Marketplace Lending as a tool for financial inclusion

Marketplace lending, also called crowdlending and P2P lending, is an alternative financing method that provides borrowers access to capital from a group of investors. 

A marketplace lending platform plays the role of a marketplace. Here, borrowers can present their projects to potential investors. The goal is to acquire funds.

The surge in various marketplace lending platforms prompts questions about their contribution to financial inclusion in local and global societies.

Financial inclusion involves affordable, accessible financial services for individuals and businesses, covering transactions, payments, savings, credit, and insurance.

On the contrary, financial exclusion occurs when individuals or companies face challenges in accessing or utilizing financial services and products. This obstacle limits their full participation in daily social interactions within their society, as emphasised by the 2018 European Commission report.

The features of marketplace lending allow it to create digital financial inclusion.

The main idea behind marketplace lending is to channel the funds collected from investors into parties in need of funding. Doing so replaces relying on traditional financing institutions to acquire funds, thus creating financial inclusion for borrowers, individuals and businesses.

Additionally, marketplace lending was not designed to address particular social categories of people. It is meant to create an equal chance for individuals and businesses to gain access to capital, fund their projects and be part of the financial cycle of their markets.

Another feature of marketplace lending is that it is borderless.

Marketplace lending platforms are digital marketplaces. Their reliance on the internet for advertising projects and collecting funds plays an essential role in removing any obstacles of location. It also enables individuals and SMEs to raise funds from alternative sources with the possibility to apply for loans anytime.

Unlike traditional financing, marketplace lending can boost financial inclusion through its efficient loan acquisition procedures. This approach can facilitate greater accessibility to financial services for a broader spectrum of individuals or entities. It can also generate good returns for investors, although it might come with higher risks.
Marketplace lending’s capacity to include businesses and individuals overlooked by traditional financial institutions renders it a valuable alternative to conventional financing.