CRED Mint: An Investor and a Borrower Perspective

credCRED, a fintech player that simplifies credit card bill payments, has launched a product CRED Mint, where CRED members can earn up to 9% per annum. This is how it works. You invest your money in Cred Mint. The product is powered by LiquiLoans, a P2P-NBFC player regulated by the Reserve bank of India. Your investment is then disbursed as P2P loans to over 200+ CRED member-borrowers. Your returns depend on the repayment behaviour of the borrowers.

CRED is a community of members with a good credit score. So, you must have a good credit score to become a CRED member. As a lender, this is comforting since you know that your money is being lent to creditworthy borrowers.

Let’s look at CRED Mint offering from both the perspective of a borrower and a lender (investor).

From a Borrower’s Perspective

It is unlikely you will get to borrow at 9% p.a. You will pay a much higher interest rate. Now, you have a high credit score. Many banks/NBFCs must be willing to lend to you at low rates. So, you have competing credit products.

Go with the loan that has a lower interest rate.

Also, you need to look beyond the interest rate. The loans may have a processing fee that adds to the all-in cost. There may be a prepayment penalty that affects repayment flexibility. An area where I would expect CRED to do better is the swiftness in loan disbursal.

From an Investor’s (Lender’s) Perspective

You can earn up to 9% p.a. Notice the usage of “up to”. Think what you earn depends on the credit demand from other CRED members. CRED won’t pay you 9% p.a. from its own pocket. Additionally, note that money may be lent at a much higher rate than 9% p.a. We also don’t know whether you will know the tentative returns upfront (no guarantee of course) OR you will know only after the money is lent. There is risk. It appears that your money will split across 200+ CRED member-borrowers, which is comforting. However, that does not mean that there is no risk.

While 9% p.a. seems very good, given the FD interest rates, be mindful of the risk. CRED Mint product is not a replacement for bank fixed deposits. It has a different risk profile compared to bank FDs. Bank FDs don’t carry any risk. Investment in CRED Mint does. Do not put too much money into the product. If you are keen, you can make a small allocation and consider it part of satellite portion of the fixed income portfolio.

By the way, for you, this is an investment and a risky one at that, no matter what CRED says. There is no dearth of risky fixed income products. There are NBFC fixed deposits, corporate fixed deposits, non-convertible debentures (NCDs) etc.

PPF gives you 7% tax-free. Interest from CRED MINT will be taxed at your marginal tax rate. If you are in 30% tax bracket, 9% p.a. pre-tax is 6.3% p.a. post-tax.

Compare the post-tax returns from CRED Mint from other fixed income products. Additionally, compare the products on risk metrics and liquidity profile. Decide accordingly.

Is This Really P2P Lending?

P2P lending is when you directly lend to the borrower and retain the risk. Such credit is also governed by RBI P2P regulations. Usually in P2P platforms, you select the borrower based on details available, make the lending decision and lend directly to the borrower.

However, in this case, it seems you put your money in Cred Mint. The money is passed to Cred Cash, which is an existing credit product (CRED has already disbursed Rs 2,000 crores under this product through various NBFCs). But, there is another possibility. Your money is transferred to an escrow account with LiquiLoans (this seems more likely) and not to CRED Cash.

If the money is sent to CRED CASH (as it seems from various online sources), I do not see how this can be P2P lending. You do not make the lending decision. You only make the decision to invest in CRED Mint. It is possible that once the money is lent, you have the list of borrowers, the respective interest rates and can track the progress of each individual borrower. In that case, does the lending qualify as P2P lending? I am not sure.

The other option (transfer to escrow account of LiquiLoans) looks more plausible. When you invest in CRED Mint, you are shown a basket of CRED borrowers (in partnership with LiquiLoans). You approve through a single click and your money gets split as P2P loan to various players. Essentially, you make a single decision to lend to a group of borrowers. Essentially, CRED and LiquiLoans create a wrap structure around P2P loans. Your risk gets diversified among many creditworthy borrowers. This likely ticks the items in P2P lending checklist.

However, there are still a few open ends. As per CRED Mint product page, you can request withdrawal anytime you want. Not sure how that’s possible in a pure P2P product. Easy to think of such flexibility if the money went to CRED Cash.

Do note there are various other limitations in P2P lending. You cannot invest more than Rs 10 lacs across P2P platforms. You can not lend more than Rs 50,000 to a single borrower.

Let’s ignore the regulatory specifics now. A major difference is that, through CRED Mint, you lend to a set of  CRED members. Since a good credit score (>750) is an eligibility criterion for the membership, you have the comfort of lending to a group of creditworthy borrowers.

What Should You Do?

If you are a borrower, compare the all-in cost with other loan products. Compare flexibility in repayments and swiftness in disbursals. Decide accordingly.

If you are a lender (investor), appreciate the risk involved. Despite the high credit score of borrowers, this is not a risk-free product. If you are keen, make a small allocation from the fixed income portfolio.

Author’s Disclosure: I do not have CRED membership. I have not experienced the product first-hand. I have tried to understand the products through various online articles.  Therefore, there may be gaps in my understanding.

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