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Impact Investing with P2P Lending

10 May 2023 - Tushar
Reading time about 4 minutes

Investing for social causes, also known as impact investing, is an opportunity to make a positive impact while still earning a financial return. By aligning investments with values, investors can help address some of the world’s most pressing social and environmental issues. As impact investing continues to grow, investors have an increasingly diverse range of options available to them, making it easier to find investments that align with their values and goals.

Impact Investing with P2P Lending

One very interesting option for doing impact investing through in P2P (Peer 2 Peer) lending is Rang De. As mentioned of its website “Rang De is India’s pioneering and only peer to peer lending platform focused on providing timely and affordable credit to unbanked communities.”

What is P2P (Peer 2 Peer) lending?

Peer to Peer or simply P2P is a way of lending or borrowing money directly to borrowers or lenders. A P2P digital lending platforms connects borrowers directly with the lenders using technology thereby acting as marketplace. In India RBI recognizes these entities under the category of NBFC-P2P. India as of today have more than 20 such platforms available.

What is the advantage of P2P?

Loans on P2P platforms are unsecured which means they are not typically backed by any assets apart from life insurance policies in some cases. Also many platforms do not check CIBIL score or a low CIBIL score is also accepted. Low CIBIL score need not necessarily mean that borrower is risky as there are various factors considered while calculating CIBIL score. As there are multiple lenders on the platforms, disbursement of loans is very fast compared to banks. Also interest rates offered on such platforms are much better that moneylenders and banks.

For lenders P2P acts as diversification apart from earning better returns compared to bank fixed deposits. And if lender want to take higher risk, he can potentially earn interest rate in the upward range of 25%. Investment of lender is typically spread across multiple borrowers.

P2P platforms do various levels of checks of borrowers as well as of lenders including KYC, Credit score etc. Because of this lender get a level of confidence while investing monies on such platforms.

What is different with ‘Rang De’?

While ‘Rang De’ also operates in P2P space but here you will not earn high returns like many other platforms. ‘Rang De’ is primarily focused on providing credit to unbanked individual and communities. A typical loan interest is between 4-8% tailored according to the capacity of the borrower. By selecting loans that are in line with their values, such as those related to education and livelihood, lenders can generate a beneficial effect on society, while also offering a chance for investors to gain profits from their investment.

‘Rang De’ helps borrowers establish their credit history by enabling them to borrow and complete repayment through the platform. They work with their impact partners spread across the country to identify entrepreneurial borrowers, conduct due diligence, facilitate timely repayments. So much of heavy lifting is done by Rang De with the help of their impact partners and you as an investor can quickly decide on loan amount and to whom you want to lend. And as this is P2P platform there will be multiple investors like you who will be investing alongside you. Someone with as little as Rs. 100 can also start lending on this platform.

Apart from lending to individuals one can also lend funds targeted for specific cause or specific regions as well. For example you can lend to udyaME Enterprise Fund which is targeted for Entrepreneurs in rural India, then there is Mushroom Fund which is targeted for small and marginal farmers in Tamil Nadu drive.

Behind ‘Rang De’ there is driven founder couple Ramakrishna (Ram) NK and Smita Ram. Ram is also Ashoka Fellow

What is Risk investing through ‘Rang De’

While ‘Rang De’ is governed by the RBI’s NBFC-P2P guidelines, borrowers on the platform may not have any credit history. As there is no collateral if borrower is not able to achieve his desired income from his venture you may lose your capital in partial or full. Present NPA rate is 8.04% for the platform which is on the higher side may be due to impact of COVID-19.

As a transparency measure ‘Rang De’ maintains nice Track Record for the investments and

Is this platform for me?

If you are risk averse and looking for assured returns this platform may not be suitable for you. However, if you are willing to take some risk and forgo higher returns for making positive impact in the lives of peoples this is the right platform for you.

Go ahead and sign up now to start your impact investing journey with Rang De!