How To Mitigate Risk In Peer to Peer Lending Platforms
Apr 26,2019 Risk - P2P Lending
Peer to Peer lending, also abbreviated as P2P lending, is an online lending platform, where lenders get opportunities to earn higher returns on their investment, by lending to high quality borrowers of their choice, matching their risk expectations.
It is a kind of direct lending where Investment (as loans) is being made to the selected high-quality Borrowers for their Personal and Business requirements. Like other online platforms, P2P lending is fast, convenient and easy to use. The platform provides an opportunity to lenders to lend at any point of time at their own convenience. You can register yourself as a lender or a borrower and find other individuals to lend to or borrow from.
As an investor, P2P investing is a rewarding alternate investment avenue. You can get returns as high as 36% per annum and also receive monthly income from your investments. Because of its various benefits, P2P lending is gaining popularity among investors as an alternate investment opportunity to earn maximum returns.
Despite of P2P lending being a high return yielding investment opportunity, the risk involved in such lending will always be a debatable issue. The platform provide various parameters to assess the risk of lending, like OMLP2P enables its lenders to take a valued call to protect their interest by selecting good quality borrowers matching their risk and reward expectations. To address safety concerns that you might have for your investments,
Here are some ways that would help you to mitigate the lending risks in a P2P platform:
Check for the platform's credit rating process
You can easily minimize the risk of lending if the borrower you choose is creditworthy. P2P platforms enlist borrowers after assessing their creditworthiness through stringent selection process. The more thorough the credit rating process is, the higher would be the chance of finding high-quality borrowers and the risk would be lower.
Check the creditworthiness of borrowers
After you have assessed the platform's rating process, check the creditworthiness of the borrowers. You should check the complete details of the borrower to whom you are lending your money. Also, closely assess the insights provided by the platforms to understand the borrower's capability and intention to repay.
Diversify across borrowers
Diversification is a golden rule in the investment world. In P2P lending, the key is to segregate your investments across different classes of borrowers from different risk grade. Usually, platforms grade the borrowers on their own internal grading parameters, like OMLP2P evaluate the borrowers on hundreds of critical parameters and classify them in the risk grade of P1 to P7 and B1 to B7; where P stands for Personal Loan and B stands for Business Loan. 1 is the highest category and 7 being the lowest in the risk grade. By selecting a mix of borrowers, both from Personal and Business loan category; ranging from High-Grade to Mid-Grade borrowers, lenders can make their loan portfolio diversified with higher returns and moderate risk.
Look for a platform which assists in loan recovery
Another important point in lending is the loan recovery. Right from regular follow-ups with borrowers, taking pre-emptive actions for timely receipt of EMI's to quicker corrective actions for recovery of loans in case of delays, including appropriate legal action is important. Ensure that the legal agreement are well drafted and adequate precautions are being taken in terms of Agreements, DPs, PDCs, NACH, etc.
Hence, it is important to select the rightful lending platform, being operated by Founders / Top management with multi-year experience of running a successful Bank / Finance company as well as ensuring that the complete system is in place at locations where borrowers are being funded.
Ensure that the whole lending process is transparent
When it ultimately boils down to lending your money, besides checking the borrower's profile, you should ensure that the whole process of lending is transparent. The P2P platform should have a non-ambiguous transaction policy so that you are confident where your money is going.
How OMLP2P helps in mitigating the risk?
OMLP2P platform, is founded and managed by the top-class professionals with multi-year Banking and Finance Industry experience. The team is being guided by the Board of Directors consisting of Bankers and Professionals with experience ranging between 25 to 55 years.
As a leading p2p platform in India, we understand the risk with lending and hence we use risk adjusted pricing module, a process which best of the bankers follow in India to lower the risk. We, at OMLP2P ensure that -
Buyers / Borrowers are enlisted on the platform after passing through stringent selection process. The platform verify and assess the credit risk profile using CRIF, CIBIL, Experian score and is further tested by the proprietary credit algorithms and experienced professionals. The borrowers are required to meet a minimum income criterion before they can look for loans on the platform. The platform assess the capability and intention on more than 180 parameters, to ensure that the risk of default is minimized.
They also have the system and mechanism in place to take care of collection and recovery of the loans funded at their platform, should the need be. To protect the interest of Lenders, OMLP2P do provide insurance coverage on all the loans being funded at their platform from Death (both Natural and Accidental) as well as benefits of Partial and Total Disabilities.
Most of the platform charges a fee for the lenders to register on their platform. But, here is a GOOD NEWS - OMLP2P, to incentivise the lenders have decided not to charge any registration fee to the lenders.
P2P lending is slowly gaining traction in the finance sector and if you too want to enjoy good returns on your investments at the lowest of risks, register on www.omlp2p.com today.