How does P2P lending work in India? How safe is P2P lending? Deepak and Shray explore how the industry works, the risks involved and whether the returns are enough to justify the risks.

Summary

• Banks keep a considerable spread between the interest they offer on a deposit and the interest they charge a borrower. So, some people think, why is the spread so big? Why can't I deal with the borrower directly and receive more interest on my money?
• The problem is you don't know the person you are going to be lending money to. In comes the P2P lending company, which acts as a sort of intermediary between the lender and borrower.
• When you give your money to a bank (as a deposit), the bank will guarantee that you will get your money back. But in the case of P2P lending, there is no such guarantee that you will get your money back.
• Another problem with P2P lending is, no one outside knows the actual default rates, and they are often much higher than what these companies report, even though the whole operation is legal.
• In P2P lending, you don't see one of the three Cs of lending – you don't have collateral; you have capacity and creditworthiness.
• One of the reasons why P2P companies have flourished is that banks, which should ideally lend money to people whose credit might be questionable, don't lend to them. But the answer is not to 'lend' them money. You can consider it as a form of charity, in which case, even if you don't get the money back, you don't mind losing it. And there are companies that work on this model.
• An alternative could be microfinance. But there are problems there too. Often, multiple microfinance companies want to lend to the same borrower, who uses the money for purposes other than what they were intended for, with the result that they are not able to repay.
• But microfinance companies can take this pressure because they are a company. A P2P lending firm is just an intermediary. They have no way to recover the money if a borrower refuses to pay, except send legal notices (because there is no collateral), which may not work.
• So, the gist is, if you want to give loans through a P2P lending firm, only lend so much that you won't mind even if you lose the money. Give it for charitable purposes. Give it to people who are in such bad shape, they can't afford anything else.

Read the full transcript.

Episode 41 - Deepak sits down with returning guest Ruchir Kanakia, the founder of the insurance distribution company OneAssure to discuss our favorite insurance product - term insurance.

• How term insurance works for you and the company that sells it to you
• Debt or Dependents – the two reasons to buy term insurance
• How Covid and the fact that a handful of reinsurers control everything has made your office insurance a bit less reliable – consider buying a personal one too
• How much coverage is enough and how much the insurance company will give you
• Why you should opt for the in person medical test
• You're tech or finance savvy but consider getting an agent or distributor if your dependents might not be
• Common riders and why you should ignore them
• How the claims process works and benefits of selecting a monthly or yearly premium payment

Click here for the full transcript.

Episode 40 and we're speaking to the fintech firm that just raised 40 Million dollars last week - Smallcase! Deepak sits down with co-founders Vasanth and Anugrah to talk about creating a new way to invest in stocks, investment lessons from the pandemic and what's up next from the Smallcase team.

What is a Portfolio Management Service? How does it really work? Do they actually benefit their clients? In this episode, Vashistha and Deepak explore PMS' through their experience of running one at Capitalmind. They explain how the operations work, the pros and cons of different fee structures, quantitative strategies and how PMS' are different from AIFs, Mutual Funds and Smallcases.

How do you plan for a smooth transfer of your wealth after you die? And how do you help someone whose loved one has passed on? In this episode, Shray and Deepak explore what you must do in an unfortunate circumstance of a loved one's death, and for an easy transition in case of your own. We also invite Harshavardhan Ganesan, a practicing lawyer, to give us the legal perspective. Listen in for real life anecdotes from covid, succession certificates, legal wills, and some counter-intuitive learnings.

Are the recent problems - GME, Greensill and Archegos - signs of a damaged financial system that is so terribly fragile that a slightly bigger disaster can easily crush it? Like what Covid has done to the world's health system, are there more hidden risks in our financial system that can trigger a repeat of 2008? In this episode, Deepak and Shray explore what's happened in the US over the past few months, and examples of hidden leverage within India - from Harshad Mehta to Karvy, Zee, DHFL and more.

On today's show, Deepak invites Vivek Subramanyam of LiveAltLife to discuss the one thing without which wealth means very little - health. Vivek breaks down the foundations of health to help avoid or even reverse lifestyle diseases as Deepak draws paralells on human behavior from the world of investing.

On today's show, Shray asks Deepak about government borrowing and debt, how the RBI can help bring down borrowing costs, the new rules that make your provident fund much less attractive and how we can now invest directly in Government bonds instead of Fixed Deposits.

In this episode, Shray and Deepak discuss the evaporating returns from safe investments such as FDs, what it means for lending, and how should you invest in this new (to India) low interest-rate world.

In this episode, Shray and Anoop discuss momentum investing and how we implement it as portfolios at Capitalmind.