P2P Lending in Ireland

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This is a guest post by Derek Butler, CEO of GRID Finance

The Market

The peer to peer lending market remains small in the Republic of Ireland. Across all types of peer to peer finance (donation, equity, lending and donation) we estimate that the size of the market in Ireland in 2015 is a maximum of 50 million EUR. This is however growing quickly, particularly with the arrival of Kickstarter in 2014 to the Irish market. GRID Finance is one of two peer to peer lending platforms in the Irish market – both provide access to small business loans. There are currently no consumer focused peer to peer lending platforms in Ireland. GRID focuses on small business loans up to €75,000. Irish based peer to peer lending platforms are both an alternative and competitors to the Irish banks. In aggregate, 4 billion EUR in small business lending is secured by Irish SME’s (Small, Medium Enterprises) annually.

Small business lending in Ireland continues to be dominated by AIB and Bank of Ireland, the two ‘Pillar’ banks of the Irish banking system. These banks struggle to serve the small business lending market due to the cost of product delivery, credit risk profiles, regulatory challenges and legacy distressed debt issues in the sector.

ireland-flagThe Irish government has recently launched a platform investment fund, through the Irish Strategic Investment Fund, to support the development of platforms that originate loans online. This is another positive step in establishing the peer to peer lending market in Ireland.

Regulation

Peer to peer lending is not regulated in the Republic of Ireland. The Central Bank continue to monitor the space and are seeking a pan-European directive to regulate it. The recent announcement of the Action Plan for the Capital Markets Union has dispelled this as it outlines its reluctance to regulate the space at a Pan-European level while the industry is in its infancy. Local peer to peer lenders are seeking the Irish Government’s Department of Finance and The Central Bank of Ireland to support the development of the P2P lending space with a regulatory approach based on the UK’s FCA regime. The government’s strategy for the International Financial Services centre also calls for supporting Dublin as a premium location for Domestic and International Fintech start-up businesses. The introduction of a regulatory regime is key to building confidence and trust in this emerging sector and will act as a buffer from the arrival of weaker platforms into the market. Continue reading →

Lithuania Will Regulate P2P Lending Starting February 1st, 2016

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Lithuania will regulate p2p consumer lending starting February 1st, 2016.

The main requirements introduced by the new legislation in Lithuania are:

  • 40K Euro of share capital required by the marketplace company,
  • contingency plan in case of failure of the platform,
  • limitation of 500 Euro investment per one loan,
  • limitation of 5,000 Euros investment per platform for ‘inexperienced’ investors,
  • marketplaces will be allowed to gain their revenue only from monthly instalments paid by borrowers. This means that all platforms will not gain revenue if their portfolio is not performing.

Laimonas Noreika, CEO of Lithuanian p2p lending company Finbee told P2P-Banking.com: ‘Once again Lithuania proved itself as a country with strict financial regulation. [The] new law gives more transparency to all – lenders, platform owners and public authorities. FinBee welcomes the regulation and invites international lenders to discover Lithuania as a country open for P2P lending.‘ Continue reading →

LendingRobot Adds Functionality to Invest into FundingCircle US loans

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3rd party service LendingRobot today announces a partnership with Funding Circle in the United States, expanding the reach of LendingRobot’s automated investment technology beyond consumer loans and into small business lending.

Through the integration, individual investors using LendingRobot can set automated investment strategies for Funding Circle’s marketplace based on an extensive set of loan filtering criteria, and leverage the unified platform to manage their investments across multiple marketplaces, including Funding Circle.

“Introducing Funding Circle to the LendingRobot family of platforms demonstrates that our algorithmic investment strategies are extensible beyond consumer credit,” said LendingRobot CEO Emmanuel Marot. “The growth of peer lending as an investment vehicle is naturally encouraging an increase in the number and size of focused, vertical marketplaces. What we are building with this partnership is a unified view of all the major aspects of peer lending for investors, …”. Continue reading →

Interview with Josep Nebot, Co-Founder of Arboribus

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What is Arboribus about?

Arboribus is the leading Spanish P2B lending platform that focus in more than 12 months loans for SMEs. Through our platform, High Net Worth individuals along with retail investors participate in directly lending to the most robust businesses in Spain obtaining a diversified portfolio with a net return around 7%.

What are the three main advantages for investors?

If I have to remark three advantages I would say a combination of a high net return along with a moderate risk and a total decorrelation from the financial markets: Returns from 5% to 7% when fix income securities or deposits returns are under 1%, with a moderate risk obtained by lending to the most creditworthy businesses in a very diversified way, and a total decorrelation from the ups and downs of the stock market. If I’m aloud to say a fourth advantage, I would pick “simplicity”.

