One of the early dreams of peer to peer (P2P) lending was the theory that it could match borrowers and lenders from around the world. Borrowers in countries with less developed financial industries would be able to connect with investors from around the globe who have capital to lend. In theory, this P2P system would lead to higher and safer rates of return for investors, while providing cheaper capital for borrowers.
The reality is that connecting the borrowers and lenders of the world is easier said than done. Regulations are different between countries that can constrain where loans can be issued to, as well as limited information to evaluate borrowers, to name a few of the bigger problems. The result is that P2P lending is predominately taking place between domestic borrowers and investors, with little capital flowing to foreign hands. In addition, the bulk of loans on lending platforms are taking place in developed markets, which effectively have smaller needs of P2P lending. One of the driving forces behind this trend, is that in countries where there are difficulties in analyzing borrowers, credit tends to be limited.
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