PEER-TO-PEER LENDING OVERVIEW

1.1 Introduction:
(P2P) lending market, where individuals bid on unsecured microloans requested by other
individual borrowers. Online P2P exchanges are growing, but lenders in this market are not
professional investors. In addition, lenders have to take big risks because loans in P2P lending are
granted without collateral. This form of P2P lending facilitates and increases efficiency in the
posting and searching of information, providing all the necessary functions to complete the
transaction.
1.2 The parties involved in the model P2P:
The parties involved in the P2P lending model can include institutional investors, financial
institutions, banks, borrowers, individual investors. These stakeholders are linked together through
P2P lending companies.

- In this model, the P2P lending companies do not take any risks because they do not use capital to
lend. They earn the main proceeds from fees paid by borrowers and lenders. However, loans are
usually unsecured and the lenders have no recourse in the case that the borrowers default. - The
major strength of the P2P platform is the simplified lending process through the online interface.
The platform brings many useful features for users such as borrowers know the interest rate
quickly after providing some basic information about their income, credit score on P2P website.
In addition, it also helps borrowers know the exact time for credit approval. Once approved,
borrowers can quickly get loan percentage information.
1.3 The P2P lending model:
- Depending on the management method and the support of the banks in the payment process, the
model is divided into two types:
The first model: Direct lending model of technology companies.

- This is the simplest form of P2P model, where the lenders directly interact with the borrowers
and they themselves fix their counter parties.
- This first model consists of the following process:
(1) The borrowers request loans on loan websites.
(2) Then, their request will be listed on the P2P website for the lender to identify and fulfill the
loan request.
(3) After successfully identifying and assessing the creditworthiness and many other factors related
to the borrower, the lender will accept the loan and transfer money to their sub-account (this
account is created for each loan) on the P2P platform.
(4) P2P platform will make disbursement for borrowers.
(5) P2P companies collect management fees from borrowers and lenders.
(6) The duty of the borrower is repay the loan to the lender by transferring money to the lender's
sub-account.
(7) The last step, after getting the money in the sub-account, the P2P platform will make the loan
repayment to the borrower.
- This form of P2P model is very transparent as both the parties have complete knowledge of
where their hard earned money is going or to whom one needs to pay, to pay off ones debts. Here
the lenders do not face any risk of losing their money in the event of bankruptcy of the P2P
 company as there is a direct agreement between the lender and the borrower. The company faces
any risk of claims from the lenders in case of default of the borrowers.
The second model: Indirect P2P lending model, with bank support for payment

- This is is a much complex form of P2P business, which involves a commercial bank apart from
the lender or the borrower.
- The loan model is implemented as follows:
(1) The borrower submits loan request on P2P website.
(2) The P2P company sends the loan request to an affiliated commercial bank, then that bank
issues a promissory note to the P2P lending company.
(3) P2P company transfers debt receipts to borrower.
(4) Then the P2P company collects the fee from the borrower.
(5) In the next step, the borrower submits a promissory note to the commercial bank.
(6) The bank returns the promised amount to the borrower.
(7) P2P companies list loan requests on their website for lenders to track and advance funds to
finance loan requests.
(8) When there is enough money in the account, the P2P company immediately buys loans from
the bank and issues a passport for the loan.
(9) The lender must pay the management fee to the P2P company.
(10) Next, the borrower pays the lender through the P2P platform at the maturity date.
(11) The final step of the process, the P2P platform will repay the loan to the lender upon receipt
of the borrower's repayment.
- This model benefits borrowers because they do not need to wait for the lender to identify
themselves.
1.4 The advantages and the disadvantages of P2P model:
Although lending brings many benefits to the parties involved, it also has many disadvantages.
 The advantages and the disadvantages for the borrower
The advantages The disadvantages
 There is no need of collateral.  The loan limit is lower than
banks.
 Credit requirements can be lower
than with traditional loans.  The security is lower than the
bank.
 Interest rates are lower than
traditional loans.
 Late payments or inability to
 No penalty if the contract is settled
pay will damage reputation in the future.
before the maturity time.
 There is no uniformity of
 Loan application is done online, no loan requirements when transferring from
paperwork required. one lender to another.
 Fixed monthly payment.
 Lenders are more interested in the
investment aspect than traditional lending.
The advantages and the disadvantages for the lender
The advantages The disadvantages
 The profit rate is higher than other  Risk of losing money.
investments.  The safety level is low because this is
 Diversify investments through a relatively new form of lending.
different loans.  The liquidity of P2P lending contracts
 Collect the principal and get it back is lower than stocks and bonds.
every month.
Read more at: https://taxguru.in/corporate-law/peer-peer-p2p-lending-business-models.html
https://www.researchgate.net/publication/357671892_LUAT_PHAP_HOA_HOAT_DONG_CHO
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