Vishal and Nitish are two friends who had started a Karate school as a business venture more than 3 years ago. After 3 years of their successful business with good profits and numerous milestones under their belt, they are hungry for more business that adds value to the society. They want to open a new branch of Karate classes to expand their business and want to equip women with the required Karate combat skills for self-defense. Vishal and Nitish are daredevils in the field of self-defense, however both are defenseless when it comes to all the legal formalities, documentation while applying for a business loan.

Next day, they visit a bank for enquiring about the business loan procedures and receive a long list of documents to be submitted along with a high rate of interest. The bank’s conditions seem unfeasible. Dejected and disappointed, they planned the next meeting in the next bank. 

The other bank had a similar rate of interest but involved more paperwork than the previous bank. It was afternoon already and they thought it better to go back home.

On the way home, they met Vaishalika, a budding entrepreneur in the same district, who had expanded her Fashion Boutique business in a matter of a few months. On gathering the concern of Vishal and Nitish, Vaishalika counselled them and gave them the secret of her business growth. She apprised them how she had taken the business loan at a favorable rate of interest with least paperwork and in a short time duration. Both Vishal and Nitish were pleasantly surprised and finally asked her the name of the company that helped her through her business expansion. Vaishalika intimated them about Prest Loans and the customized services offered by them. She elaborated about Prest Loans as a new age online lending NBFC that understood her requirements and disbursed the business loan with the least paperwork and in a timely manner! 

Impressed and amused, both Vishal and Nitish decided to give their ideas one more try with Prest Loans!

Next day, Vishal gave a missed call to Prest Loans, and immediately the Prest Loans representative called up Vishal and Vishal apprised him about the future business plans. Thus, the following conversation ensued:

PL representative: “Hmmm… I see you have made good progress and are hungry for more success. So, which category of business loan do you require- secured or unsecured loan?”

Vishal: “Thank you for your encouraging words about our venture but I’m not sure about both the categories of business loans. Can you elaborate?”

PL representative: “The loans, which are secured by holding the assets as a collateral are called secured loans. On the other hand, an unsecured loan doesn't need any kind of assets for taking a loan, but the borrower must have a good credit history for getting an unsecured loan”.

Vishal: “Okay and does the rate of interest vary in both the categories of loan?”

PL representative: “Unsecured loans are most difficult to get and also have the high rate of interest in comparison to secured loan and in case of unsecured loans, you only get the smaller amounts of loan because loan provider doesn't have any of your assets or collateral security as a deposit. In an unsecured loan, the loan provider has the rights to a lawsuit against

you for recovering the loan amount”.

Vishal: “Will it take a long time to get the loan, just like a normal bank would?”

PL representative: “Not at all! We have flexibility in prepayment charges and with loan tenure of upto 3 years and loan amount upto INR 5 lakhs, we can surely disburse the loan within 24 hours after completing your documents.”

Vishal had got most of his queries covered during the conversation. He knew that his dreams were in the right hands. Sporting a smile, he bade goodbye to the PL representative and kept down the phone. Later that evening, both he and Nitish got into a huddle to start planning expansion of their business! Thus, once again Prest Loans came to the rescue of a beautiful business idea.

Alankrita always gets her groceries from the kiraana shop in her locality. Why not a super market one might wonder? Her excuse she doesn’t have time but in reality it’s about the trust she confides in the “kiraana vale uncle” she has grown up watching throughout her childhood. Similarly this goes around for all the tenants who have been living in her locality for a decade or more.

On her most recent visit to the store she got to know the difficulties he’s been facing due to a new big store opening nearby. The fancy racks, trolleys that allow you to choose your own things rather than ask from the staff, extra space with high end curtains and graphically painted walls have cast a magic over all people. Even loyal customers find excuses to visit that store and brag about it.

Alankrita suggested the uncle that he should also turn over his shop like those shopping complexes. Uncle replied, “Hume kaun loan dega? Humne to apni puri zindagi aise hi nikal di. Na kabhi loan liya aur na hi girvi rakhvane ko kuch hai ki koi bank loan de. Sab bas hafte dar hafte ghumate rehte hai”. Which means “Who will provide me with a loan? I have spent my whole life without taking any loans, this is also because I do not have any property or collateral against which in bank will provide me a loan. All the banks just keep me running in round circles week after week.”

This reply remained stuck in her mind for quite a few days; she has never seen “kiraana vale uncle” so helpless. Alankrita always thought it was easy to get a loan but in reality this seemed so much more difficult.

