In the wake of the subprime mortgage debacle and the subsequent global credit squeeze, traditional lending channel such as banks across the globe have resorted to tightening of liquidity. Despite this, borrowers could still find ways to mobilize the required funds, thanks to an emerging Internet-based financing tool, peer-to-peer (P2P) or social lending.P2P lending is emerging as the eBay of consumer loans, as it brings together individual borrowers and lenders in the same way as eBay links buyers and sellers. More importantly, it has come as a boon to those who cannot access formal credit.
This latest financing mechanism is growing at a phenomenal pace on the Internet, as the consumers are looking for alternate ways to lower their interest rates and simplify their repayment modes. Celent, an international strategy consultancy, projects that more than $5 bn P2P loans will originate from the UK and US alone by 2010, up from $282 mn in 2006. The growing appeal of social lending is further emphasized by the recent report from Gartner, which has predicted that P2P lending would represent 10% of the personal loan market by 2010.
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