Peer to Peer Lending Platforms in Pakistan

by Amna Masood

Fintech, Bitcoin, Lending platforms

In recent years, fintech has been one of the most disruptive forces in the financial sector, with a number of start-ups and incumbents alike offering new and innovative ways to manage money. This can include the trend across several verticals – ranging from e-wallets to mobile and banking apps to online investment platforms. One subcategory of fintech is peer-to-peer lending, which allows individuals to borrow and lend money without going through a traditional bank. Peer-to-peer lending happens to be one of the most popular fintech services.

Numerous fintech startups, such as Finja and Lending Club, have emerged in recent years to take advantage of this growing market.

The current economic conditions in Pakistan pose a number of challenges for both households and businesses. The impact of these conditions includes a decrease in overall economic growth, an increase in unemployment rates, inflation rates, and interest rates. These changes in the economy have led to reduced government revenue and an increase in household and business debt.

P2P lending platforms match borrowers with investors who are willing to fund their loans. This can be a more attractive option for borrowers than traditional banks, as P2P platforms typically offer lower interest rates. For investors, P2P lending offers the opportunity to earn higher returns than they would from a typical savings account.

The recent approval granted by SECP, Securities and Exchange Commission of Pakistan for the regulation for P2P platform – Finja in Pakistan, the first Peer-to-Peer (P2P) Lending Platform by Finja, has set a precedent for similar initiatives in this domain. Finja will be part of the cohort for the SECP Regulatory Sandbox. The objective of this move is to encourage and pave way for further innovation and progress for the industry of financial technologies in the nation. The launch will create new banking opportunities for Neobanks, challenger banks and Ibanks as well as provide an innovative solution for loan management and fair borrowing. The P2P lending platform will provide borrowers with an opportunity to get loans at lower rates and lenders will be able to get better returns on their investments. This will also help to reduce the risk of lending and increase access to capital for businesses.

In Pakistan, a majority of borrowers and lenders are from the middle class. However, a large portion of the population remains unbanked, which limits the access to P2P loans. Finja can set precedent for similar projects as dynamics of the current landscape of P2P in Pakistan unveils more opportunities in terms of potential and growth of this industry.

In Pakistan, the Peer-to-Peer Lending Framework (P2PLF) is regulated by the State Bank of Pakistan (SBP). The P2PLF was created in order to provide a structure for P2P lending platforms, and to protect borrowers and lenders alike. The framework is overseen by the Financial Stability Department of the SBP. Currently, there are four licensed P2P lending platforms in Pakistan: Zhuan, Finja, MicroLend, and Kiva. All four platforms follow the guidelines set forth by the P2PLF, and all loans are managed through an escrow account. This ensures that funds are only released once both parties have agreed to the terms of the loan. By providing a safe and regulated environment for P2P lending, the P2PLF has helped to make this fintech innovation more accessible to Pakistani consumers

Additionally, the financial services sector has been facing a major challenge due to a lack of funding from banks. As a result, the financial services sector has shifted its focus towards providing financial services to households and small businesses through alternative channels. While fintech firms have generally been seen as a threat to traditional banks, neobanks are beginning to emerge as a viable alternative to incumbent banks (ibanks). Neobanks are fintech firms that offer banking services without brick-and-mortar setups.

In light of this, the Peer to Peer Lending (P2P) industry offers potential for growth and facilitation of the local industry. P2P platforms facilitate the lending and borrowing of money between individuals or businesses by eliminating the mediator agent i.e. the bank and credit institute.

In Pakistan, a majority of borrowers and lenders are from the middle class. However, a large portion of the population remains unbanked, which limits the access to P2P loans. The goal of this project is to understand the current landscape of P2P in Pakistan and identify a sustainable path forward for the industry. Fintech is a rapidly growing industry with peer to peer lending at the forefront. In Pakistan, fintech startups like Finja and Confirm have been leading the charge in terms of providing accessible banking solutions to the masses through P2P lending.

Microfinance is another sector where P2P lending has picked up significant traction in recent years owing to its ability to provide capital to small businesses and entrepreneurs. The future of P2P lending in Pakistan looks promising as more and more people are becoming aware of this relatively new concept. With the right regulatory framework in place, P2P lending has the potential to revolutionize the way people access financing in Pakistan.

Pakistan’s fintech industry is still in its early stages, but there are already several P2P lending platforms operating in the country. Finja, for example, is a microfinance platform that offers loans to small businesses and individual borrowers. Another popular P2P lending platform in Pakistan is LendingCircles, which offers loans of up to Rs. 1 million.

Related: Pakistani Startup Oraan Raises $3m Seed Funding for Gender-Inclusive Fintech

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