Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
11,921.50-96.9
Stock Analysis, IPO, Mutual Funds, Bonds & More

We want to be the alternate banking system in rural areas: PaisaDukan

What could inspire a-year-old fintech to open a branch in a rural hinterland like Madhubani in Bihar.

, ET Online|
Updated: Mar 15, 2019, 05.47 PM IST
0Comments
Getty Images
mf1
There is huge potential for P2P lending in rural India.
What could inspire a-year-old fintech to open a branch in a rural hinterland like Madhubani in Bihar. ET.com spoke to P2P startup PaisaDukan.com’s Founder and CMD Rajiv Ranjan on his vision and expectations from rural India. Excerpts:

PaisaDukan has opened its first rural operations office in Bihar. What was the idea behind this?
For generations, people in villages have been borrowing from local money lenders at ridiculously high interest rates. The rates could be as high as 4 per cent per month, which makes it 48 percent annually. Through P2P lending, we not only aim to reach out to borrowers unserved by banks but create value for our investors.

Do you think other P2P players may take cue from your Gramin Loan project?
Through our pilot project in Bihar, we want to build a case study for the entire industry. People may have doubts about P2P’s success in a village like Balarahi in Madhubani district but I have done months of research before launching the physical branch.

What is the average ticket size you are looking at?
We are looking at a ticket size of Rs 25,000-50,000. The tenure of the loan will be 6-12 months. All the credit transactions will take place from Mumbai but the physical office will help us in gaining visibility and trust among locals.

As we understand, the borrowers will be from the village. Why would an investor from Mumbai or Bengaluru lend money to someone living in rural areas?
Village is a closely-knitted community. Small lenders are more concerned about their credibility than bigger lenders (in metros) because everyone knows everyone and they cannot leave their homes. A borrower living in Mumbai or any other metro may abscond from his rented accommodation but he may not be able to do so in his native place. It’s a myth that people in villages or remote areas default. There may be delays but no defaults in a small place like this. Also, the rate of interest offered is as high as 24 per cent.

What are the other sources of funding in Madhubani?
Besides the microfinance institutions, private banks like Yes Bank and RBL work on the group funding model. Where a group of, say, 10 people take a combined loan of Rs 30,000 each. In case one of them defaults, the remaining have to bear the cost of the loan.

What is the volume of loans through group funding?
About 1 lakh transactions take place every day at a single Customer Service Point in our village. With P2P, we aim to tap this potential. If people can get loans at 24 per cent from an RBI regulated body why should they pay 48 per cent to unregulated lenders.

Has the recent ban on local money lenders benefitted your endeavours?
There is huge potential for P2P lending in rural India. This ban has increased the valuation of the company. People in rural areas now have no option but to come to P2P platforms.

What benefits does P2P lending offer, compared to group funding?
First, people will not be required to form groups to take loans and can be served individually by P2P lending. Since P2P is a flexible product, it will not only help people in earning money but can also become the alternate banking system in rural areas for all their credit needs. Secondly, people will be able to prepay their loans which is not possible with group loans. Hence, it’s a win-win situation both for the investor as well as borrowers.

What is your expectation or vision for this project?
It might take 1.5 to 2 years for P2P lending to establish its roots here. We have a target of Rs 10 lakh loan disbursements within the first month and then Rs 1 crore in 6 months for all the entire block -that is, five villages.

Also Read

White House considered kicking Huawei out of US banking system: Sources

No need to panic, Indian banking system safe: RBI

Cash is sloshing in banking system, surges to Rs 2.3 trillion

Language, banking system impeding trade with central Asia: Piyush Goyal

Banking system faces Rs 70,000 crore liquidity deficit

Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service