that the earlier role of bank / financial institution as an intermediary is being replaced by P2P Platform, which will be enabling a virtual market for lending bringing the lender and borrower together.
The basic features of P2P lending are:
'Zopa' is the first P2P lending company launched in the United Kingdom (UK) in 2004. Team in an Internet Banking Firm called ‘Eggbanking’ founded 'Zopa'. The word 'Zopa' was coined from 'Zone of Possible Agreement', a very popular term for negotiation skills. 'Zopa' could facilitate loans of more than £ 2.0 billion by 2017, and the first portfolio of Zopa loans was securitised in 2016 on the European markets.
Other P2P players who came later are- Funding Circle in the UK launched in 2010 offers P2P loans for business purposes as well and reportedly originated more than £ 6.00 billion, thus becoming a significant player. Even the UK government used P2P platforms to lend to small businesses, which are not viewed enthusiastically by banks. Propser.com was launched as a P2P platform in the USA in 2006 and became a sensation soon and was followed by 'Lending Club', which became one of the largest P2P lending companies across the globe. 'Smava.de', the German P2P lending platform, was launched in 2007.
China has witnessed a mushrooming of P2P lending platforms since 2010. At one point in time, China is reportedly having more than 4,000 P2P lending companies. Around 30 P2P companies are active in India. Similarly, other countries also experienced the emergence of P2P companies in varying measures.
Function of P2P platform and process of P2P lending
The generic function of a P2P lending platform typically comprises the following activities:
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