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CRED starts P2P lending with 9 percent returns to investors, here’s how it works

Being the latest entrant in the P2P lending sector, CRED revealed that it looks to mitigate the risk factor by implementing a minimum credit score for users who want to borrow. 

CRED, a fintech start-up founded by Kunal Shah, will now be lending credit to its users from a pool of capital made up of their own contributions, according to a TechCrunch report. CRED Mint will offer returns of up to nine percent to CRED’s 7.5 million user base. 

The move marks CRED’s entry into the peer-to-peer (P2P) lending space which has been witnessing an influx of fintech players ever since 2017. It is the platform’s first community-driven investment product allowing members to back their peers by giving loans and accrue returns that are more than the rate of inflation. 

CRED members have an average of Rs. 2,00,000 in their savings accounts according to data provided by CRED. The start-up claims that the scheme will make better use of its members’ idle money and recognise responsible financial behaviour by offering returns with minimal risk. 

How will CRED mitigate risk associated with P2P lending? 

As per an Indian Express report,  non-repayment of loans is a looming risk in P2P lending. The report said that the risk is the result of it being an unsecured loan that is not backed by any guarantees and that the lender cannot redeem anything in case there is a default. 

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Traditional P2P lending platforms invite scrutiny because they attract borrowers with poor credit history and low incomes.

However, according to TechCrunch, CRED’s users command a credit score of 750 or higher which demonstrates their trustworthiness. The website said that this position puts CRED on solid ground to address the problem of defaulters. It added that more than 20% of individuals taking a loan in a peer-to-peer service don’t pay it back.

Kunal Shah said that CRED Cash, its lending tool which has disbursed Rs 2,415 crore in loans to date, has a default rate of less than 1%. 

Shah told MoneyControl that CRED Mint will be an invite-only product. 

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“We anticipate a lot more demand than the capacity to absorb. We will not compromise on the quality of our lending book. Because most platforms offer to low-income group segments, the NPAs have been high and the risk mismatch meant these platforms couldn’t become big,” he was quoted as saying.

Details about CRED Mint

A press release by the company revealed the following details about the scheme:

  • The investment of members deposited under CRED Mint will be forked out through CRED Cash
  • The company has partnered with LiquiLoans, an RBI-registered P2P NBFC which will hold an escrow account into which the invested money will be routed directly.
  • Loans will be disbursed at an interest rate of 12-13%, according to Shah’s statement to ET. 
  • Users can invest between Rs 1,00,000 to Rs 10,00,000 in about two minutes without commission.
  • They can request withdrawal online at any time with no penalty. 
  • If withdrawal is requested, money with interest will be returned to the investor within a working day.  
  • It will be spread across 200+ borrowers on average.

Other players in the P2P lending space

Faircent: It is a Gurugram-based P2P lending platform, founded by Nitin Gupta, Rajat Gandhi, and Vinay Mathews in 2013. It is one of the first P2P lending platforms to start operations in the country. 

Rupee Circle: Rupee Circle is a new age finance company offering a marketplace where borrowers’ requirements are listed and investors fund those loans, according to its website. It was founded in 2018 by Ajit Kumar, Abhishek Gandhi, Ashish Mehta, and Piyush Saurabh.

IndiaMoneyMart: IMM is an online P2P lending marketplace which commenced operations in 2018 with Subhadeep Chakraborty at the helm.

finzy: finzy is another P2P lending portal started in 2016 by Amit More.

Some of the other players include i2ifunding, Lendbox, LendingKart, Monexo, CashKumar, and many others.  

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