How are we delivering 16% returns?
At IndiaP2P, we set ourselves to build the ideal product for retail investors. That delivers:
1. High-returns with limited risk
2. Passive: because your time is precious
3. Predictable, non-speculative returns
4. Purposeful: aligns with your values
To meet these difficult criteria, we chose debt as an asset class. Debt offers regular, predictable returns at lower risk. It is also passive.??
Debt or loans taken by organizations and individuals enables them to expand their business and incomes. In return, they give the debt provider a return/interest income.
There are existing debt products in the market you can invest in, like debt mutual funds and bonds.??But, the returns they offer are not compelling. It is generally a very small delta over fixed deposits leading us to think that debt offers low(ish) returns.
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Debt markets are large and there are indeed large pools (~$140Bn worth) of high-yield, i.e. high return debt available in the country which was unavailable to retail investors, until IndiaP2P.
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So, what is high-yield debt and how can it give a low risk i.e. non-linear risk-return profile?
High-yield or high-return debt is simply loans that offer a high-interest rate.?
The interest rate paid on a loan is determined by factors such as tenure, credit rating/risk of the borrower, availability of collateral, and the lesser known factor - capital journey i.e. how capital travels between the initial provider and the borrower.
IndiaP2P derives high returns not by going after high-risk borrowers but rather after those borrower segments where the capital journey is long and inefficient. This is the case for borrowers seeking smaller loans. For a lender, say a bank, the effort required to give 1 large loan v. 1 small loan is not very different which is why most lenders prefer larger loans. As a result Banks ignore such borrowers and such borrowers get funding from NBFCs (Intermediaries) instead.
The typical capital journey for smaller and fragmented borrowers starts with capital providers such as yourselves who make deposits in a bank, the bank lends this money further to an NBFC which lends it further to another NBFC which may lend it further, and eventually a loan is given out to the end borrower.?
It is often the case that ~10% interest is lost to intermediaries. Think of this as having a wholesaler, distributor, retailer (all taking margins) between the seller (capital provider or investor aka you) and the buyer (borrower).
What does IndiaP2P do differently?
We derive value by making this journey shorter and smarter with technology.
IndiaP2P simply bypasses multiple intermediaries.??By bringing in this efficiency (disintermediation) all of the interest yield is earned by you i.e. increased returns from efficiency and not risk.
?Our tech stack not only cuts out the middleman (Banks and NBFCs), it also delivers a non-linear return-risk profile by creating ready to invest portfolios of diverse loan fractions from high-quality borrowers presented as the IndiaP2P Growth Plan and IndiaP2P Monthly Income Plan.??
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?So, who are these high-quality borrowers and what's in it for them?
Answer: There are many segments of high-quality borrowers, the largest of which is women business owners with prior successful borrowing track records/credit ratings.
IndiaP2P makes borrowing simpler, faster and cheaper with our technology stack and on-ground agent assistance infrastructure. Yes, we do have a field team that meets and consults with all borrowers onboarded.
How big is this borrower segment?
Roughly $50bn in fresh loans is given out to nearly 65 million women in India every year. That's nearly 25% of all Indian households!
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What is the default rate for this segment? And what type of loans are taken?
Over the past 10 years, the average default rates for this segment have been under 2%.??This number is lower than the default rates for corporate loans and even collateralized loans such as loans against property!
Women are known to have higher CIBIL scores and better repayment records.
Most loans taken are up to INR 100,000 for business/income expansion purposes.?
The borrowers can still default, right? How is this risk managed?
Like all investments, your IndiaP2P investment isn't risk free either. We minimize the risk of borrower default by a) onboarding only high-quality borrowers with existing, good credit scores and b) by diversifying your investment across multiple loan fractions in the most controlled way.
Purposeful? How?
Speaking with our stakeholders, we realized that most investors seek to align their investments with their values. Your IndiaP2P investment enables real economic value creation via smaller businesses and breaks many biases along the way.