2nd birthday of Smava

wiseclerk

German p2p lending service Smava.de launched two year ago. Since the launch of Smava 1350 loans were funded for a total loan volume of about 7.9 million Euro (approx. 10.7 million US$).

Lender’s viewpoint

So far lenders on Smava did well. There are approx. 2500 lenders active on Smava. Despite the credit crisis, 99% of the lenders earned a profit in 2008 (total 210,861 Euro), while the 1% who did incur a loss, lost only 60 Euro.

So far ROI in the range from 5-10% have been realistic. As of today 75 loans have defaulted, which is (in percent) more then was originally predicted. The Anleger-Pool mechanism spreads the losses of a default across all loans of a credit grade, which prevents total losses of investments. Therefore when 3 in 100 loans in credit grade X default, the lenders invested in the defaulted loans still receive 97% of the principal, while for lenders in the current loans returns are lowered by 3%.

Technically and on the process level Smava functions as promised.

Borrower’s viewpoint

Provided the borrower has a credit grade of at least ‘H’ (95% of the German population have credit grades between ‘A’ and ‘H’ so about 5% are excluded) and he has a sufficient income, chances for obtaining a loan through Smava are good. About 60 percent of the listings were funded. In February 2009 Smava raised the fees for borrowers from 1% to 2-2.5%.

Marketplace development

Smava shows continuous growth, with the volume of new loans per month approaching 1 million Euro (see chart)


(Source: smava loan stats, Wiseclerk.com, 03-26-09)

Despite extensive and positive press coverage Smava is still a niche market with less than 5000 active users. Looking at the distribution of lenders by amount invested, the top 50 Smava lenders funded about 1,690,000 Euro (or about 21% of total loan volume). Currently lenders are limited to a maximum of 100,000 Euro investment.


(Development of Smava average nominal interest rates for new loans; Source: smava loan statistic, Wiseclerk.com, 03-21-08)

I would estimate that the increased fees allow Smava to cover the variable costs. But to cover fixed operating expenses Smava needs to multiple its volume. First priority of Smava must be to accelerate growth.

Lending Club Introduces Self-Directed IRA to Enable Investments in P2P Lending

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P2P lending service Lending Club, today announced the availability of the first Self-Directed Individual Retirement Account to enable investments in peer lending. EntrustCAMA, part of the Entrust Group,  serves as the administrator for these accounts.

This new Self-Directed IRA investment choice gives individuals the ability to build a portfolio of Lending Club notes and hold that portfolio in a tax-free or tax-deferred account. To meet the Federal deadline for this tax season, applications must be completed online, printed and postmarked before April 15, 2009. The account application is available at https://www.lendingclub.com/sdIRA/registerIRA.action

Key benefits stated:

  1. Potential for high returns. Choose from a diversified group of hundreds of qualified borrowers.
  2. Tax advantages. Investments in a Self-Directed IRA can grow tax deferred until retirement age.
  3. Flexibility.
    Select the type of IRA which is right for you:
    Individuals: Traditional or Roth
    Small businesses: SIMPLE or SEP
    Fund the IRA directly with a check or an existing account (IRA or 401K) to transfer or rollover.
  4. A Diversified Retirement Portfolio. This Self-Directed IRA gives your portfolio access to Lending Club Notes, going beyond traditional stocks, bonds and mutual funds.

Fees:

  • No account opening fees
  • One flat 250 US$ annual account maintenance fee starting in 2010 when you open an account before April 15, 2009
  • No other fees
  • Low minimum starting contribution of 5,000 US$

Sources: press release, Lending Club website

A venture capitalist’s view on investing in peer to peer lending

wiseclerk

When a VC talks about peer to peer lending he is not talking about achieving a good ROI by lending to borrowers. He is talking about the chances he sees in investing in the p2p lending company.

Paul Jozefak, Managing Partner at Neuhaus Partners, did just that as a side note in an interview he gave ReadWriteWeb. Neuhaus Partner invested in the second VC funding round of German Smava.de six month ago.

