Peer-to-Peer Lending In Kenya: Everything You Need to Know

Picture this: You want to start or expand your business, but you don’t have enough capital. You could go to a bank or a Sacco to take a loan, but you’ll be denied because you don’t have a solid credit history or collateral. You could raise money from family and friends, but they’re also tight on cash. 

With no way to raise money, you could likely shelve your plans. But what if you could pitch your business idea to a group of individual lenders, and if they buy it, they give you loans? That’s where peer-to-peer lending comes in. 

Peer-to-peer lending, or p2p lending, allows you to borrow money without going through traditional lending institutions. It provides a flexible option to borrow money directly from individuals through an intermediary. 

Whether you are looking for business loans or need a quick personal loan to pay your child's school fees when you are cash-strapped for one reason or another, P2P loans can come in handy. And over the last few years, this alternative financing method has been gaining popularity in Kenya and worldwide.

In this article, we’ll explore what peer-to-peer lending is, how it works, discuss the pros and cons, and list the top p2p platforms you can borrow money from in Kenya.

Read Also: Full Guide: All You Need to Know About Personal Loans in Kenya 

What is P2P Lending In Kenya? 

P2P (Peer-to-peer) lending is a type of alternative financing that allows individuals to lend or borrow money from one another without the involvement of traditional financial institutions. 

The process typically occurs on an online platform such as an app or a website. The platform acts as an intermediary, connecting borrowers to individual investors who want to finance their loans.

In P2P lending, a person with extra cash offers to lend money to individuals and businesses that need cash. A P2P platform matches them to a suitable borrower. 

The platform will typically assess the borrower on behalf of the lender. If the lender is convinced, they will lend the money, and the borrower will accept the loan with the promise to repay the borrowed amount plus interest within a specified time.

P2P lending provides a variety of benefits to both lenders and borrowers. Borrowers can access loans that match their needs, compare lenders, and may qualify for more than they would from traditional lenders. On the other hand, lender charge interest on the amount they loan out and earn attractive returns when a borrower repays their loan.

Read Also: How to Get The Most Out of Your Loan

How P2P Loans Work 

To apply for a peer-to-peer loan, you must first register with a P2P platform. The platform will then help connect you with a lender. Different platforms use different models to do this.

The most common model is the platform will screen you, give a risk rating and show your loan application to potential lenders. 

When registering, you will likely need to give your financial information, such as payslips, bank statements, and MPESA statements. The platform might also pull your credit report from a credit bureau reference company to determine your creditworthiness. 

When applying for a loan on a P2P platform, you will also need to say how much you want, what you intend to use the money for, and your repayment plan The platform will use all your financial information to give you a risk rating that will be shown to lenders. 

Lenders will review your application and give you loan offers if they find it solid. In their offer, they’ll tell you how much they’ll loan you, the interest rate, the loan term, and the repayment terms. You can then pick the lender that works best for you.

In another model, the P2P platform will collect funds from different lenders and distribute them to borrowers. Here, you will likely not have the option to choose a lender, as the funds you receive are from a diversified pool of lenders.

Online P2P platforms will charge you to use the platform. Unlike other types of lending, some P2P platforms might charge you a membership/registration fee when you sign up to borrow business loans. When you successfully find a lender, apart from interest, some platforms will charge you loan origination fees and service fees. The rate can vary from 0.2% to 5% of the loan amount, depending on the platform.

While most P2P platforms in Kenya are focused on offering business loans, some offer personal loans and digital loans. Additionally, most loans are unsecured however, some platforms might ask for collateral after assessing your creditworthiness and depending on how much you want borrow.

Finally, defaulting on a P2P loan carries the same consequences as defaulting on any type of loan. Depending on the terms of your credit contract, you might be reported and blacklisted on CRB, the lender might send debt collectors to recover the amount, and you might be sued.

Read Also: 5 Ways a Personal Loan Can Improve Your Life

Some Peer-to-Peer Lenders In Kenya

The following platforms are known to offer a form of peer-to-peer lending in Kenya. This list is not exhaustive.

