In India and China, credit systems are still underdeveloped and under penetrated (China's consumer credit to GDP is 28%, while for India it is 15%), which makes the use of online P2P lending compelling in both these countries. In contrast, the US credit system is well developed (US' consumer credit to GDP is at 80%), which is possibly the reason why online P2P loan growth in the US has lagged that of China. Online P2P lending helps bridge the unmet credit demand of consumers and SMEs who either are not eligible or do not have access to the formal credit system.
While ~30 P2P platforms have mushroomed in India, the following two factors will drive growth: a) Regulatory environment ? While P2P lenders in India are currently unregulated, RBI recently published a consultation paper (April 2016) for the P2P industry. The key tenet was that P2P platforms should not put their balance sheets to work to ensure financial prudence; and b) Internet penetration ? Rising Internet penetration will improve the effectiveness of P2P platforms by creating a dynamic marketplace.
This all Looks Good, what about Recovery ?
The Negotiable Instruments Act is a Law full of holes that encourage defaults without being Punished. Who would want the headache to approach the Court of Law even where Kingpins like Vijay Mallya are on the run without any punishment.