In the interview Jozefak says, that:

  1. Smava is at the right time in the right place (current economic situation)
  2. he sees an upswing in lender and borrower interest; assesses that the model has proven itself
  3. Their competitors in the US are doing quite well and he expects that Prosper will resolve it’s issues with the SEC.

I agree with the first point, but in my view it is too early to judge whether the Smava model really has proven itself (even the oldest loans are only through two thirds of their loan term). And the last point, I find an optimistic assessment of the situation. One could say that Lending Club is doing well, but Prosper and Loanio are in a situation that could at least be described as challenging.

Lending Club receives 12 million US$ VC funding

wiseclerk

Lending Club announced today that they have closed another funding round. Excerpt from the press release:

… closed a $12 million Series B round of funding. Morgenthaler Ventures led the round and is joined by existing investors, Norwest Venture Partners and Canaan Partners. Rebecca Lynn, a Morgenthaler Principal, is joining Lending Club’s board of directors.

Lending Club also announced today that it has added Pamela Kramer as Chief Marketing Officer. Ms. Kramer is an established marketing veteran … . She was most recently Chief Marketing Officer of MarketTools, Inc and, before that, spent 9 years in leadership roles with E*TRADE Financial … .

Kiva proposes that lenders share part of the currency risk

wiseclerk 5 Comments

In today’s conference call, Kiva explained plans to reduce currency risks for the local MFIs by having lenders absorb losses, if currency depreciation is higher then a threshold x% (with x% yet to be defined).

Currently currency risk for loans issued in local currency is fully taken by local MFIs of Kiva. In future MFIs can select for new loans, if they want to keep it that way, or if a new stop-loss rule shall apply.

The details are explained in this presentation:

Community Call Currency Risk V1
View more presentations from mrpremal.

Slide 14 shows how many of the loans would be affected, if the stop loss rule would have applied in 2008/ in the last 5 years.

One question in the Q&A of the conference call was, why currency risk came up just now after years of operation of Kiva and the answer was that the problem is now more pressing with the recent appreciation of the US dollar.

Another question was, if a possible solution would be that Kiva just would supply the hard currency as collateral to a local bank in the country which would then issue the loan in local currency. The answer was that this would be impractical, because in case the local currency appreciates then the bank would demand a raise in the collateral, which could not be handled as neither Kiva has the funds nor could the lenders on the loans affected be expected to make an additional payment for this.

It will be interesting to see, if some MFIs stick to the current mode and upload loans with no currency risk sharing to the platform.

On MYC4 lenders take currency risk in full but earn interest.

MYC4 providers react on high default rates

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Over the last months it became clear that MYC4.com loans default at a much higher percentage then expected. MYC4 management states several growth and quality problems that led to the situation. Better training of the local providers, partner ratings, spot audits and a license system are measures that shall improve the quality in loan selection and management in the future.

Currently one challenge is to deal with the failing loans issued in the past. The earlier problems with Ivory coast loans continue. About half of the issued loans were insured by the organisation MISCOCI against defaults. MISCOCI failed today and is reported to be bankrupt. MYC4 has announced a few minutes ago, that they will publish until March 20th, what this means for the lenders on the defaulted Ivory Coast loans (MISCOCI covered 242 loans with an outstanding balance of 388,644 Euro).

NotreNation, one of the providers in Ivory Coast, yesterday named poor selection of borrowers by inexperienced credit agents and the difficult economic situation in Ivory Coast as reasons for high default rates.

GrowthAfrica, a provider in Kenya with a high portfolio at risk rate (PAR) has announced yesterday that it will buy back 65 very poorly performing loans at 95 percent of the balance from the lenders. This step was taken as GrowthAfrica felt they share responsibility for the poorly performing loan portfolio. GrowthAfrica expects to buy back loans for more then 125,000 Euro in total.