1. Pezesha 
2. Zidisha
3. UbaPesa 
4. Kiva

The P2P industry in Kenya is still relevantly new, with few platforms connecting borrowers to lenders. These platforms typically use different models to give you access to loans and have different terms of service. When applying, ensure you compare different platforms and read the terms.

You can find the lenders on App Store and Google Play Store. To get started, you will need to download the app, register as a borrower, complete the KYC procedure, provide financial info, and apply for a loan.

Advantages of P2P Loans

P2P loans offer multiple benefits, including:

1. Easy and Convenient Application Process: The entire P2P lending process takes place online, and you will likely not be required to visit loan offices, as is the case with borrowing from traditional lending institutions. This can save you time.
2. Alternative Funding Option: Peer-to-Peer lending offers a more readily available funding option for certain borrowers who can’t qualify for traditional loans from financial institutions. This can be particularly beneficial for unbanked or underbanked individuals raising business capital.
3. Transparency and More Control: Some P2P platforms will connect you to multiple lenders with whom you can discuss loan terms, allowing you to choose one that matches your needs.
4. Higher Limits: Compared to other internet-based lenders like Digital Credit Providers (DCP), you might receive a higher loan amount as you decide how much you want to raise when applying. 

Read Also: What is Consumer Debt, and Why is it Considered Bad?

Disadvantages of P2P Loans 

Peer-to-Peer lending comes with a few drawbacks, including:

1. High Cost: P2P loans come with multiple costs, including application fees, service fees, and interest which can increase the cost of your loans.
2. Long Process: While P2P loans can have a faster processing time than banks, finding and convincing a lender can still take days to weeks. This makes them less attractive if you are looking for an emergency loan.
3. Potential Privacy Concerns: P2P lending platforms typically require borrowers to provide personal and financial information during the loan application. Ensure that the lender you use has a solid privacy policy and is regulated by the Central Bank of Kenya.

Read Also: How Do I Decide Whether to Take a Loan or Not?

5 Things to Consider Before Taking P2PLoans 

If you're considering taking out a P2P loan, here are a few things to keep in mind:

1. Check the platform's requirements: Most P2P lending platforms have strict credit criteria for borrowers. For instance, some lenders only offer business loans, which means you might have limited success obtaining other types of loans on their platform.
2. Read the terms and conditions: It is crucial to carefully read and understand them before signing up. Pay particular attention to the repayment schedule, late payment fees, and understand the consequences of default.
3. Compare multiple offers: Don't settle for the initial loan offer you receive. Take the time to compare offers from different P2P lenders on the platforms. This will ensure that you secure the most favorable deal available.
4. Understand the interest rates and fees: P2P loans may have varying interest rates and fees depending on the platform and your creditworthiness. Compare these costs across different platforms to make an informed decision.
5. Assess the platform's reputation and credibility: Look for reviews, ratings, and feedback from other borrowers to gauge their experiences. A reputable platform with a track record of successful loans and positive user feedback is more likely to provide a reliable lending experience.
6. Consider the platform's customer support: Good customer support can be invaluable throughout your borrowing experience. Check if the platform offers responsive customer support channels such as phone, email, or live chat. Prompt and helpful customer support can address any concerns or issues arising during the loan application or repayment process.

Read Also: 5 Reasons Why Taking Loans Won't Stop Your Financial Troubles 

WRAPPING UP

Borrowing money can offer several benefits, such as enhancing your credit score, addressing urgent financial needs, or bridging the gap in a down payment. However, it's essential to exercise caution, as debt can harm your financial well-being, and peer-to-peer (p2p) loans are no exception. 

Therefore, if you are contemplating a p2p loan, it is crucial to adopt responsible borrowing practices. Conduct extensive research, avoid borrowing excessively, have a solid repayment strategy, and only borrow within your means. If you adhere to these guidelines, you can make the most of a p2p loan while safeguarding your financial stability.