Marketplace Lending in the Global and Indian Context

In recent years, the financial landscape has witnessed a significant transformation with the rise of Marketplace Lending (MPL) platforms. These platforms serve as a bridge between private users seeking loans and investors willing to lend, fostering a dynamic online marketplace. The likes of 12% Club, LenDenClub , Mobikwik Xtra , Cred Mint, Faircent , Lending Club, Zopa, Auxmoney, and Prosper have emerged as key players, disrupting traditional lending models. This article explores the intricacies of Marketplace Lending, its global trends, and a special focus on the unique models prevalent in India.

Global Landscape of Marketplace Lending:

1. Understanding Marketplace Lending:

Marketplace Lending platforms operate on the principle of connecting borrowers and investors in an online marketplace. Users can request loans, and private investors assess these requests, often relying on the platform's internal credit scoring system. Unlike traditional banks, MPL platforms expedite processes, offering flexibility in conditions and requiring less stringent creditworthiness checks.

2. Market Players:

Key players in the global Marketplace Lending arena include Lending Club, Zopa, Auxmoney, and Prosper. These platforms have played a pivotal role in shaping the industry, offering diverse lending solutions to a growing user base.

3. Market Projections:

The total transaction value in the Marketplace Lending (Consumer) market is projected to reach US$0.7 billion in 2024. A closer look reveals that the United States dominates the market with a projected transaction value of US$26,180 million in the same year, highlighting the robust growth of Marketplace Lending on a global scale.

4. In-scope and Out-of-scope Elements:

Understanding the parameters of Marketplace Lending is crucial. In-scope elements encompass online platforms for personal loan applications, peer-to-peer loans with interest rates based on internal credit scoring, and connections between individual borrowers and institutionalized lenders. Out-of-scope elements include traditional bank loans, loans for business purposes, and online comparison websites for bank loans.

Marketplace Lending Models in India:

1. Overview of Indian MPL Models:

Marketplace Lending in India represents an extension of Peer-to-Peer (P2P) lending, covering both business and individual loans, including secured mortgages. Unlike global trends, Indian MPLs often act as loan originators, collaborating with banks and Non-Banking Financial Companies (NBFCs) to fund loans. Three prevalent MPL models in India include platform-as-originator, platform routing to NBFC, and platform as a matchmaker.

2. Indian MPL Business Models:

• MPL Platform as Originator:Acts as an aggregation and origination platform. Falls under the purview of Account Aggregators Guidelines of RBI. Low capital requirements as the platform cannot fund loans directly.
• MPL Platform to Route to NBFC:Acts as an origination platform connecting borrowers and in-house NBFCs. High capital requirements as the platform funds loans, potentially creating a conflict of interest.
• MPL Platform as Matchmaker:Connects lenders and borrowers with limited involvement in loan disbursements and repayments. Medium capital requirements may be needed for a lender protection reserve.

3. Unique Features of Indian MPLs:

Indian MPLs stand out due to their reliance on multiple data sources beyond traditional financial statements for creditworthiness assessments. They address information asymmetry issues faced by banks and institutional lenders, making them a viable alternative financing avenue for both individual and MSME borrowers.

4. Future Outlook for Indian MPLs:

The Indian alternative lending space is poised for growth, driven by regulatory clarity and a customer-centric focus. Both traditional banks and alternative lending platforms are likely to coexist, serving different market segments. Fintech companies, rather than disintermediating banks, are expected to grow through partnerships, contributing to the development of extended financial ecosystems.

Alternative Lending Beyond Marketplace Lending:

In addition to P2P lending and Marketplace Lending, several FinTech companies offer credit risk assessment and underwriting services to banks and NBFCs. Credit Mantri, for instance, utilizes a combination of traditional and alternative data to create credit profiles for customers, facilitating informed credit decisions and connecting customers to potential lenders based on their credit scores.

The evolution of Marketplace Lending has not only revolutionized the borrowing and lending landscape but has also created a paradigm shift in how financial transactions are conducted globally. While the United States leads the market, India stands out with its unique MPL models catering to a diverse set of borrowers.

As we navigate the dynamic world of alternative lending, it becomes evident that collaboration between traditional financial institutions and FinTech innovators is the key to sustained growth. The Indian market, with its low retail and SME credit penetration, presents a fertile ground for the continued expansion of Marketplace Lending, offering financial inclusion and flexibility to a wide range of users.

In conclusion, the global and Indian Marketplace Lending scenarios are emblematic of a financial revolution, redefining the way we approach lending and borrowing. As technology continues to advance, and regulatory frameworks adapt, the future of Marketplace Lending holds exciting possibilities, promising financial accessibility and convenience for users around the world.