Peer-to-peer (P2P) lending has been booming in Southeast Asia. And it’s not a coincidence. This fast-growing region is home to over 650 million people, many of which are either totally unbanked or greatly underserved by traditional financial institutions. The marginalized welcome any alternative source of credit with lax requirements.
According to the infographic below by Tony Arevalo from Carsurance.net, P2P lending offers a world of fintech opportunities. The platforms operating in this space have risen to popularity because they offer borrowers the best of established banks and door-to-door loan sharks minus the usual drawbacks.
To lenders, P2P lending platforms provide a potentially rewarding avenue to earn passive income out of disposable cash. However, don’t be a starry-eyed lender, for there are risks you need to consider. Learn about some of them below.
Possibility of Default
Funding unsecured loans can allow you to earn great returns through relatively high interest, but there’s a catch – borrowers may default on the loan. Without any collateral, there’s little recourse to recover your money in case of non-repayment.
Fortunately, some established P2P lending platforms, like MEKAR, is partnering with financial institutions that have agreed to provide 100% protection of lenders’ principal. This Indonesian fintech startup also advises lenders, especially millennials, to lend less than 10% of their savings and to spread their money across at least three loans to mitigate effects of non-payment.
Lack of Instant Access to Funds
Loaned funds are not going to be liquid. After lending your money, you’ll need to wait a certain period before you can cash out.
Funding periods vary from platform to platform. Find out the soonest date you can withdraw your funds, and make sure you have adequate money in your bank account to absorb any potential emergency expenses you may have moving forward.
Specter of Cyber Attacks
Cybersecurity is a constant concern in fintech. Understand how your chosen P2P platform handles money to assess its system’s susceptibility to hackers.
Take advice from experts for skepticism about the hype surrounding P2P lending in Southeast Asia, and exercise due diligence to calculate risks properly and to identify reliable platforms to partner with.
To learn more about the hottest fintech trends across the world, check out the infographic below.