Recently a friend of mine was facing cash flow problem. He needed a big short term loan (1 million INR) for a very short period (4 weeks). To mitigate the risk, he was ready to mortgage a property. So he inquired about various options.
A) In spite of all the Hap and telemarketing calls Personal Loans generate… none of the banks offered something which suited his requirements. Their terms were:
1) Processing fees 2% flat.
2) Prepayment penalty 4%
3) Minimum duration 50 weeks.
So if he prepaid the loan in 4 weeks, he would have to shell out 2% (processing) + 4% (prepayment) + interest (1.5%) which is exorbitantly high 7.5% p.m.
B) Ideally bank overdraft would have been an ideal instrument, but unfortunately he did not have a current account that can be upgraded to a overdraft account….
C) Credit card would be the next best thing, but his credit cards did not have so high cash credit limits. In-fact most of the Indian banks
D) He did not want to borrow from the informal money lenders, because their shop looked like a den of Goons.
E) Borrowing from Family and friends is also a problem because then you end up owing them favors which he did not want.
If anybody has heard about Grameen Bank, they would appreciate the role access to credit in development and upliftment. And for a country like India which has several communities (Banias, Marwadis) which thrive only on P2P lending, its a shame that there is no inexpensive, legal and organized way for anybody to get a short term credit.
So I started some checks to find out what people in USA do… and there i found Prosper, Lending Club Zopa and plethora of other alternatives.
The idea behind these P2P crowdfunding websites are person-to-person lending—loans without a financial intermediary. Prosper is an online marketplace that allows lenders and borrowers to bid for loans—with fees and rates than can be much lower than those of a lending institution. Since it confines it operations to USA, Prosper can use credit scores to help its users gauge the risks of their deals, and easy-to-follow instructions on the site help clarify the details.
Update: 9th Dec 2013: Recently we have launched Samuhik Loans India’s only free platform to obtain personal loans.
24 replies on “CrowdFunding India”
Great; I checked out Prosper. Seems like a cool thing to me 🙂 Thanks for that information. Might just help me get past my lean days 😛
ohh the bania is back in the business of money lending 🙂
where else do u invest?
[ohh the bania is back in the business of money lending]
Are you talking about yourself? 😛
[where else do u invest?] At least not materially :P. Like I said- these are my lean days. I do invest in human relationships.
//I do invest in human relationships.//
wow… thats the best place to put your time and efforts in… 🙂
BTW thank you for the 2000th comment on my blog 🙂
You are very welcome 🙂 My pleasure.
Are you into stock markets in India? I told my mom to get Bharti a long time back. Don’t know if she did.
Americans think out of the box,because they need to and cause there is cutthroat competition. plus there arnt much regulations and taxes to deal with. here banks r sitting comfortably with big daddy rbi which helps them more than it helps its customers ie the citizens
rbi cant control the charges the banks levy for statements, forget doing more investor friendly stuff
like freeing up the bank sb rate which is 3.5% only calculated for money in a/c between 10th and 31st or making sure that dep rates and plr difference is not the very high 3 to 5% appx..
yes the concept of prosper is good but may not work here cause delinquincy and deleberate non repayment is very high here
Now if anybody calls me on my mobile to offer cheap loan I know what conditions to ask for so that they don’t bother me again. Thanks Ankur. Do you know that you get a better discount on buying a car if you get it financed. If you make down payment you have to pay more. This is at least what my car dealer told me.
@pragati…
I do invest (not trade) in indian stock market… i also tried my hands in US markets, but the indian currency appreciation wiped out all the profits… but indian market seems to be good enough 🙂
Bharti is a wonderful investment… i think its price went up 3 times in the past 1 year.
@prax..
most indian banks offer only 3.5% in savings.. making it very bad financial instrument… no wonder many people do not have banking accounts.
actually i was going through prosper… and it for A grade loans the repayment rate seems to be good enough.. and in cases of riskier loans the interest rates is very high… i think the idea is to give several 50$ loans so that even if 1-2 go bad… u r still safe.
but what hurts is the absence of any financial instrument for 1-2 month long loan.
@Pre3rna..
you are welcome 🙂
i never knew its cheaper to buy a financed car. but remember many financial companies charge flat interest rate… so even a 10% flat interest rate would actually cost you 20% on reducing balance.
I know financial companies give kickbacks to the dealers who refer them clients…. its good to know that the dealers pass those kickbacks to the customer.
I kind of agree with pr3na on the car financing thing. From what I can see, financing a car is much better because you use the car even while making the monthly payments. With the down payment option, you pay more now.
I mean, why would you want to make a down payment when the financing rates are quite low and it’s better to shell out 5-7k every month than to pay a substantial amount at one go.
@pragati..
EMI or down payment.. the question depends on your cost to funds…
if u have tons of money lying in savings (at 3.5%) then downpayment makes sense… if u r able to invest money with higher returns or need to keep a tight watch your cashflow then a low interest finance would suit you.
Yeah, you are right. This proves that you are a real baniya. 😛 Just joking.
@prax..
i think i agree with what you say about RBI.. otherwise i do not think there is any other logical explanation for higher interest rate being offered to senior citizens
@pragati…
i am an ‘Aggarwal’ and hence a proud real baniya.. 😀 aren’t you proud of your roots?
Informative post. I wonder when any Indian firm will think of this kind of service.
Btw, more than the post I liked the discussions here in comment section. 😛
@cuckoo…
welcome to E-Nagar. ya comments are the most interesting part of the blog 🙂
actually the collection in india is so tough that organized private banks are having a tough time collecting dues from people (even presidential candidates) that i doubt even if someone starts this service… will it be financially viable.
but again we have strong entrepreneurship roots… so i won’t be surprised if an enterprising individual overcomes the concerns and is actually sucessful
Sure, I am! 😛 I glow every single time someone calls me a baniya.
There is a new trend in borrowing now..
with the interest rates going up and real estate taking a nose dive, ppl who have given advance for land are either forgoing the advance or borrowing for 24% and getting the GP done for the entire land(the borrowed amount being half the value) in the name of the creditor. Imagine 24 % and getting the title to the land !
yups what i am saying and Prax also agreed is that the banks are r even making the basic effort to help the common man’s financial needs… banking is not about collecting funds.. its always about loaning it, helping people and corporates (at a fair price)
otherwise there is no other reason why you should pay 24% on a secured loan (the land is tangible and can be mortgaged.)
regarding real estate prices going down… with the interest rates increasing from 7% to 11% over last 3 years… the demand has dampened… and hence there is a market correction… and a very good sign
every banking transaction is accounted money and the real estate market and ppl involved in it cannot utilise it as the market price is different than the marked price.
if u mean to say by having a high registration tax (10%+) plus capital gains tax etc.. govt is encouraging the black money.. and since there is black money people cannot get finance.. and hence the trouble 🙁
then ya i agree.
well this topic is in my TODO list for a very long time.. maybe i will write more about it this weekend
will look forward to it 🙂
on second thoughts.. why don’t u write it.. u obviously know real estate much better than what i can even hope to understand.
well..this topic involves black money and I know u feel strongly about it..so u shd do it…I am curious to know how u view the workings of the market !
See
http://www.p2p-banking.com
for development of p2p lending in other countries. Not yet in India, though.