Did online lenders really reap the benefit of note ban? Find out here

Online credit providers such as pay day loan companies and peer to peer (P2P) lending platforms are growing at a rapid pace and are reaching, where formal finance is unable to reach. While three years ago there were only two P2P lending platforms in the country, as of April 2016 the number had risen to 30, as notified by the RBI.

These platforms are reporting healthy double digit growth rates in disbursals as well as registrations month after month. The monthly average cumulative lending of P2P lenders has shot up from Rs 20-30 lakh to Rs 5-6 crore in just 3 years' time. 

Demonetisation, further fuelled their business as cash starved small businesses belonging to cash-intensive sectors such as retailing, transportation and construction, to name a few couldn't borrow from the informal sources. Online lending companies saw an uptick in loan enquiries.  

"The average per client ticket size was Rs 2 lakh before the demonetisation while the average loan tenure was 2 years. Post DeMo, we have seen a 20- 30 per cent increase in borrowers," says Raghavendra Pratap Singh - Co-founder i2ifunding.com, a P2P lending platform.

However, this is bright side of the story. While, number of loan seekers shot up, job losses and delay in salary payments have been the cause of concern for the lenders. Post the event, lenders have become cautious of the credibility of the borrowers, who might come across more hurdles before getting a loan.

Going by statistics for P2P lending platform, Faircent.com, more than one-third of total loan seekers borrow to fund their business. Second major purpose is debt consolidation and 19.5 per cent borrow for this purpose. The other reasons for borrowing are appliance purchase, home improvement family events and buying car and so on.

Pande, co-founder and CEO Finance Buddha an online credit aggregator says, "There is a probability that lenders will become cautious on certain segments, where they perceive higher risk on post demonetization."

"People working in contract or deriving their income in cash or employed in cash dominated informal sectors have been facing some troubles in honoring their EMI commitments. Repayment has been an issue," says Singh of i2ifunding.com. He further adds, "in some cases, we have experienced a delay in repayment ranging anywhere between 15 to 60 days."

Rupeelend.com a short term online credit provider is also facing delay in repayment by their borrowers. Siddharth Ravindran, CEO, Rupeelend.com says, "Almost 55 percent borrowers are making delays, and a majority has genuine problems." Apart from those in actual crisis, many are voluntarily stretching the time limit in shadow of demonetization, he adds.

No one is willing to repay in crisis and lenders can only extend the due date. "The overall impact on repayments can be assessed in the next 60-90 days", says Pande of Finance Buddha.com. Currently, things are in mishmash and it will still take another 6 months approximately to get back to normal.

Online lending platforms are undoubtedly very effective for people in urgent need and for those who cannot meet the lengthy procedures of the conventional institutions. RBI had come up with a discussion paper on P2P lending in April, 2016, after which there is no positive development in the alternate credit segment. 

This sector as a whole can potentially have a huge impact on the overall credit growth and credit inclusion. The players are hoping RBI and Ministry of Finance to come up with regulations to eliminate uncertainties loom over this sector.