After a couple of days she was scrolling through Facebook and saw a post on unsecured loans by a NBFC called Prest Loans. The post had actually caught her eye and she was intrigued with the uncle’s remarks still roaming on the back of her mind; she opened their page and was amazed to see that all of uncle’s  problems were about to be solved. Still unconvinced she read reviews and gathered information on NBFCs and their working. Prest Loans checked out to be one of the most trustworthy NBFC with provision of unsecured business loans, short term loans, long term loans and much more with an easy application and fast approvals.

With all her knowledge Alankrita went to “kiraana vale uncle” to let him know the good news. She gave him all of the information she had gathered and asked him to just give a missed call on their number and get an easy-peesy solution to all his doubts and enquiries.

A week or two later on her next visit to the kiraana shop, Alankrita discovered construction going on, she went closer and found the uncle supervising. With a warm heart he greeted and thanked her for the tip about Prest Loans as the loan was already sanctioned and he was expanding his shop with a fully exclusive modern look. He gave her a chocolate and told her to wait only a couple of weeks after which she could start calling him “badi dukaan vale uncle”.

Just like an online marketplace brings buyers and sellers on a single platform to transact, P2P lending marketplace brings borrowers & lenders together.  P2P lending is a crowd-funding model where people, looking to invest their money & people who want to borrow can do so. Their website lists multiple borrowers under different risk categories, with varying interest rates. Borrowers are either individuals or small businessmen whose loan applications have been rejected by banks.

Global cumulative lending through P2P platforms at the end of Q4 2015, had reached Rs. 38,200 cr from Rs. 19 cr in 2012. And up until April 2016, there were around 30 start-up P2P lending companies in India. RBI feels that although P2P lending platforms are still at a nascent stage in India and are not of significant value yet. But the potential benefits they offer to their stakeholders and their associated risks are too important to be ignored.

At present, it is partially or fully regulated in many western countries like US, Australia etc. China has the largest P2P market in the world, with hundreds of platforms offering diverse services, but the sector is not regulated currently.

Government of India understands the imperative need for affordable credit specially for MSMEs and is giving impetus to NBFCs like www.prestloans.com to ensure that the gap is bridged. This means that faster and easier loans are available at cheaper rates through NBFCs.

Peer-to-Peer Marketplace

P2P Lending firms typically charge their lenders one-time registration fee, or they charge based on the amount lent. Lenders are allowed to choose from among a set of borrowers on the platform and can diversify their risk by lending to multiple borrowers.

These firms often follow a reverse auction model in which the lenders bid for a borrower’s loan proposal and the borrower has the freedom to either accept or reject the offer. This way borrower's confidence gets a lot of boost, when he sees that multiple parties want to extend a loan or invest in his enterprise/ new business model. But as a borrower, due diligence must be exercised to determine whether the cost of borrowing is reasonable.

A low risk borrower is likely to get an interest rate of 12-13%, while a high-risk borrower can get a loan at 25-30% interest rate. Multiple lending opportunities offered over these platforms are likely to give greater return on investment than a saving bank and fixed deposit account would give. However, these investments are very risky as they are unsecured loans.

These firms assess their borrowers on basis of credit scores, banking details and income tax returns. They assign a greater weightage to social behavior than to credit scores. This social behavior is then extrapolated to financial behavior. Furthermore, these firms also help in following up for repayments and assist in recovery process as well.

P2P firms facilitate documentation for lending and borrowing. Loan is transferred from lender's bank account to borrower's bank account. These firms facilitate collection of post-dated cheques drawn up by the borrower in the name of the lender. These cheques are proxy security for loan repayment.

RBI Regulations for NBFC-P2P Lending activities

Seeing the pivotal role P2P lending were likely to be playing in the near future, RBI came out with a set of regulations that will govern this sector. Only entities that are registered under the Companies Act can get a P2P registration from RBI

• Companies registered as NBFC-P2P shall have a net owned fund of at least Rs. 2 cr unless a higher amount is specified by RBI

• NBFC shall only act as an intermediary/facilitator between borrower and lender and cannot mobilize deposits or give loans on its own

• They cannot provide credit enhancement or credit guarantee schemes

• They cannot facilitate or permit any secured lending linked to its platform; i.e. only clean loans will be permitted

RBI Regulations: NBFC-P2P Prudential Norms

• Leverage Ratio of not more than 2 shall be maintained

• Aggregate exposure of a lender to all its borrowers, at any point in time, across P2Ps, shall not exceed more than Rs. 10,00,000

• Aggregate loans taken by a borrower, across P2Ps, at any point in time, shall not exceeded more than Rs. 10,00,000

• Exposure of a single lender to a specific borrower, across P2Ps, shall not exceed more than Rs. 50,000

• Maturity of the loans shall be less than 36 months

• They must undertake due diligence on their participants including credit assessment and risk profiling of borrowers. This information must be disclosed to their prospective lenders

• NBFC-P2Ps shall adopt the loan recovery practices from other NBFCs. There should be proper redressal mechanisms for complaints. Funds should be directly transferred from lender's bank account to that of the borrower's.

