New era of P2P Lending in India

Crowd-funding is a relatively old practice commonly known as “friends and family financing.” The transparency and scalability of Web 2.0 technology has emerged as a social media-based funding mechanism leading to development of Peer to Peer platform. Crowdfund investing (CFI) is the investment alternative to pledge-based crowdfunding. This term, which describes securities based equity and debt fundraising through crowdfunding platforms, has recently emerged as an alternative to more traditional funding tools such as bank loans, angel or venture capital (VC) investments for financing entrepreneurs and small and medium-sized enterprises (SMEs). Debt crowdfunding is more popular and commonly known as peer-to-peer lending (P2P lending). It is the practice of matching borrowers and lenders through online platforms.

This is an innovation in entrepreneurial finance that can fuel the Rise of the Rest globally. In the developed world, most platforms are donation and perks-based. The early success of platforms, such as Kickstarter, has brought annual growth in the number of platforms of 60% CAGR. PwC has presented an analysis on P2P lending Peer pressure: How P2P is transforming consumer lending industry. PwC paper discusses how peer-to-peer lending platforms are transforming the consumer lending industry and the key considerations that financial institutions should evaluate when deciding on their strategic response.

Is P2P disruptive? I would say it certainly has been, but in the Indian context, it can make serious and material difference to the credit scene in the country. Access to finance is the most common constraint to growth cited by entrepreneurs in a broad range. Growth rates are higher for smaller enterprises yet the size of them becomes stagnant after a certain turnover. More recently, micro-finance has succeeded in expanding access to credit for the poor but high level of interest rates hinder the formation of surplus. By allowing customers to borrow smaller sums and lower interest rates than MFIs, the advent of P2P finance can open more possibilities for reaching the under-served than ever before. Currently the recommended rate of interest ranges from 12% p.a. to 28% p.a. and the loan tenure ranges from 6 months to 36 months.



The Fintech revolution in India had also facilitated a sudden boom in Indian P2P lending industry. The Indian P2P lending space has players like LendBox, LenDenClub, IndiaMoneyMart, Monexo, Rupaiya Exchange, LoanBaba, CapZest, and i2iFunding. Until few years back, there was no regulation in place to regulate P2P Lending. Any entity could undertake the business of P2P Lending Platform without any restriction and accountability. RBI has shared master directions for NBFC–Peer to Peer Lending Platform in 2017 and updated as on February 23, 2018. The new regulatory era began when Faircent become the First and only RBI recognized P2P lending platform.

India must find an appropriate balance between protecting investors and ensuring the flow of capital to early-stage companies. Modest and balanced regulatory schemes will more likely to accelerate formation of high growth MSMEs and crowd-funding ecosystems. The existing companies which are currently carrying on the business of P2P lending has been given 3 months’ time to apply for registration as an NBFC-P2P within 3 months from the date of the direction i.e. January 03, 2018. Recently, reports surfaced that digital payments giant Paytm is in the process of seeking a license from the RBI to operate a P2P lending platform.

Most of the MSME owners don't have the assets to present a collateral and hence don't qualify for the traditional finance. The need for collateral, from lender perspective, arises because default rates in this segment are higher and are unfeasible for profitable lending. However, only a small portion of borrowers (entrepreneurs) default and majority of this group forms a genuine customer base. But unfortunately, today there is no mechanism to segregate good portfolio from the bad in MSMEs. Hence, the lenders mandate some form of collateral to manage the risk. To reach their complete potential, this systemic hindrance & risk management must be tackled by P2P platform. Investors will be needing standardized and efficiently delivered information about business plans, use of proceeds, valuation and other disclosures in order to make investment decisions. The future is bright but the customer protection measures in place: caps on investment size, repayment frequency, tenor, margins and lending rate can lead to a sustainable Business model.

Development Consultants - Retention

A recent study of more than 600,000 researchers, entertainers, politicians, and athletes found that high performers are 400 percent more productive than average ones. Steve Jobs summed up talent’s importance with this advice: “Go after the cream of the cream. A small team of A+ players can run circles around a giant team of B and C players.” But only big 4 Consulting firms and donor agencies have power over the candidate with good monetary compensation and brand value. The other organizations have to design better HR retention strategy as they don't have deep pockets.

