Home >Industry >Banking >JM Financial subsidiary invests in P2P lender Faircent

Financial services firm JM Financial Ltd said on Tuesday its unit JM Financial Products Ltd has bought a 9.84% stake in peer-to-peer (P2P) lending start-up Fairassets Technologies India Pvt. Ltd.

Fairassets Technologies is engaged in the business of operating a web portal and mobile application, which provides a virtual P2P lending marketplace.

JM Financial did not disclose the value of its investment in its statement to stock exchanges.

JM Financial’s investment is part of Fairassets’ Series A round of fund raising that saw participation from individual investors like Arun Tadanki, former managing director Yahoo Asia; Doreswamy Nandkishore, ex-member of the global board of Nestle; US-based serial entrepreneur and founder of Mobolt, Kshitij Jain.

Existing investors Mohandas Pai’s Aarin Capital and Singapore-based fund M&S Partners too participated in the Series A round.

Online P2P lending companies work as marketplaces that bring individual borrowers and lenders together for loan transactions without the intervention of traditional financial institutions such as banks and non-banking financial companies (NBFCs).

JM Financial’s move to acquire stake in a P2P lender comes after the Reserve Bank of India (RBI) initiated steps last month to regulate the nascent and unregulated P2P lending business.

In a discussion paper put out on 28 April, RBI proposed registering P2P lending platforms as NBFCs. The paper is open for feedback till 31 May.

In the paper, RBI said it would be “prudent" to regulate the business because of “the impact it can have on traditional banking channels" and NBFCs and its “potential to disrupt the financial sector and throw up surprises".

In 2015 alone, around 20 new online P2P lending companies were launched in India. At present, there are around 30 start-ups in the P2P lending business in India, RBI said.

Faircent will use the funds raised to build its data analytics platform.

“We shall use these funds to further refine our tech enabled risk mitigation algorithms through big data analytics thereby empowering our lenders to take better decision and creating greater access to credit for borrowers," said Vinay Mathews, founder and chief operating officer at Faircent., started by Rajat Gandhi and Vinay Matthews in 2014, has over 6,000 registered lenders and 25,000 borrowers. It has disbursed total loans of 4.5 crore in over 18 months.

“Faircent has been at the fore front of disrupting the online lending space in India and has demonstrated its leadership position in building a robust P2P business model by adding value to both borrowers and lenders" said Manish Sheth, chief financial officer at JM Financial Group.

The firm earns revenues by charging a one-time listing fee from borrowers and lenders. The platform has a tie-up with Transunion to leverage its data analytics and algorithmic underwriting technology.

In October, Faircent raised an undisclosed amount of funding from T.V. Mohandas Pai’s Aarin Capital Partners. Earlier in June, the it raised $250,000 from M&S partners.

According to experts, the investor interest in the P2P lending space is yet to pick up significantly.

“P2P lending is very high risk lending. The space needs better controls, processes and regulations to ensure that delinquency rates are low," said Vishal Pereira, managing director at financial advisory firm CreedCap Asia Advisors.

However, he added that the overall lending space is of significant interest for investors. “There is a large market in the alternate lending space on the B2C side in products such as consumer durable loans and personal loans. Using technology for quick decision making on credit worthiness of a customer can help start-ups grow their loan book quicker than what traditional lenders have been able to," said Pereira.

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