If this Indian start-up catches on, could banks become irrelevant?
One Indian startup is revolutionizing how people borrow and loan money. Faircent, located in Gurgaon in the northern part of the country, specializes in facilitating Peer to Peer (P2P) lending via a virtual marketplace. Through this platform, borrowers interact with approved lenders and decide upon the terms of the loan such as the interest rate, loan amount and repayment period. Founded by Rajat Gandhi and Vinay Mathews, Faircent aims to provide lenders and borrowers a place to interact directly, bypassing any financial intermediaries such as banks.
This ensures that customers are not restricted by the numerous terms and conditions imposed on them by banks or other financial institutions.
Hence, by directly interacting with lenders, borrowers can get loans at convenient interest rates. Unlike banks, which charge additional fees, Faircent eliminates most additional institutional charges so that their customers can access loans in a more cost efficient manner.
So how exactly does Faircent’s P2P lending platform work?
Customers can either register as borrowers or lenders on the company’s website. Faircent then verifies the potential customer and cross checks their personal, professional, and financial records. Once the registration process is complete, those who have registered as lenders can link their Escrow account and start scouting for potential borrowers on Faircent’s marketplace. The process is similar for borrowers, who also have to go through a credit verification and risk assessment process.
Once registered, Faircent’s automated system analyzes the credit profile of each borrower and suggests a recommended interest rate, loan period and amount depending on the borrower’s capacity to repay. Lenders can then use this information to reach an agreement with the borrower. Both lenders and borrowers can make deals with multiple members . For example, a borrower may finance his loan through three or four different lenders. After an agreement is made, Faircent helps process the necessary paperwork and formalize the transaction.
With its innovative model, Faircent is making big strides into the Financial Technology (FinTech) industry. Its success has ben partly due to the Indian government’s policies encouraging the digitalization of financial transactions. According to Faircent’s CEO, Rajat Gandhi, “From disbursing Rs 15-20 lakh loans a month, we are now disbursing Rs 1.5 crore a month. India’s shift to digital payments has put us in a sweet spot.”
Faircent’s virtual loan marketplace is thriving with lenders willing to lend Rs 159,920,000 and borrowers seeking to borrow Rs 36,913,850. A majority of loans purchased through Faircent’s platform are used for the purchase of appliances (39.5 percent), followed by business funding (21.8 percent), and debt consolidation (11.1 percent).
With its successful P2P lending model, Faircent has bolstered its ability to capitalize on the growing FinTech market in India and is certainly a start-up worth watching.
Arin Gerald is a student at Boston University.