Beyond FD Returns: P2P Lending And Alternative Income Strategies

There are digital marketplaces for everything from couches to coins. While Facebook marketplace may help one with the above-mentioned objects, there is a platform that can help one raise money as well. This system is called Peer-to-Peer or P2P lending.

Here, individuals come together on a sophisticated digital platform to collectively fund loans for other individuals. This approach offers a unique pathway for both borrowers seeking accessible credit and lenders looking for potentially higher interest incomes.

Mukesh Bubna, founder of Monexo Fintech, explains this model clearly, the platform meticulously screens and grades borrowers, and then hundreds of lenders contribute small sums like Rs 1,000 to Rs 2,000 each. These amounts will go on to fulfill a larger loan, like Rs 2 lakh.

The P2P lending space emerged over a decade ago, experiencing an initial boom as investors wanted to make better returns in the credit market. Its origins trace back to 2004 with Zopa in the UK, later picked up by Lending Club and Prosper in the US, where these systems were regulated from the outset.

The system's journey on India's shores was a bit more nuanced. In 2014, SEBI's consultation paper flagged the need for RBI regulation, which materialised in 2017 with a comprehensive framework. The RBI clearly stipulated that P2P companies could only act as platforms and were not allowed to take deposits.

Challenges arose during Covid-19, when some platforms innovated products mimicking fixed deposits or liquid funds. This led to the RBI doubling down in August 2024, imposing fines and tightening loopholes, which made operations more stringent for both platforms and users.

This marked a steep decline in traction for users towards the product itself and also complicated operations for platforms.

For investors still seeking to maximise interest income, financial advisers offer alternatives with varying risk profiles.

Nisreen Mamaji, founder of MoneyWorks, suggests that risk-averse investors could explore debt funds for better returns than fixed deposits. Those with a slightly higher risk appetite might consider hybrid funds.

Mamaji also points to dynamic bond funds, all-season bond funds, or medium or short duration funds as viable options.

A point that Mamaji stressed was that that higher interest rates are always a direct compensation for higher risk taken on by the investors.