How peer-to-peer lending is helping SMEs during the pandemic

By Luke Fitzpatrick

In recent years small and medium enterprises (SMEs) have been reporting declining sales and trouble with distribution, among a string of other problems. With small businesses contributing more than 60 percent to GDP, the implications are disastrous. 

However, SMEs have recently been given a lifeline in the form of peer-to-peer (P2P) lending platforms. Recent research has indicated that businesses on P2P lending platforms had seen a significant increase in revenue, helping the economy dramatically. 

Research into P2P lending

A study by the University of Indonesia has uncovered some heartening results for SMEs and the economy overall. By engaging in new financing means, businesses are showing vast levels of improvement, lessening the strain on individuals and the broader economy. 

Borrowers of P2P lending platform Investree—which is comprised mostly of SMEs—have seen a significant increase in revenue. This revenue increase has then enabled SMEs to scale-up operations. 

According to the study by the university’s demography center at the School of Economics and Business, the average income increase was between 20 and 50 percent. Additionally, sectors from manufacturing to services and construction are benefiting from the increase. 

Investing in P2P lending platforms

P2P platforms are equally benefiting those looking to borrow money and those looking to invest their hard-earned money in a worthwhile cause, potentially paving the way for a change in how businesses choose to fund their operations. 

Research indicates that 44 percent of the entrepreneurs in Investree had also been able to employ more people since borrowing from the P2P platform. Leading to a positive impact on SMEs, all the while supporting financial inclusion. 

P2P lending platforms are able to help borrowers give out short-term loans that enable SMEs to scale up their business. This will, in turn, eventually qualify them to take out larger bank loans. According to research, 37 percent of millennials borrow money to consolidate debt and is a $173 billion market.

With the Cooperatives and Small and Medium Enterprises Ministry reporting that around 37,000 SMEs had reported declining sales and trouble with distribution, the growth of P2P lending platforms couldn’t have come at a better time. 

The numbers behind P2P lending 

During the best of times, let alone in the middle of a worldwide pandemic, profits and cash flow is everything for SMEs. With the help of P2P lending platforms, online sellers have been able to increase their income. 

Online sellers that borrowed from the P2P lending platform could increase their income from the initial average of Rp 807 million ($57,046 US) to Rp 3.5 billion. This number comes from survey data based on 261 interviews with P2P lenders in Java. 

While this data was sourced between December 2019 and January 2020, the pandemic hasn’t canceled these numbers out altogether. In fact, the co-founder and CEO of Investree have stated that the company still recorded a 90-day loan return of 99.95 percent in June.

The future of P2P lending 

The worldwide pandemic has stunted lending in some aspects as retail lenders decreased during the partial lockdown period because borrowing money wasn’t a priority. While the pandemic has caused some re-evaluation, Investree will progress with its first trench of series C funding worth $23.5 million, as well as a plan to expand its market to Thailand and the Philippines. 

Going digital by selling on e-commerce can save SMEs, especially during a pandemic where the economy is experiencing a recession. Additionally, fintech lending can help by supporting SMEs’ financing. 

The viability of P2P lending 

At a time where the economy is spiraling, SMEs are looking for any and every viable option in order to keep their businesses afloat. One way to keep paying the bills and staff is by getting involved with P2P lending platforms. 

While the pandemic has had some effect on P2P lenders, this form of financing is not dramatically slowing down. In light of research suggesting that P2P lending helps SMEs earn more, it’s not hard to see why this form of lending is being considered as a lifeline. 

About the author

Luke Fitzpatrick has been published in Forbes, Yahoo News and Influencive. He is also a guest lecturer at the University of Sydney, lecturing in Cross-Cultural Management and the Pre-MBA Program.