Empowering Through Access to Money
Peer to peer lending (P2P), known more recently as Marketplace Lending, has become one of the most popular platforms for consumer financing, radically altering the way people access money. The founding concept of people lending to people through a digital platform that is easily accessible and user-friendly, with rapid lending decisions and favorable interest rates has captured the loyalty of borrowers and investors around the world.
P2P has proven to be a game changer in the process by which consumers access much needed financing, whether it be a personal loan to pay for a wedding, to consolidate debt, or to open a small business. Borrowers have access to financing that they would be unable to secure from banking institutions, or only at unfavorable rates and terms. For consumers in regions of the world where access to traditional financial institutions is limited or nonexistent, the online peer to peer platform opens channels to financial resources that allow them to become full participants in the economic marketplace.
The Global Peer to Peer Industry is growing
Analysist predict that the global peer to peer lending market will grow at a compound annual growth rate (CAGR) of 53.06% between 2016 and 2020. A 2015 Morgan Stanley report envisioned that P2P will be a $490 billion global industry by 2020. While the number of peer to peer platforms has been growing at a steady pace in the United States, the numbers have broken records for growth in other countries. China, for instance, has the largest peer to peer lending market in the world, home to more than 4,000 platforms. Europe’s total alternative marketplace lending sector, which includes P2P, crowdfunding and other platforms grew by 92% in 2015. Peer to peer consumer and business loans comprised the bulk of this growth.
Peer to Peer Drives Economic Empowerment
Women make up 50 percent of the global workforce, yet they are not equal partners when it comes to economic empowerment. In India, for instance, where entrepreneurship has become more than a buzz word, women lag far behind men as founders of businesses in spite of many success stories. One of the primary reasons for this gender gap is access to capital. Banks continue to look unfavorably toward women, judging them to be risky borrowers and often refuse to provide small business loans. A MasterCard 2015 report found that 58% of the women in India had difficulty obtaining credit, savings accounts and employment. In fact, the World Bank found a gender gap of 9 percent between men and women across developing nations. Many women do not even pursue a bank loan, because they believe they will be rejected. The negative attitudes of banks toward women and people of color is not part of the P2P protocol. The unique algorithms utilized by P2P lenders assesses the credit worthiness of the applicant without any influence of attitudes based on gender or race. The platform completely eliminates human subjectivity allowing decisions to be made based solely on the potential risks involved with making the loan—creating a much more equitable credit system.
Bringing Financial Services to Underserved Markets
Around the world, approximately 2 billion adults have no access to banking services, credit cards, insurance and many other financial products. Thirty-eight percent of the total underserved population resides in China, Indonesia and India and more than half are women. Peer to peer lending platforms in India and other underserved regions are easing the pathway to access much needed financing. In developing nations where there is little to no access to traditional financial services, peer to peer microfinance loans are emerging. It makes perfect sense in countries where there are no banking services, yet just about everyone has an internet-connected device. P2P microfinance loans in developing countries are empowering people with the financial tools they need to lift themselves out of poverty, as well as improve the economic condition of their community. In Africa, P2P business loans totaled $16 million over the period 2014-1025. South Africa’s P2P loans are pretty evenly divided among consumer and business, with a small percentage of microfinance loans. The largest growth is in the East Africa market, but several countries throughout the continent now have at least one peer to peer lending platform. Many peer to peer lenders in developing countries are providing smaller loans that help consumers establish a credit history and cover critical expenses. Borrowers can return for larger amounts once the previous loans are repaid, giving them not only the cash they need but also an emotional boost from succeeding in their financial life.