The practice of lending and borrowing money seems to be as old as the invention of money. Although it’s nearly impossible to pinpoint where the history of lending began, we can be quite sure that lending business has been happening ever since the idea of ownership emerged. Of course, modern money lending business emerged much later in the world, but the origins are rooted in ancient times. Today, money lending is in its full swing and only getting bigger.
Early Forms of Lending
A quick dig into the remarkable history of lending displays that lenders, borrowers, and lending rules existed in ancient Roman and Greek times. However, to understand how and where it all began. There have been various forms of lending in the history which are as follows:
The pawnshop is one of the oldest money lending practices which began in the early Greek and Roman era. People used to bring valuables which they leave with the pawnbroker in order to obtain money. If the person fails to repay the loan, the pawnbroker can sell the valuable item to get the money they loaned.
The indentured loan is amongst the earliest forms of lending in the Middle Ages. In this form of lending, the rich lent the money to those who need and in return, the borrower paid off their loan by working on the lender’s estate.
Mortgage lending has paved the way to the modern-day bank loans where people can mortgage their property or any asset to obtain a loan. A legal mechanism is put in place to make the lending system more secure for the borrower.
How Fintech Changed Everything
As technology evolved remarkably and became more prevalent, it has reshaped the way of lending. The rapid adoption of technology has started a silent revolution in the unorganized lending industry. The money lending business has undergone monstrous transformations under Fintech revolution.
Fintech has discovered numerous ways of lending money and altered the methods which we have practiced for generations. Let us take a look at major transformations made by Fintech in shaping modern money lending business.
While traditional banking and financial institutions have grown tremendously, the emergence of new technologies has paved the way to Alternative Finance. This type of finance that is beyond the banks and institutes. Today, alternative lending is disrupting the lending markets and have taken a heavy chunk from the market share of traditional banks.
In early times, the whole process of obtaining finance from traditional banks was highly cumbersome and time-consuming. Fintech eliminated the endless paperwork and tiring processes to apply, sanction, and approval of loans. Thanks to the technology, a person can get a loan sanctioned in just a few minutes.
Leveraging Data Analytics
Leveraging data obtained from the customers or borrowers can help to calculate the risks involved in lending, thus benefitting the people involved. Moreover, analyzing the past data of the applicant allows a simpler application process and faster reviews.
While data analysis provides faster loan approval, electronic payment systems allow the quicker use of it. E-payments facilitates the applicants with instant cash that can be disbursed in minutes.
The Road to Alternative Finance
One of the most disruptive ways, Fintech has transformed our lending practices is with the introduction of “Alternative Finance”. The method incorporates financial channels, instruments, and processes of borrowing and lending that happens outside the traditional financial system such as banks and capital markets. Alternative finance differs from traditional finance as it utilizes third-party platforms to connect both the parties, reducing overall transactional costs and improve market efficiency.
Alternative finance includes several modern financial activities including some of the popular ones mentioned below:
- Peer-to-peer Lending (P2P Lending)
- Invoice Trading
- Debt Securities
- Online Loans
Peer-to-peer or P2P lending is amongst the most popular and advanced method of borrowing money from individuals. It is the practice of lending money to individuals and businesses through online lending platforms without the use of any intermediary like banks.
With peer-to-peer lending, people obtain loans from individuals from the pool who are ready to lend money at agreed interest rates. P2P lending is extremely beneficial for the people who might not have gotten bank approvals or are forced to pay higher interest rates. It provides the most flexible and accessible mode of finance.
The concept of P2P lending is relatively new to many countries. Businesses across the world are trying to identify its potential and what benefits it can provide over traditional modes of finance.
If you want to seek opportunities in P2P lending, reach us to know more. We’re are an intensely engaged company in P2P lending and other alternative finance models.
Crowdfunding is a remarkable way for businesses and individuals to raise funds online. It is a practice of obtaining small amounts of funds from a large number of people to finance through social media and crowdfunding websites. There are four types of crowdfunding,
- Debt Crowdfunding
- Reward Crowdfunding
- Equity Crowdfunding
- Charity Crowdfunding
Invoice trading is a unique process in which businesses sell their unpaid invoices to third parties and obtain cash in return. The invoices can be traded online as well as offline at a discount to free up the cash. It is a relatively easier way to generate funds avoiding various risk factors in the money lending business.
Debt securities refer to debt instruments including bonds, debentures, certificates of deposits that can be traded off to raise funds instantly. The owner of a bond has the right to be paid by the company and is eligible to gain interest as well. Going on the same path of invoice trading, debt securities is one of the easy and safer forms of generating finance.
Similar to traditional bank loans, online loans are a great way to get short-term loans, generally at higher interest rates. They are comparatively easier to apply and takes less time to get approved, resulting in more convenience to the borrower. Such loans are generally taken by the small and medium enterprises (SMEs) for business and individuals who are unable to get approved loans from the banks.
Modern Money Lending Business: What’s Next?
In the digital age, the money lending industry has tremendously evolved, and it continues to grow to be more refined. Today, individuals and small business owners can conveniently obtain finance using alternative finance models avoiding the need for banks.
We are trying to help businesses who want to add value to the vast growing industry by providing easy loans. What’s next for the money lending business? A really exciting time has begun for the industry that will bring people together on a single framework revolutionizing borrowing and lending for the world.