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26 Jun 2018

Financial Institutions

P2P Lending ... a good opportunity for retail borrowers At the heart of the platform is risk management (Current Issue No. 2917)

              Around 4-5 financial technology start-ups have begun providing Peer-to-Peer Lending (P2P Lending) in Thailand by focusing on retail borrowers, especially SME entrepreneurs. The online lending platform should provide these borrowers with an increased access to finance with a cheaper interest rate because the costs associated with certain lending procedures will be lower when the operation is run by a digital system. Additionally, some platforms are designed to add another layer of price competition mechanism for investors through the online auction process. At the same time, the conditions to request for loans via online platform have also been eased in terms of both collateral and duration of business operations (compared with application for unsecured loans at financial institutions).
                At the heart of P2P Lending's success is a well-managed risk management throughout the lending process of the platform whether it is a credit scoring system or debt collection service.  Digital finance still has to pass many tests that will arise during the economic and business cycles and has to prove platform stability when the customer base is expanding. These factors will affect the decisions of the investors, who will bear the burden of all the risks of debt default and costs incurred during the debt collection process unlike investment in bank savings where they will receive the deposit money, according to the specified schedule and conditions.
                ​KRerearch estimates that the total amount of lending approved through online platforms in 2018 will reach THB1 billion-THB1.5 billion. Although the amount accounts for only 0.03 percent of the total SME loans approved by domestically-registered commercial banks in Thailand, the platform partially narrows the gap between demand and supply for financial services while the market is waiting for the Bank of Thailand and the Securities and Exchange Commission to announce additional regulatory frameworks. After new supervisory and regulatory criteria are announced, together with more advanced development of credit management on the online platform, it is expected that the future of P2P Lending in Thailand will be clearer, especially in the aspect of customer base, which is expected to expand further.