It’s been some time since fintech unicorn CRED launched its peer-to-peer lending (p2p lending) platform that enables select members earn interest on idle money by lending to other members. The product ‘CRED mint’, which has been rolled out in partnership with peer to peer (P2P) NBFC Liquiloans, allows select members to earn interest rates of up to 9 per cent (XIRR) per annum. Here is a review.

What is CRED mint?

CRED mint is a P2P investment offering platform. In P2P lending, borrowers and lenders/investors connect with each other without bearing the extra costs of middlemen. The borrowers get funds, while the lender gets interest income and principal.

According to CRED, investors are connected to creditworthy borrowers having an average credit score of 790. The product was first launched in August 2021.

According to the platform, over 50,000 investors are earning 9 per cent per annum.

Investments made in CRED mint are lent out through CRED Cash, an instant and flexible credit line available for select CRED members. During the launch of Cred mint, CRED Cash default rates were said to be historically less than 1 per cent.

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To reduce risk, the invested money is said to be routed directly to an escrow account held by CRED’s NBFC partner, Liquiloans, and diversified across over 200 borrowers on average.

Investment limits

An investor can put in up to ₹50 lakh across all P2P platforms. However, according to RBI norms, if one wants to invest more than ₹10 lakh, one has to show a minimum net worth of ₹50 lakh. A net-worth certificate is an official document generated by a practicing CA.

Currently, CRED mint is a free of cost service. Now, the real question is how does CRED and Liquiloans make money from this product?

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CRED and Liquiloans take a small percentage of the return made by giving out loans as commission and the remaining interest is given out to the investors/lenders. Note that no money is made by CRED and Liquiloans until 9 per cent returns are disbursed to investors.

There is no penalty charged for withdrawing your investment. One can request partial or full withdrawal.

Who gets access and how

CRED mint is invite-only platform. According to the company, 4.5 lakh people are waiting to access the service.

If you have unlocked access (by using CRED coins), or have been invited by someone with access to CRED mint or given access by CRED, CRED mint will appear on your app home screen and under ‘more options’. Note that if you unlock access and don’t use it within a week, the access can expire.

Safety of money

All borrowers approved by CRED cash are curated through data points and undergo stringent verification.

On social media, we came across users messages (identity of users has not been verified by us) claiming that they could withdraw money on same working day.

Risks involved

The biggest risk in any form of lending, not just P2P, is the possibility of default by a borrower. CRED mint says that it tries to reduce this risk by verifying borrower’s identity and credit risk even before giving access to CRED cash.

In case of default, legally-compliant collection agencies are tasked to follow-up and collect missed payments. If a borrower ends up defaulting even after the recovery process is initiated, Liquiloans and CRED will earn no income until investor gets back the indicated return.

CRED mint cannot guarantee 9 per cent returns but so far 100 per cent of CRED members have received the 9 per cent XIRR on their investment, claims the platform.

Tax matters

Your earnings from CRED mint will be classified under ‘income from other sources’ and will be taxed as per your income tax slabs. Liquiloans issues an interest certificate for each financial year and it can be downloaded. It does not appear that CRED deducts any TDS on payout.

There are no tax benefits for investing via CRED mint. Unlike loan facility against normal regular deposits, one cannot take a loan against investments made via CRED mint.

Our take

Investors wishing to take part in P2P lending should understand the risks involved in this type of investments.

There are some platforms that act as the sourcing and technology partner to NBFCs in the P2P area. Like Cred mint, MobiKwik has launched an investment product in partnership with Transactree Technologies, a P2P licensed NBFC in India. There is also ‘The 12% Club’ which allows you to earn up to 12 per cent interest income by deploying the money with P2P NBFC partners.

Although RBI’s regulations are in place, peer-to-peer lending carries extra risk as well as rewards you with higher-than-bank FD/traditional fixed income return.

One must note that Cred mint does not guarantee zero default by lenders.

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If there is a run on the platform, you will have to hope that the money comes back in staggered way depending on the underlying tenure of the loan. This can take more time too.

Also the 9 per cent XIRR seems to be on the lower side, especially in a high interest rate scenario for regular fixed income instruments, which are relatively less risky than P2P lending. However, this is understandable to an extent as borrowers seem to be carefully curated based on stringent parameters.

One should opt for this p2p platform only when one wants to diversify asset base and has highest risk appetite. Also, one should cap the allocation at 5-10 per cent of surplus fixed income.