Why should you lend money through i-lend?

i-lend is a social lending platform and is designed to provide an additional financial instrument to people while also fulfilling social objectives.  All of us at varying times in our lives have been in a situation where the conventional financial instruments have fallen short of delivering what would have been a decent return on our money.

If you traverse through the landscape of financial instruments that were available for savings and consequently return on this money, we can come up with the following products.

Savings Bank – 3.5% to 4%
Fixed deposits – 8% to 9 %

In the earlier days there were instruments like NSC’s and Indira Vikas Patra’s, Kisan Vikas Patra’s etc which doubled your money in 6 years run by the government and with tax incentives, these were quite popular and a bulk of the middle class ended up investing in these instruments where the returns were roughly between 12 to 13%.  Progressively these instruments were withdrawn and or interest rates reduce significantly leading to the reduction in the options for the middle class for a savings backed returns driven products.  Today apart from the above mentioned products the other options available are MF’s Fixed Income Schemes, Stock Markets in the regulated space.

We know that apart from savings banks and FD’s come with their own set of risks and lots of the times the risks have not justified the returns by a number of MF schemes available in the market today and some MF’s have lost money as thereby passing on the depletion in capital to the subscribers.

This is a challenge being faced in most countries and all or most instruments being linked to the indexes have resulted in wealth erosion particularly over the last few years. Fundamentally the banks are lending your money parked with them and make money on the arbitrage over interest rates. For instance if you are getting 4% on your savings banks, the banks lend anywhere from 16% to 24 % in retail loans which are perceived to be of the highest risk. For this the banks have various methods, processes, credit ratings, evaluation criteria and lots and lots of infrastructure to ascertain the best credit worthy borrowers and lend money to them.

What does P2P Lending do?

Here through i-lend, you will be provided the same analysis tools that a bank have, namely credit rating systems, credit verification, income validity of people who need money including their social and economic criteria along with the end use of the money required by them. This enables you to make a credit judgment of persons’ need for money using these tools and lend money to him at a significantly higher rate than you would get from banks and in turn it will be at a lower rate to the person who needs money than a bank since the arbitrage is not there.

As a result you could end up with a return of anywhere between 12 to 18% based on the risk rating of the borrower or borrowers thereby assuring yourself of a steady monthly income from surplus cash that is available with you. For instance if you lend approx Rs. 2 Lakh through i-lend you will be getting steady returns anywhere between Rs. 24K to Rs. 36K per annum which beats all other instruments.

Risk

It is well documented that large financial institutions are not necessarily good with credit decisions and one look at NPA’s of banks both in the retail and commercial space will confirm that. However it is accepted that the more the risk, the more the return but the key factor is the risk commensurate with the return. In the case of i-lend risk is mitigated in a number of ways.

• All borrowers’ info is fully checked and the documents submitted are verified and maintained by i-lend. For instance a person who needs money says he is getting an income of RS 50 K / Month, it is checked with his pay slip and bank account statement. Similarly address and all such details are double checked.
• Second we encourage the borrower to build a story of “why he needs the money?” How he intends to repay it?” and so on enabling you to browse his information, ask him any questions, satisfy yourself of his intentions and then make the credit decision.
• Thirdly, i-lend encourages people to diversify risk by giving money to multiple borrowers.
• Fourthly, the borrower’s performance is monitored during the tenancy of the loan and any changes are likely to be known to us first, a pro-active method of dealing with potential delinquencies.
• Fifth i-lend ensures that all documentation is between the person giving money and the person taking money and the EMI’s are collected by i-lend and banked regularly.
• Finally in spite of all these precautions if a default occurs, i-lend shall help in collection by using all legal means available.

The key aspect of i-lend is to provide all the tools a bank uses to people to enable them to make lending decisions wisely for their own benefit.