Global Alternative Lending Market Size, Status and Forecast 2021-2027

Alternative Lending Market 

Key drivers of the alternative lending market include a growing number of small and medium-scale enterprises in developing countries that will boost the growth of the market during the forecast period. The covid-19 impact has increased the acceptance of alternative lending platforms which will fuel the growth of the market in the coming years. Technological developments like blockchain and artificial intelligence will boost the demand for the market in the subsequent years. The preference for peer-to-peer ( P2P) and crowdfunding lending will surge the growth of the market in the upcoming years.

Trends Influencing the Global Alternative Lending Market 

Demand from developing and underdeveloped nations

A sizeable portion of the population in lower and middle-income countries still depend on traditional means to borrow money like mortgaging their valuables or jewelry in pawn shops and getting the money from their friends or relatives. Small merchants do not have past credit histories which result in banks denying them proper loans.  Due to their incomplete or unavailable credit scores, this major chunk of the population misses out on gaining appropriate funding opportunities thereby cutting off their overall development. Alternative lending platforms rely on non-traditional credit assessment methods like past spending habits, purchase records, and other digital payment methods to quickly analyze an individual’s financial profile. Social media data are also gauged in order to check their loan repaying capacity. The entire loan application process is transparent and fast. Subprime applicants and other MSME owners get a better experience than traditional banks. The approval rate is higher with the quick upload of documents. These factors will boost the growth of the alternative lending market during the forecast period. 

Covid 19 effect

As the pandemic struck the global economy several SMEs witnessed a significant drop in revenues. Many had to wind up their business and once the lockdown was lifted the business owners did not have enough financial resources to restart their respective ventures. Past bankruptcy records make it challenging for them to avail of loans from traditional banks. Hence alternative lenders and non-banking institutions are solving the gap by targeting these unbanked lower applicant groups. They are booking higher profits by providing a huge number of smaller loans with flexible terms and conditions. The usual rigid structure is avoided thereby increasing the appeal to MSME owners. Moreover, several investment services, equipment financing, and invoice factoring are provided. Data automation and analysis techniques are used for predicting risks in an efficient way. This in turn will boost the growth of the alternative lending market in the subsequent years. 

Technological innovations

The entire application process of alternative lending is digitized. Tasks such as document collection, background verification, underwriting, loan disbursal, KYC document update, etc are automated through the use of lending CRM software. Neither the borrower nor the lender has to undergo any rigorous paperwork process. The turnaround time is much faster than the traditional loan disbursal process.  Blockchain holds immense possibilities in this online lending space. The documentation of legal agreements will become efficient as lenders will have complete access to transparent and immutable repayment information. Each transaction taking place will receive a unique timestamp thereby reducing the chances of misrepresentation of data. This will help in preventing fraud. Only the relevant parties with the key will be able to view the details of the transaction as they hold the key and the particular hash associated with each transaction. Such factors will boost the demand for the alternative lending market in the forthcoming years. Even banks are coming forth with their restructuring policies to collaborate with these lending platforms and streamline their rigid workflows. This will drive the expansion of the alternative lending market in the upcoming years. 

Rise of newer lending methods

Peer-to-peer or P2P lending is growing at an unprecedented rate. Several startups and upcoming brands are rising in regions across the world. In order to foster a growing finance ecosystem fintech companies, and banks are expanding their credit facilities. However, due to huge economic growth newer variations of lending facilities have emerged. P2P platforms are being seen as a viable alternative to the time-consuming and traditional lending structure of banks. You just have to seek out the most suitable lenders and borrowers as per the individual risks and returns attributes. People are utilizing these platforms as they provide efficient and convenient lending options. One can avail of a loan quickly from any part of the world eliminating the need for physical presence. The interest rates vary amongst various platforms but they are typically less volatile and cheaper than banking interest rates. Such factors will fuel the growth of the alternative lending market during the forecast period. Crowdfunding is another attractive option.

Alternative Lending Market Share

Based on type, the segmentations include P2P lending, crowdfunding, and others. P2P lending works by providing money online through matching lenders and borrowers. The services are offered online with less overhead expenses and interest rates. While crowdfunding is an alternative finance funding medium where a large number of people contribute money for a project or a venture via the internet. 

Based on application, the segmentations include individuals, businesses, and others. Several banks and alternative lending companies have teamed up to provide financing opportunities to both small and medium-scale businesses and individuals. 

Alternative Lending Market Segmentation