Launching today (3 July 2012), social lending company, RainFin said it plans to bring disruption to the financial services sector through its online peer-to-peer lending platform.
Peer-to-peer lending, also known as person-to-person lending or social lending, is a type of financial transaction which occurs directly between individuals or “peers” without the intermediation of a traditional financial institution.
“It links people who need to borrow money with people who have money to lend,” said RainFin.
“Social lending is bringing massive disruption to the financial services sector around the world by using the Internet to dis-intermediate banks – the traditional middlemen between people who have money to invest and those who need to borrow,” said RainFin CEO, Sean Emery.
According to RainFin, banks offer interest rates below prime for money deposited to them, and then loan it out above prime, making a healthy margin in the process. “On top of that, they charge high fees and charges, too,” it said.
Speaking on the peer-to-peer model for lending, Emery noted the platform as a viable alternative to the high costs and complexity of the banking oligopoly to South African consumers for the first time.
“Consumers will benefit from more competitive rates, lower and more transparent fees and charges, and better terms and conditions than they could get from the banks,” he said.
How it works
According to RainFin, any South African resident over 18 can borrow and lend through the company. After passing a strict credit vetting process, borrowers can apply in the marketplace for loans of between R1,000 and R75,000 with a maximum repayment period of one year.
Individual lenders can invest between R100 and R500,000 across a portfolio of RainFin loans. Borrowers can specify the loan amount, the maximum interest they are willing to pay and the loan duration up to a year.
Investors can make informed decisions about which group of borrowers or individual borrower to lend money to, through credit risk information based on their gender, age, location and credit score.
To lenders, RainFin provides anonymous information on each borrower from the credit bureaus so that lenders can make sound risk decisions.
“RainFin earns a low percentage-based transactional fee on every loan, making the costs of [the] platform completely transparent to its users,” RainFin said.
“We believe that consumers have an opportunity to take back some of the power they have given to banks, benefitting each other rather than large institutions in the process,” said Emery, noting that uncollateralised loans are just the start.
“The company plans to add other products such as SMME financing and mortgages to its portfolio in the months to come,” he finished.