P2P nuances from around the world

USA. The population's need for affordable non-bank loans due to a low credit rating or its absence, difficulties with the registration process, etc. can be called the main driver of the American P2P market. 

The national specifics are also very clearly manifested in legislation. Platforms are regulated both at the federal level (by at least three instances and numerous laws) and by individual states (in some states P2P activities are prohibited). This makes the overall system very cumbersome.

The American market can hardly be called favorable to new players. Registration and licensing of a business is quite laborious and resource-intensive. This situation is one of the reasons why only a couple of leaders continue to share the dominant position in the market.

China. Unlike the stubbornly conservative America, the face of the P2P industry in the East initially determined the period of "free floating". The same great need for affordable borrowing against the absence of any regulation led to a real boom. At its peak in 2015, there were about 3.5 thousand platforms in the country. However, this situation has predictably led to massive fraud and problems. About 40% of the sites worked according to the Ponzi pyramid scheme, which resulted in millions of investors losing their funds after hundreds of players went bankrupt.

After that, full regulation was introduced in the country. In accordance with it, Chinese P2P platforms are now officially registered, acting as information intermediaries with fixed and transparent conditions. P2P loans themselves, as in the US, are issued by banks. A ring fence is required: investors' funds are separated from the platform's funds, which guarantees their safety in case of financial problems or bankruptcy of the project.

However, the instability of many players against the background of high default risk of borrowers and other unresolved issues, according to Bloomberg, continue to give the local P2P industry a reputation as “one of the riskiest and least regulated slices of the shadow banking system in China.”

Japan. P2P lending in the country is biased towards real estate and SMEs. An interesting feature is the numerous “hometown funds” that attract investors specifically to the local economy. 

The funds are provided directly by the platforms. There are no financial guarantees for investors from the platforms. At the same time, the investor has access to anonymous information about the borrower, the availability of collateral for the loan, plans for the use of funds. The industry has the only regulator - the Financial Services Agency.

Malaysia. There are 11 platforms in the country that have been regulated since 2016 (becoming the first in Southeast Asia) and offer an approximate yield of 6-21%. Unlike Japan, loans here are issued only to businesses. The reason is the requirements of Islamic (or Sharia) lending, which prohibits making money on lending to individuals.

The country has an Investment Accounts Platform (IAP), created to connect projects in need of financing with investors. Each project is carefully checked for compliance with Shariah norms. The credit rating system is widely used, but default risks remain high.

India. Since 2017, the industry has been regulated by the Central Bank (RBI). Platforms are licensed as non-banking financial institutions (NBFC-P2P), passing compliance for capital, guidelines, etc. There are 25 companies operating in the country (at the beginning of this year).

NBFC-P2P is prohibited from accepting deposits, lending to its own projects, or providing any kind of credit guarantee. Private borrowers (and they are the majority) are prohibited from borrowing more than 10 lakh rupees at a time (about $12.5 thousand) on all platforms, for a period falling from the range of 6-36 months. For investors, the ceiling is capped at five times that amount. In addition to the traditional “private lender – platform – private borrower” format, there are premium projects for institutional investors on the market.

Kenya. The African P2P industry provides loans to both individuals and businesses. Geographical borders are open: there are multinational players, and funds can also be raised for foreign borrowers. Kenya has some opportunities that European borrowers and lenders can only dream of for now. For example, you can apply for a loan even without access to the Internet - just by sending an SMS to a short number. Some platforms allow the borrower and lender to communicate with each other. And some even offer individual borrowers a loan at 0%. There are other specific points: in some cases, the shorter the repayment period, the lower the interest rate; there are projects that deduct loan payments from wages.

P2P lending is now quite widespread in the world, but still remains a new phenomenon in the financial market. More time will be needed to study how this alternative financing method works and continue to improve the practicalities of its implementation.