5paisa Loans Blog

How safe digital lending is in India?

By Anurag Srivastva | 19 Mar 2020

Peer-to-peer (P2P) lending is a fairly recent phenomenon in India and interest levels have picked up in the last couple of years. RBI has already come out with detailed regulations covering P2P lenders and borrowers. Online lending is both; efficient and economical. Lenders are able to get a good yield based on a scientific credit assessment model. Borrowers, on the other hand, are able to get personal loans online on tap and they can reduce their cost of borrowing by improving credit score. But how safe is digital lending?

Safety of digital lending has to be seen two ways; safety in terms of process flow and safety in terms of borrower quality.

Safety in terms of process flow

One of the advantages of P2P lending is the combination of credit history assessment of the borrower and use of technology to profile a client. Credit score or the CIBIL score can only tell part of the story. P2P lending platforms are able to effectively leverage technology to add more bells and whistles to this analysis of borrowers. This not only enables a deeper and granular understanding of the borrower but also reduces the risk of lending to a great extent. That works in favour of the P2P lending platform as well as of the lender. Like any form of lending or investment, digital lending has it is own risks. It is just that these risks are better managed and mitigated with the use of technology.

Safety in terms of borrower quality

What the P2P lending platform does is to bring multiple checkpoints to encourage responsible borrowing. To begin with, borrowers are graded based on score and credit history and loan costs vary accordingly. Hence, there is an incentive for borrowers to behave responsibly. Secondly, the use of technology eliminates human bias in credit risk assessment. Above all, P2P lending platforms are now permitted to share credit history of borrowers with CIBIL and that also acts as a check on borrower behaviour.

In summary, the combination of technology, granular credit assessment and peer pressure enables safety in terms of borrower quality. The speedy process also works to improve the safety of the process.