A relatively new concept in the South African financial market, Peer-to-peer lending is an alternative way of getting access to finance.Statistics indicate that South African consumers, small businesses and government spent a collective R59 billion on products and services via the internet in 2011. This is proof that more consumers are becoming more trusting in online transactions.
Peer-to-peer lending is a process whereby an online platform is used for other consumers to provide capital which is lent to those requiring a loan. An online platform is used to connect borrowers with people who have money to lend.
Also known as social lending, Peer-to-peer lending services a sector of the financial market that may face an uphill battle when seeking finance from traditional lending institutions. Nowadays it’s an open secret that many financial institutions are wary of lending money to individuals who want to start small businesses or expand on existing ones. With the advent of Peer-to-peer lending these entrepreneurs are able to have an alternative to the norm. With Peer-to-peer lending individuals can expect to get up to R250 000 in finance, which is repayable within six months. Minimum amounts are usually R100.
The South African financial market currently has two main players within the Peer-to-peer lending space: RainFin and Lendico. This form of lending may even hold considerable opportunities for mainstream credit providers.
RainFin was the first of its kind to operate in the South African market. In March 2014, Barclays Africa, through its South African unit, Absa, bought 49% of RainFin.
Lendico offers a platform for a minimum investment of R250 and promises investors returns of up to 20.34%.
Peer-to-peer lending platforms provide borrowers with an opportunity to present their cases directly to individuals who have money to lend. This is done via a safe platform with completely transparent processes – giving both lender and borrower peace of mind. This form of lending seems set to grow at a fast rate in South Africa. Current peer-to-peer lending platforms boast surprisingly low default rates, possibly indicating that the process is reliable.