Definition of online social lending

This is also known as peer-to-peer online lending.  This occurs on web platforms operated by different companies and acts as a direct transaction between a lender and a borrower, without the intermediation of a financial institution.

Borrowers and lenders normally have to register on the platform. Potential borrowers post their requests and indicate the amount of money they wish to borrow and they give out other  information that allows potential lenders to assess their creditworthiness.

Potential lenders can then decide whether to supply money or not.  In the case of a successful loan, a fee is paid to the platform provider.

A borrower, who might not want to use traditional financial intermediaries such as banks, could try to find potential lenders among people who share a similar characteristic such as religion, geography, hobbies or education.  This allows the lender to get a  better assessment of the borrower and develop the trust that is needed to lend money to the borrower, even without carrying out a formal creditworthiness assessment. [1]

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