Question

What is information asymmetry in peer-to-peer lending? How does it affect peer-to-peer lending processes?

Answer 1

PEER TO PEER LENDING PROCESS

Peer-to-peer lending is a method which individuals to obtain loans directly from other individuals ,so here we can avoid the middleman and we can do direct transaction.nowadays there are lot of websites are facilitating this technology.P2P lending is also known as crowd lending. Here there is direct approaching to the investors through website and all the terms will be mentioned in the website itself.The main adavantage that the investors seeks to this method is the rate of return. Here the rate is higher than the bank rate.

But there are some issues are related with this method and the main issue faced by peer to peer lending is that the information asymmetry. Information asymmetry is that one party in a transaction possess more knowledge than the other. So this will affect the opposite party in a bad manner.This is one of the main issue which leads to the problems in this kind of individual platforms.Both online P2P lending platforms and lenders seek to minimise the impact of information asymmetries through a variety of mechanisms. Feedback system , safe funds, crowd diligence are some of the method which is adapted in peer to peer system to avoid information asymmetry. It should be controlled otherwise there will be many complications in P2P lending because one of the party will take competative advantage against the other. It will leads to unfair transaction because the person with superior information can manipulate things and this will leads to imbalances of power in the transaction. These are considered as non economic behaviour and it should be avoided.

ThankYou....