PEER-TO-PEER LENDING

   What is Peer-to-peer lending?

Peer-to-peer Lending (P2P Lending) also known as social lending, is a new type of financing which allow people to lend and borrow money without intermediary like financial institutions. P2P grew by leaps and bounds after 2008 financial crisis when people are skeptical of financial institution. Compare with normal intermediary such as bank or stock market, P2P has less fluctuation, cheaper fees and offer higher returns.

   How does p2p lending work?
All processes of the P2P lending are made through online platform. The borrowers and lenders can make a direct transaction without any institutions.


➣ The general process of p2p lending be like:  
  1. The borrower must complete the online application in P2P platform, which will check the borrowers’ credit and determine their eligibility as a “loan grade” for the lender
  2. The borrowers are assigned to their appreciated interest rate
  3. When the applications is approved, the borrowers will receive the options based on their loan grade and assigned interest rate. 
  4. At the end, after the borrowers match with the lender, the borrowers will receive money they need. 
  5. The borrowers pay periodic interest and repay the principal debt


There are many peer to peer lending platforms available online. Here’s the list of popular peer to peer lending websites.
Upstart, Peerform, Prosper, Circleback Lending and Lending club

Lending Club


Lending club was founded in 2007 and now is the largest P2P lending platform with about $20 billion in loan issue. It offer a loan from$1,000 to $35,000 for an individual and from $15,000 to $300,000 for SME.
P2P lending process in Lending Club is very simple. It start when the borrowers apply or a loan and i their meet the criteria, their loan will be added to the online platform.  The mininum amount per loan or the Lending Club is just $25 per loan.
For the lenders, they can created their own portfolio in order to reduce their risks of many borrowers.
Lending Club define some level of verification on every borrower. If the borrower passes verification, the loan will be approved and issued to the borrower in fully funded. on the other hands, if the borrower fails, the loan will not be issued. It will be deleted from the platform and all money will be returned to the investors or the lenders.
Each loan can stay on the platform for 14 days.. Approved borrowers will receive their money in a couple business days once funding is complete and then the payments will be made within 30 days. 
There are some requirement in order to invest and financing in Lending Club 
  1. Must be at least 18 years old and have a valid social security number 
  2. Have an annual gross income at least $70,000 and a net cash at least $70,000 or a net worth at least $250,000 (including assets) 
  3. The investers are allowed to purchase notes up to 10% of their net worth

   Risk and Reward of P2P lending

  • RISK
1. Borrower delayed payment or default and lender’s money is not protected

2. Borrowers’ risk evaluation process ; lenders does not know the borrowers income data and other document. 

3. Cybercrime risk ; hack the customer's information
  • REWARD

➢ Borrower

1. Get loans that are cheaper than financial institutions

2. Having a loan application is easier than the institution

3. No compensations for payment of loans before maturity

➢ Lender / Investor

1. Get rather high returns from new securities and stable return compare to other stocks
   
2. P2P lending is an understandable and reliable investment
    
3. Receiving consistent returns

4. It is an investment that helps others to be able to decrease the liabiilities with cheaper interest

   What are the problem with China P2P lenders?

Due to the wide-spreading online lending system. Many of Chineses are eager to make an investment to grow some profit out of their passive income. So they heard peer-to-peer and became interested. They invested without knowing what is the asset they are investing. They willingly gave the money to the borrowers including teenagers with fake ID or small corporates without collateral, for around 3,500 companies. 
The platform of lending like peer-to-peer kicked off in 2011 and been through boom until 2015, right there, when the truth is uncover. When the government launched a campaign against private or online loan to reduce risk of the nation. That is when the investors tried to get their money out of the loan. But before they know that it is already too late, their borrowers are no where to be seen. The matters got worse at the same time, government was pushing the policy to the higher standard, and interfering most of the capital structure of small corporates. So there is a problem with liquidity as the corporate defaulted and investors pulled away. Then, many investors thought that the government intervention caused default and began to protest.
The protestors, investors, became more aggressive causing turmoil and hurt officers. So the government arrested and terminated those who cause the chaos out of the country. Despite these problems, there are signs that China’s ruling Communist party still supports the P2P lending industry’s development as a way of providing credit to consumers and small business, which are poorly served by traditional financial institutions.



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