Barely six months into their operation, peer-to-peer lending website Faircent.com has gained significant traction in an altogether unconventional financial space--small-value retail and business loans that connect borrowers directly with lenders via an online marketplace. A platform such as this is very reminiscent of buying and selling websites (such as an OLX) that eliminate the conventional margins associated with securing loans from banks and financial institutions.
Given the huge overheads associated with operating conventional financial institutions, these margins need to be large enough to enable them to sustain operations. The Faircent.com model serves to significantly reduce these margins by putting borrowers and lenders--all regular, everyday people--directly in touch with each other using their platform. People with surplus money simply get connected with people who require it.
Apart from simply bringing these interested parties together, the Faircent.com platform also algorithmically identifies the credit-worthiness of borrowers and lenders using various financial markers. This algorithm leverages big data based models that factor in personal, demographic, financial, national credit bureau and even social networking data in determining the rating of borrowers. A key differentiator with their platform, compared to securing conventional loans, is their proprietary ‘bidding’ engine that enables borrowers to crowdsource their requirement and find the best rate of interest from a set of interested lenders. Unlike the norm where it is incumbent on borrowers to reach out to lenders to find the best rate, here multiple lenders bid for borrowers where each borrower has the choice to accept or reject an offer from the lender. This model upturns the entire borrowing/lending dynamic, where power is now put in the hands on the borrower.
Faircent indexes borrowers based on the need of the loan, the amount and tenure, while simultaneously running such scrutiny on lenders based on the amount they want to invest and the expected return on that investment. Given the scale of the Web and its ability to aggregate users, there is a greater chance of borrowers and lenders making connections.
The unique reverse auction methodology empowers borrowers and ensures them of locating the lowest possible interest rates in a transparent manner, while enabling lenders to choose borrowers according to their risk appetite and expected return on their investment.
On balance, peer-to-peer lending facilitates a new paradigm that proves to be a win-win for both borrowers and lenders, all the while reducing costs and maximizing returns. The company, promoted by Rajat Gandhi, Vinay Mathews and Nitin Gupta, has recently raised capital at an enterprise valuation of $4 million from the promoters of Fusion Microfinance Pvt Ltd.
This intriguing new approach of crowdsourced borrowing and lending introduces yet another avenue for raising funds and should prove to be significant for budding entrepreneurs to medium-sized businesses alike.
There's a video that explains how their peer-to-peer borrowing and lending model works in more detail:
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