All You Need to know about Peer to Peer Lending

Imagine this: You’re a small business owner in Lagos, Nigeria, and you’ve just landed a big contract. But there’s a catch – you need to invest in new equipment to fulfill the order. 


You approach your bank for a loan, but they turn you down due to your credit score. You’re stuck, right? Not quite. This is where Peer-to-Peer (P2P) lending comes in, a lifeline for individuals and businesses like yours.



What is P2P Lending?


P2P lending is a system that allows individuals and businesses to borrow and lend money without the need for traditional financial institutions like banks. Instead, an online platform connects borrowers looking for loans with investors willing to provide funding in return for interest payments.


For borrowers, this means potentially lower interest rates, accessibility even with lower credit scores, and a quick, convenient online process. For lenders, it’s an opportunity to earn higher returns, diversify their investment portfolio, and derive satisfaction from helping others while earning.


The P2P lending market has seen rapid growth globally, and Nigeria is no exception. By 2025, the global P2P lending industry is predicted to be worth over $898 billion.



How P2P Lending Works


Let’s take the example of Mr. Frank, a small business owner in Nigeria. He needs a loan to expand his business. He applies for a loan on a P2P platform, providing details about his income, employment, and credit history. 


The platform assesses his credit risk and assigns an interest rate. His loan request is then listed on the platform for investors to browse. On the other side, Mrs. Ngozi, an investor, is looking for opportunities to earn higher returns than her bank savings account. She browses the platform, and chooses to invest in Frank’s loan based on his profile, risk, and potential returns. Her money, along with that of other investors, is aggregated to fund Frank’s loan.


Frank receives the loan amount, minus platform fees, and makes fixed repayments over the loan term. Mrs. Ngozi, in turn, receives principal and interest payments on the loan request she fulfilled. These payments and repayments are facilitated by the platform.



Benefits of P2P Lending


For borrowers like Frank, P2P lending offers lower interest rates, inclusive access to credit, and a quick and convenient process. For investors like Mrs. Ngozi, it provides an opportunity to earn higher returns, diversify investments, and contribute to social good.


P2P lending offers advantages for both borrowers and investors compared to traditional financial institutions.


For borrowers like Frank, you’ll get:

  1. Lower interest rates: By bypassing banks as intermediaries, P2P loans can carry lower interest rates, meaning cheaper borrowing costs. Rates from 10-15% are common.
  2. Inclusive access to credit: P2P platforms use more data for credit assessments beyond just your credit score. This increases approval chances for those underserved by banks.
  3. Quick and convenient: You can conveniently apply for and manage P2P loans 100% online without paperwork or bank meetings. Funding can be faster too once investors commit to your loan.


For investors like Mrs. Ngozi, you’ll get:

  1. Earn higher returns: You can earn over 10-15% returns on P2P lending which is higher than typical bank interest rates on savings of 2-5%.
  2. Diversify investments: P2P lending allows you to spread your capital across many loans to reduce risk. This diversification can improve portfolio returns.
  3. Funding social good: Your investment provides funding to help people and businesses in need. P2P lending enables financial inclusion for unserved and underserved borrowers.



Assessing Risks in P2P Lending


While P2P lending presents good opportunities, you need to be aware of the potential risks involved to make informed decisions. The main risks include:

  • Credit risk – The possibility borrowers default and fail to repay loans. Thorough credit assessment during underwriting and portfolio diversification are key to mitigation.
  • Platform risk  – The financial viability of the P2P platform itself. Opt for established platforms with strong funding and transparent operations.
  • Market risk – Economic changes like recessions can impact loan performance and returns. Diversify across loans with different risk levels.


Conduct proper due diligence, diversify your exposure, and only invest what you can afford to lose. Reputable P2P platforms also have investor protection funds in case of defaults.



Getting Started with P2P Lending in Nigeria


Here is a quick guide to getting started for borrowers and investors:


For Borrowers

Follow these key steps:

  1. Check your credit report and improve your score if needed. This impacts loan eligibility and interest rates.
  2. Research P2P lending platforms in Nigeria and compare offers. Consider fees, rates, reviews and borrower protection practices.  
  3. Complete the loan application process fully and provide accurate information to increase approval chances.
  4. Accept loan terms and use funds responsibly by making repayments on time. This maintains good credit standing.


For Lenders

Follow these key steps:  

  1. Research different P2P platforms in Nigeria and compare offerings. Consider rates, risks, fees, minimum investments etc.
  2. Sign-up and complete the investor registration process including KYC verification.
  3. Browse loan listings and use tools to screen based on risk, returns and other criteria. Build a diversified portfolio across loans and risk bands.  
  4. Monitor lending activity and payments into your platform account. Reinvest as desired.


P2P lending is a powerful tool that can help individuals and businesses in Nigeria access financing and earn higher returns. It’s a win-win situation for both borrowers and investors. 


So, whether you’re a Frank looking to expand your business or a Mrs. Ngozi seeking better returns, P2P lending could be the solution you’re looking for.  Start small and give P2P lending a try with money you can afford to lose until you better understand the process and risks.



Conducting Due Diligence

It’s crucial to do your homework. Take the time to research and understand the platforms you’re considering thoroughly. 


Look for transparency in their practices, ensuring they openly share details on how they handle data and prioritize user privacy. Verify the presence of robust security measures to protect data. Additionally, confirm that these platforms adhere to fair lending practices, ensuring unbiased and ethical transactions. This diligence is essential for making informed and secure choices.



The Future of P2P Lending in Nigeria

P2P lending has a bright future in Nigeria. It has the potential to play a significant role in boosting financial inclusion and economic prosperity. As more players enter the market and awareness increases, wider adoption is expected.


Technological innovation, such as automation and AI, will strengthen risk management and improve user experience. Supportive regulation will provide standards and protection for both lenders and borrowers.



I hope this guide has provided a helpful introduction to understanding P2P lending, its benefits and risks, and how to get started either borrowing or investing through P2P platforms. As with any financial decision, remember to carefully evaluate if it aligns with your risk appetite and financial situation. But used responsibly, P2P lending can empower Nigerians with more choice and control over their money.


Whether you’re a small business owner like Frank looking to expand your business or an investor like Mrs. Ngozi seeking better returns, Peer Lendly could be the solution you’re looking for. It’s time to take control of your financial future. Happy borrowing and investing!