What are P2P financial products and how do they work?

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A Peer to Peer (P2P) service connects lenders and borrowers, allowing individuals to obtain loans directly from others like themselves. It is an online framework that connects lenders and borrowers on an online platform without the presence of intermediaries. P2P financial products make borrowing and investing easier, with digitally executed application, identification and verification processes. Additionally, a P2P product offers borrowers lower interest rates and enables higher returns for investors due to less overhead. The global P2P investment industry is valued at $ 3.5 billion in 2013 and $ 64 billion in 2015, it is expected to represent nearly $ 1 trillion by 2050. In the Indian context, estimates of industry indicate that P2P investments will reach $ 5 billion by 2023. The popularity of P2P investments around the world and in India has made it emerging as an alternative method of financing and an attractive investment opportunity for many.

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P2P products in India are regulated by the RBI under a directive issued in 2017. Under these rules, P2P platforms must register with the RBI and have a net worth of at least INR 2 crore . Platforms must submit transaction and borrower information to credit reporting companies. Limits are also set for investors on P2P platforms, where they cannot lend more than 50 lakh on all these platforms. These limits were set to diversify investors’ risks.

While the benefits and convenience of P2P investments are tempting, potential users are eager to fully understand how they work. Like other financial products, the risks associated with P2P investments are linked to borrower defaults. However, products like CRED Mint have managed to minimize them considerably by executing P2P investments in a high trust community.

In 3 years, CRED has built a community of over 7.5 million creditworthy people, all with a credit score above 750. The company recently launched CRED Mint – a community driven product that allows members to earn interest on unused money by lending to others – trusting members. CRED Mint was launched in partnership with Liquiloans, an RBI registered NBFC P2P. CRED members who invest in CRED Mint can benefit from anti-inflation interest rates of up to 9% per annum, higher than traditional methods. With CRED Mint, members can invest money knowing that it will only be loaned to others like them: the most creditworthy individuals in India whom CRED knows are good at their word.

Investments made through CRED Mint will be loaned through CRED Cash, a loan product created for trusted members of CRED, in partnership with banks and NBFCs. Members have learned to trust CRED Cash over the past year; with over 2,000 crore INR disbursed through regulated partners. Even at the CRED Cash scale, the default rate is historically less than 1%. To further reduce the risks, the money invested will be directly channeled to an escrow account held by the NBFC partner of CRED, Liquiloans, and diversified on more than 200 borrowers on average.

With CRED Mint, the process of investing money has become simple, transparent and fast. Members can pay between Rs 100,000 and Rs 10,000,000 in less than two minutes, with no commission. They can request a one-click withdrawal, in whole or in part at any time without penalty and earn interest over the period invested. The withdrawal process is completely online and the money with interest will be returned to the investor within one business day. As a digital platform facilitating the P2P experience, CRED reduces friction, inefficiency, commissions and overhead to pass on higher revenue to members.

The convenience and benefits of P2P finance will also always increase many times over when performed in a high trust community. So, if you are thinking of managing your money through P2P investments, now is the time to do it.

Disclaimer: The article was produced on behalf of CRED by the Times Internet Spotlight team.

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