It is interesting how perspectives differ. For you, P2P lending is a way of getting rid of the middleman (the bank).
For me, those platforms are a way to transform retail people into lenders of last resort.
Lending is the bread and butter of banks, so I would imagine that if they were willing to lend to these borrowers at attractive rates, they would have done so. At equal interest rates, the borrower would have chosen the bank because he does not have to pay the commission to the P2P platform.
Which means that banks are not willing to lend to these borrowers and P2P investors are lenders of last resorts who do not get to choose the adequate interest rate for the risk borne.
To get an idea, here is an example of what usual lenders of last resort charge to borrowers (hint: it is really high, usually outrageous, but at least commensurate with the risk borne). P2P lending rates are much smaller in comparison.
Now there is a valid point in saying that a basket of these dangerous loans will on average provide an attractive return. That was exactly the thesis of Michael Milken in the 1980s when he introduced the junk bonds business: buy a basket of junk bonds. Maybe some of them will default, but even taking that into account the return will be attractive on average.
What happened afterward is that lending standards for these bonds completely deteriorated, and went from stage 1 to stage 3, leading to the collapse of the industry:
Stage 1: the borrower is able to cover both the interest rate of the loan and repayment of the principal with his current cash flows.
Stage 2: the borrower can only cover the interest rate. To repay the principal, the borrower relies on the capital appreciation of his collateral to be able to refinance
Stage 3: the borrower is not even able to cover the interest rate from current cash flows.
Iâd be interested to see how the P2P lending industry will evolve.
Banks are lazy and slow, they are looking for the big, safe bets and donât care if somebody needs CHF 2000 for an online course, a car repair or to pay their taxes. While my bank is throwing credits at me for around nearly 0% (which I donât need), I have friends who have a different background (artists, umemployed for too long, done stupid things in the past,etc) who will get no bank account and no credit at all. Their only resort are the credit card companies (Cembra,âŠ) that gladly give them a âconsumer loanâ and then charge 12 - 15% from them for as long as they can! So 5% for a p2p credit is quite interesting for them.
Many p2p lenders also operate in countries with no banking system at all (central asia, africa,âŠ). People there live in a very different financial world than we are, if some machinery on the farm breaks down, their harvest is done. If their kid gets sick it will get no treatement until itâs being paid in advance! So you are right p2p is their last and only resort.
I have invested in several hundrets P2P- credits this for slast few years now, and while some of them have defaultet, most of them were paid back, most of them between 20 and 100 CHF. I still have over 10% return, even during the covid year
Also you have someone like me who thinks of banks as this grey bureaucratic place that can bring me tears of boredom and anger from the corporate style and beyond uncapable representatives, thatâs how i found out lend.ch i was looking to get a bit finance and i didnât want to deal with any bank so i started looking for alternatives
Sorry, I know u seem to mention all the ones u have experience with, but as an experienced p2pâer, do u have a personal opinion to lend.ch? This is the one Iâve been looking at, I like the interface, Swissness, etc., but havenât been brave enough to take the plunge.
Creditgate24 (CH) (XIRR 4.75. Solidary responsibility reduces significantly the returns, but in general my prefered platform. Low fees and secondary market)
Crowd4Cash (CH) (Loans are directly to consumer, but bit shady, but worked so far without an issue. But if there would be an issue with one of the borrowers, I suspect this platform to be the first one to be the problem, low fees)
Bondora (LV) (only invested in go and grow. Steady 6.75%, tested the liquidity. Had the money in an instant, no fees)
Robo.Cash (Croatia) (platform looks really outdated, but works fine. High returns 12.3%, very few late loans of about 100⏠in total, no fees, no work on your end needed. Fully automated)
In total over all platforms about 15k-20k CHF. I started in 2018.
The swiss platforms do not only issue consumer credit. Recently small and midcap companies as well, as real estate. Never tried, but registered with Alternative Finanzierung fĂŒr KMU in der Schweiz | swisspeers
No longer invested on Mintos. This platform is the worst. Stay away.
Iâm also registered on lend.ch, but the entry barrier is to high and high fees, seldom a viable loan on the platform.
Wondering what the hell are they doing HQ-ed in Croatia.
Whole team from Russia or neighbors, zero loans based in Croatia.
And itâs not like the country is some tax haven.
Questionable at face value, for me.
Edit: They are part of a bigger group, spread across Europe&Asia - https://robocash.group/about/.
I guess the Cro office is just a regional spoke.
Could you please elaborate? I would be very interested to know why you do say that.
I am at the moment weighing my options because since last summer, I have around 12% of my Mintos-investments âin recoveryâ. They make regular updates and I do not know if I have to consider those amounts as losses or still have hope that I will recover them.
There are very fishy things going on. For instance many of the loan originators belong to some executives at the company. They refinance each other and let the loan originators get bust. You as a customer are the one ending up with âIn recoveryâ. Me to had about 10% (and still have) in recovery. I donât expect to see it ever again. No repayments were done in that respect over the course of the last 12 months. Watch closely to the comments in the blog. There are detailed blog posts of other investors, what shady things are going on. They are occassionally linked in the comments section of the mintos blog (Mintos Blog) posts.
Then they change the credit ratings constantly. Even loan originators A rated (now they changed the term again I think) were borderline trash. There was a case, where one loan orignator was rated A and went bust only 2 weeks later. Then they try to figure out new products, where they stash shitty loans with good loans and then give them a better rating (exactly what happened with the subprime crisis).
About a year ago the improved their communications department, but that didnât change the fact, that many are stuck with in recovery loans.
I was kind of lucky, that I donât have to write off too much, but still, I donât have anything similar experienced with any of the other platforms. Once you burn your customers, they wonât come back.
To answer your questions: I havenât seen a single euro from recovery for the last 12 months.
Iâve invested with Mintos for the last 2 years, at one point reaching over 75K EUR and never lost money with them (I was very careful choosing loan originators though). When Corona hit I started winding down the investments and now only have about 5K EUR invested. I did have to wait for a few months for some loans to get bought back, but thatâs to be expected.
It would be interesting to know which loan originators you mention (e.g. the A-rated one which went bust after 2 weeks, and the ones that caused you to not receive payments in 12 monts).
I donât think there are any countries without banking, as I am working in the Microfinance Institutions space. The topic there is the same as you mention, even without resorting to P2P lenders: The MFI charging more humane interest rates than the loan sharks. Still, when you calculate a loan interest rate of the standard model with monthly installments (repayment of principal and interest) you get high APR of 67% (loan 1000 for a year, 12 monthly installments of 117, total installments 1400). And this is a not-for profit MFI in Northern Africa! And yes, people use supposedly productive loans to smooth out liquidity gaps for things like hospital bills or school fees. I would say that MFIs are much more prevalent than P2P credit in poor countries.
As I happened to work in a large bank, I also got to know some credit specialists. Of course they are bound by company policies and like to play it safe (and avoid the unknown), but in general their credit risk analysis is sound. Please do not disregard the value created by a professional credit check.
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