The growth of digital transactions, recent fintech innovations and the increase in demand for affordable credit has been the driving factor for growth in NBFCs like www.prestloans.com and P2P lending platforms in India. Its recent inclusion under RBI regulatory lens has put the sector on exponential growth trajectory. Considering that these firms are likely to be grow to $4-5 billion by 2023, this lending segment has completely disrupted the lending and asset class categories in India.

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I am Ramesh, a 30-year-old man who lives in Karol Bagh and owns a small grocery store. This business was started by my grandfather and was wound up when I was a teenager, due to unfortunate and untimely death of my father. It was my grandfather’s dream to open the biggest grocery store of the entire locality. And even though, he is no more, I wanted to make this dream come true for him. So, I re-started it at the age of 25. I invested my own personal savings to re-start the store. But as time went by, I realized I could make much more profit than it was possible. I realized there were too many middle-men who were eating away a big share of profits. I approached the wholesaler, but he refused to supply to me directly as his cost of delivery would be more than my demand. The gift shop next door wasn’t doing well, and I wanted to make him an offer, that he would find very hard to refuse.

As none of my relatives and friends could extend such a high valued loan, I approached a well reputed bank, but the bank also refused as I had a negative CIBIL Score! (Read more about CIBIL score at Prest Loans blog https://bit.ly/2tVSfQE) I was really puzzled; how can I have a negative score? I had never taken a loan from a bank. I had only borrowed a small amount from my friend 3 years ago. This was when a couple of my customers were running behind on their payments and I had to pay my suppliers who were threatening to withdraw their supplies. And I had even repaid him back on time and with interest! I told the bank about my grandfather’s dream and showed him the lacuna of services provided by me by showing the strategic location of the shop and the profits that the shop can make due to the office complexes nearby and the residential areas in the vicinity. However, the bank paid no heed and my loan application was declined.

I talked to my relatives, my friends and also searched the internet. And I was amazed that there were so many options available for MSMEs (Micro, small and medium enterprises). Credit Guarantee Scheme, Pradhan Mantri Mudra Yojna (read more about it at Prest Loans blogs https://bit.ly/2KfS3WL), Capital Linked Subsidy Scheme, Capital Linked Subsidy Scheme for technological upgradation (read more about it at www.prestloans.com) etc. are some of the collateral free loans that MSMEs can take.

I even read that since MSMEs like mine do not maintain proper books of accounts, and sometimes properties are not accepted as securities, government of India empowered NBFCs (Non-Banking Financial Institutions) to disburse loans quickly and with minimum paperwork. These NBFCs are equipped with latest financial technologies that can study my social behaviour, other informal data and extrapolate my financial and risk-taking abilities.

With so many options available, I was getting confused as to which loan would be the cheapest and which one would suit my business needs the most. Then I remembered that, as per one government of India initiative, I could hire an agency to analyse credit worthiness of my business. This would help me evaluate my business performance and credit reputation. These services can be availed at discounted rates to MSMEs. The rating is done by reputed agencies like CRISIL, CARE or SME Rating agency of India etc. This rating would help me get loan at competitive interest rates. It was also interesting to note that, GOI provides once in a lifetime subsidy of Rs. 40,000 to MSMEs to get themselves rated. But this option was too costly for me. I would certainly get this assessment done after I have expanded and automated my entire procurement process. I would need a third party’s competent opinion before automating deliveries to my customers.

While I was coming back from a supplier meeting, I recollected reading Mr. Ashok Mittal’s opinion regarding struggles of MSMEs and how they plan to bridge the gap by disbursing quick, easy and cheap loans. I also realized that loan taken from NBFC would be the cheapest, fastest and I could also enjoy longer repayment terms. I immediately grabbed my phone, logged onto www.prestloans.com, filled a simple form within a matter of minutes. Their officials approached me, asked me a couple of simple questions, did minimal compulsory paperwork and my loan was disbursed in just 3 days!!!

Now, I will be able to acquire the gift shop next door, expand my business and would be one step closer towards my grandfather’s dream. All thanks to Prest Loans!!!

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