The research study covers the present scenario and growth prospects of the global P2P lending market for 2016-2020. To calculate the market size, the report considers the lending amount through P2P platforms in the Americas, Asia Pacific (APAC), and Europe, the Middle East, and Africa (EMEA).
Technavio analysts highlight the following three factors that are contributing to the growth of the global P2P lending market:
- Increase in global lending of MSMEs
- Enhancement of inventory management
- Borrowers having faster access to credit
Increase in global lending of MSMEs
After the financial crisis, the banking and financial institutions are trying to deleverage the off-balance sheet items to meet the penal capital adequacy requirements. This has led to the reduction of loan finance for small and medium-sized businesses (SME) and individual borrowers as they are considered to be risky. The P2P sector has successfully filled a massive unmet need. The innovations in technology have expanded the ease of access to working capital for micro, small and medium enterprises (MSMEs). The boundaries of technological services are sometimes fluid, but there are five key products required for funding small businesses. These include marketplace (P2P) lending, merchant and e-commerce finance, invoice financing, supply chain financing, and trade financing. These lead to a belief that technology may create more such products in the future.
“In developing countries, P2P lending is an upcoming source of finance, especially for MSMEs. When an MSME gets new customers regularly, as in the case of manufacturing, automotive or heavy industries, the chances of the company having huge invoices are high. It is known that SMEs have a disadvantage when dealing with a capital market regarding credit rationing and finance gaps. The gap refers to the difference in the working capital and the cash flow of the companies. Such gaps in financing have driven the need for an alternative source of financing like P2P lending even though the service providers charge 10%-15% of the receivables as commission,” says Amit Sharma, a lead analyst at Technavio.
Enhancement of inventory management
The inventory management has improved in the last five years and has enhanced the cash flow and the way working capital is managed. Inventory is crucial to any company’s balance sheet. For instance, if a company needs to prevent loss then it has to ensure that it has enough inventory to meet the demands. Any difference in the inventory and demand can affect company’s cash flow i.e., in the case of a deficit, more investments will be required. Therefore, organizations must focus on maintaining optimal inventory levels by setting up a system that uses various internal processes to track accurately and maintain inventory. Such a system will enable a company to manage the vendors and customers, monitor demand patterns, track inventory performance, maintain accurate inventory counts, and ensure suppliers adhere to their commitments during the forecast period. It will also lead to improvement in the vendor-managed inventory techniques and aid in building up the value chain in the supply chain management.
Borrowers having faster access to credit
Looking at the current market scenario, the P2P lending platform provides credit to the marginalized borrowers like small and medium scale enterprises that are unable to obtain huge funds from the other banking and financial institutions. The small and the medium enterprises lack high-quality collateral and long credit histories and are associated with higher risks. This is because the banks are unable to meet the short-term funding needs of these small and medium scale enterprises. The traditional banking institutions are trying their best to address the specific needs of the potential clients so that they can reduce the huge funding gap between the large corporate and the small and medium enterprises. For instance, small regulated financial firms are licensed to encourage credit access for small and rural borrowers in China. This will bring in liquidity into the system, thereby bringing in credit transformation. “The P2P lending institutions offer risks, along with scenario analytics for different products and services with real-time pricing and capital management of multi-asset portfolios. This unique tool would provide a transparent and detailed solution to clients to buy the products and services from the online platform,” elaborates Amit.
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