Finzy: Knowing the P2P Lender

• 21 May 2019 | 1870 Views | By Mint2Save

With a slew of fintech startups in the row, the buzzword today in this vogue fintech world is P2P or “Peer to Peer”. Here, in the finance world, it translates to P2P Lending & Investing; this is what Finzy is all about, so let’s delve into what is Finzy and how is it the redefining the lending business!

First, to understand Finzy, we need to get to understand what is P2P Lending.

Going by the literal definition of Investopedia – “Peer-to-peer (P2P) lending is a method of debt financing that enables individuals to borrow and lend money without the use of an official financial institution as an intermediary.”

In simpler words, P2P lending is between two individuals; one a person who needs the money applies for it through a platform and then they are connected with lenders who are willing to provide money. Generally, P2P Lending happens through the Internet or through a registered NBFC (in India).

Generally, for any loan, a business or an individual has to apply to a Bank, which is the traditional method, With P2P lending, banks are removed from the equation and are replaced by an online platform which connects borrowers with lenders who are willing to lend money at an agreeable interest rate.

For lenders, this is beneficial as they can get more interest from their idle funds as compared to investment in fixed deposits or any other saving vehicles. On the other hand for borrowers, they can get a loan for any purpose, as long as they show repayment capacity, because as compared to Banks, which only give loans for specific purposes, P2P Lending gives loans for even those things, which may not have gotten approval from Banks, hence this platform is growing and becoming more popular every day. Additionally, P2P lending provides easier paperwork as everything is done on the Internet and has flexible payment options for borrowers thus setting them free from unnecessary hassles.

P2P Lending Scenario in India

As with every finance sector in every economy, there exists a regulator, which controls, monitors and overlooks in public interest. In our country, it’s the RBI which is the apex body does this work, last year RBI had released a draft titled “Non-Banking Finance Company – Peer to Peer lending platform (Reserve Bank) Directions, 2017”. In this consultation paper, RBI classifies these P2P lending platforms as NBFC-P2P, which means it puts them under the purview as a Non-Banking Finance Company. It puts some advisories in the paper mentioned above. 

What is an NBFC-P2P Platform?

An NBFC-P2P will act as an intermediary providing an online marketplace or platform to the participants involved in peer-to-peer lending. The following information, based on the prudential norms in the RBI directions, might be useful for borrowers and lenders desirous to know more about a P2P platform: 

• Limit for lending: An investor cannot lend more than ₹ 10 Lakhs at any point of time, across all P2P platforms of which he/she is a registered customer.
• Limit for borrowing: One cannot take a loan of more than ₹ 10 Lakhs across all P2P platforms.
• Exposure: For a single lender, the exposure to the same borrower, across all P2Ps, shall not exceed ₹ 50,000/-.
• Loan maturity: The maturity of the loans shall not exceed 36 months.

Apart from this RBI direction also prescribe some advisories for NBFC-P2Ps. An NBFC-P2P:

• Will store and process all the data relating to its activities and participants on hardware located within India.
• Will maintain proper documentation of the loan agreements and all other related documents.
• Will provide assistance in disbursement and repayments of the loan amount.
• Will have to provide for proper grievance redressal mechanisms.
• Will render services related with recovery of loans originated on the platform.
• Minimum capital of ₹ 2 crores is required

With advisories it has also put some restrictions on these NBFC P2Ps that are as follows:

• An NBFC-P2P cannot lend on its own
• It cannot permit the international flow of funds
• It cannot offer or position any credit enhancement or credit guarantee.

Also, RBI has directed every registered NBFC-P2P to create and implement a “fair practices code” which will be visible at their website to all the persons and shall be adhered by the company.

About Finzy

Finzy was started in October 2016 with Bridge Fintech Solutions as their parent company. It was started by Mr. Amit More, who has a strong finance career with an experience of more than 16 years in ICICI Bank and Credit Suisse AG. He started the company with a vision to give lending a digital support, which was soon blessed with government’s digital India initiative and from thereon-started Finzy’s journey.

What does it do?

In one line, Finzy connects borrowers who need money with investors who are willing to lend money at the mutually agreed terms. Finzy plans to make the credit availed, disbursement process easier through the use of internet and other computer-aided techniques.
Finzy is essentially a platform that connects “qualified borrowers” with investors looking to create an entirely new asset class that provides them with high monthly returns. According to the company, the average rate of return for investors in Finzy is close to 15.5%, which is much better than what is provided by the Banks through their different products or many other investment options available.

How does it all Work?

Believe it or not, Finzy has a lot of automation working behind its platform, so whenever a borrower uploads his details and the soft copies of his Aadhar, bank statements, previous years IT returns, PAN cards etc, Finzy’s algorithm kicks into work and classifies the loan into three categories namely A (A1-A6), B (B1-B6), C (C1-C6) by studying more than 130 parameters, with A1 being the least risky and C6 being the riskiest in that order. Interest rates are also charged as per the grading system with A1 loan having an interest rate of 10.99% and C6 loan having a 27.99% interest rate.

Finzy’s founders state that their loan rejection rate is more than 80%, which is much better than the industry averages. They get loan requests from ₹ 50,000 to ₹ 5 lakhs, which are provided for in a couple of days.

The automation does not stop here, it works on the investors’ side as well, where the investors can opt-in for “Finzy Pro” which is the algorithm that chooses loans for the lender automatically and invests in them. Also, working in the background is their “20-20” rule engine (no it’s not related to cricket!), this rule ensures diversification for everyone by ensuring that not more than 20% of a lender’s investment portfolio, or 20% of the loan needed, is catered by a single lender. This creates diversification in a lender’s portfolio and adheres to one of the basic principles of Investing of “Not putting all the eggs in one basket”. The company is also working on using Artificial Intelligence and machine learning to improve the turn around time and provide better services to its customers. This will be one of the bigger achievements by integration with Artificial Intelligence.

On the flip side, what happens when there are a surplus of investors on the platform and no borrowers? For resolving this issue, Finzy has introduced “Finzy Queue” which allocates the money from an investor’s portfolio to fill the loan, but that, of course, happens on the approval of the investor.

How big is Finzy?

Finzy is currently operating in 8 cities in India, but most of its business is from the city of startups ‘Bengaluru’ or Bangalore as we may call it so. The company has disbursed loans close to ₹ 6 crore loans over the past year. The founders claim that they receive more than 200 loan requests per day, which is huge for any fintech startup like that. The company is planning to expand its business by collaborating with vehicle dealers so as to provide credit to vehicle buyers. The company received pre-series A funding of $1.3 million dollars in April 2018 and is planning to expand geographically to more locations by the next year.

In India, P2P lending platform has seen a steady growth throughout the years that is expected to be a $5 billion industry by 2023. Finzy has positioned itself as a prime player in this segment and is growing steadily even amongst stiff competition present to become one of the largest P2P lenders in India.