Being a leader at development organization is a tough task. There are essentially three basic ingredients that teams expect from a leader: Direction, Trust and Hope. Hence, building high impact team is tough as each individual require set of smart goals, timely feedback, progress monitoring, and supporting mechanism in the team. Yet, being a leader can lull one into a state of complacency. In that state one tend to assume that development consultants are subject to their will. One forget that a consultant can decide to leave them at any time. A leader can't retain development consultants alone on relationship basis. The company must support the leader with multiple levers (monetary, role, culture, growth, area of work) to manage and retain talent.

Monetary rewards are important. Development Consultants are mounted with education loans, rising inflation costs and increased peer pressure that further push talented lot to frequent hopping. Job security remains the number one reason that attracts development consultants in India, while salary is the number one driver to retain them. The organizational survey data indicates that the ability to match salary demands has been identified as the most critical challenge to hire individuals in the senior (65% of respondents) and middle management (59% of respondents) cadres, especially in urban areas. [ Talent Infusion in social enterprise]

360 Degree Feedback: Development consulting firm must set a good example of managing candidate expectations by clearly defining and communicating the job role while also developing an exposure program for the new recruit. This must includes performance in probation period, annual salary increment, leave policy etc.

Fairness in Appraisal: The most averted topic always come to haunt the enterprise during this phase. Fairness is the essence of justice. When the appraisal happen in a partisan manner and often whim of CEO, there will be disgruntled consultants.

Intrapreneurship is the biggest opportunity for the managers, and can be instrumental in bringing big rewards. The monetary incentive to bring the business and client delight must be top priority for the development consultant. Such intrapreneurs must provide support the firm to start new ventures under the umbrella of the parent organization.

Overburdening the development consultant with many consulting projects without offering a substantiate reward/ promise of the reward is a regular practice in development consultancy firms. This can't be brushed under the carpet as learning curve only. The burnout is a major reason to break away from the organization.

Flexible hours: Development consultants want to have more flexibility in their working hours and remuneration packages than a pay increase. This can be introduced successfully in organizations by converting to the “total cost to company” concept and where the different generations and individual development consultants can choose to work less hours or condense their hours as well as how much of their remuneration packages is allocated to the various benefits and allowances made available by the organization.

Work from home: While permitting flexible timings of work including permission to work from remote location must be encouraged. Encouraging development consultants to have a ‘work from home’ day at-least twice a week will be a great motivator. Many development consultants end up putting in additional effort on these days as well.

Stock options:Equity in the organization is key factors in managing senior management talent. In other words, they create a sense of ownership in their development consultants who has shown loyalty and participated in the revenue of the firm.

Volunteer Experience: Encouraging development consultants to work in other organizations for short term and get more hands-on experience for develop new skills/network can be used by the firm.

Mentoring and career growth planning is important for middle and junior management. The insight into mentor's expertise by receiving critical feedback in key areas, such as communications, interpersonal relationships, client management, technical abilities, and leadership skills must be done in official manner. Gaining knowledge about your organization's culture and unspoken rules that can be critical for success and; therefore, adapting more quickly to your organization's culture.

Access to Professional Network: Professional networking opportunities like conferences, mentoring, or even secondment to other parts of the organization, where they can get deeper insights into the work the organization does, and the difference it really makes. Networking with a more influential development consultants and donors always help in developing professional network of the consultant.

Visibility: Everyone wants to work with a star performer. The drive of HR Manager must be for making a consultant into star performer. Fundamentally, opportunities and visibility creates a positive loop – visibility increase faster if one work on more opportunities; and one is picked for more opportunities if one has a higher visibility. The recognition of the peers is often greatest motivation factor in the ecosystem of organization.

There is a British saying I always loved, “penny wise, pound foolish.” Organization spent more money in hiring new recruits rather than retaining in house talent. Retaining your good development consultant is such a valuable activity to focus on; it means spending less on employee turnover, reducing the chances of knowledge loss, and that keeps the morale of the team high. What is often overlooked when considering the retention strategies, is the habit of encouraging and listening to feedback from the exiting development consultants. They focus on retaining star consultant while they actually need a cadre of good consultants rather than solo star.

Organizations always crib the fact that candidates lack the soft-skills to work in a development consultancy. But the not-for-profit sector isn't generally known for offering the structured training programs or even assigning a mentor that some big corporates provide. There will no perfectly finished development consultant to hire. There will be critical gaps in soft skills among candidates most of times, especially at the middle management and junior staff level. What must be non negotiable is good understanding of the sector with relevant technical skills.