What are the three main advantages for borrowers?

First, simplicity of the process of getting a loan: all on-line with a dedication from the business of no more than 15 minutes. Second, cost: for small businesses we are slightly cheaper than the funding obtained from traditional banks. And third, we permit the business to really diversify its funding sources and reduce risks of dependency from banks. That last advantage takes a special importance in Spain where SMEs have been traditionally dependent from banks for more than 90% of its external funding, a shocking figure if we look that of UK (30%) of France (50%).

Josep NebotWhat ROI can investors expect?

The actual weighted average interest rates on the platform is around 7%. Nevertheless, we expect to offer a 5% to 6% in a long term basis, net of fees and defaults.

How was Arboribus started? Is the company funded with venture capital?

Arboribus was founded by two friends (Carles and me). After one year of both dedicated full time to build the whole business, we got a first investment round and well after that we did the first crowdlending loan to a SME in Spain (that was July’13). Since there, we got two more investment rounds all covered by private investors (big business owners, bank managers and other business angels).

Is the technical platform self-developed?

Yes. We have in our team one programmer and almost the whole team is involved in improving our tools and developing new ones. Continue reading →

Calculating Yield with XIRR

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This is a guest post by German investor Martin R..

P2P Loan Yield

On most p2p platforms (all of mine except Ablrate and Estateguru) principal is paid back monthly during the loan term. The remaining principal decreases every month, the interests do so
accordingly. Inexperienced people are frequently confused by that – a loan over 100 EUR, a term of 5 years and an interest rate of 10% doesn’t yield a profit of 50 EUR, but roughly half of that.
When you think about it for a moment the reason is evident: On average, the capital was only lend for 2.5 years, a part of the debt was already paid back with the first instalment. In exchange, the instalment – as sum of interests and payback – stays the same for the whole running time – minor deviations can occur because of dues of the platform.

Which leads us to a good approximate formula: The obtained interest is about half as high as they would be for a fixed deposit with the same conditions. As already mentioned, the stated yield is still right, though. There are many websites to calculate instalments on the internet you can use to play that through.

Admittedly, such calculations made beforehand become useless if losses or early paybacks occur. And actually, they always occur. How is it possible to stay informed about the current yield in that case?

Mostly, the provider offers calculated ROI calues in the account overview. The shown figures are rarely particularly meaningful, though. Auxmoney for example displays values which
noticeably exceed the interest rate of the lent money – of course that is impossible. There are bookings being conducted wrongly and early paybacks are taken into account as earnings –
that has been happening systematically for years and was never addressed or fixed.

Two ways of calculating yield

In principal, you have to distinguish between already obtained yields ( this is the figure shown by most providers) and the total yield expected at the end of the running time.

The first figure is a good review of the past, but could only be realised if you sold all
your remaining loan parts for their remaining nominal value. Usually, no losses are being considered, not even the already failed repayments. This means the calculated yield is generally too optimistic.
A yield (XIRR, RTI) shown by Bondora or Omaraha of 25% or even more may not be technically wrong, but is not the whole truth either.

Of course, the expected total yield is currently not definite. After all, both future losses and payments due to defaults can significantly affect the yield, meaning the values can only be estimated.
Many refer to a worst-case-scenario when they fully depreciate all credits in defaults and depreciate 50% of all credits that are overdue. But not even that is the whole truth, because usually some of the loans that are current now will fail as well.

The XIRR-function

Thus, you won´t be able to avoid doing your own calculations. Admittedly, it is not possible to do those manually or with help from a calculator for a single loan part with irregular paybacks, let alone a large number of credits. Continue reading →

P2P Lending In Spain – The Current Situation

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This is a guest post by Josep Nebot, Co-founder and Representative Director of p2p lending platform Arboribus (full bio at the end of the article).

Good playing ground for P2P/P2B lending in Spain

Spain has 47 million inhabitants and regarding its real GDP is the 14th biggest economy in the World and the 5th of the European Union. To stablish a p2p / p2b lending platform, the size of an economy matters, but also the composition of its business structure, and Spain should be a perfect ground for the sector to grow. Here are two important variables:

  • 99% of businesses are SME’s (less than 250 employees), and 42.2% has less than 10 employees.
  • The bankarization of the Spanish economy is huge: Banks represent 85% of the SME’s external financing (being barely 30% in UK), and approximately 95% if we talk about small businesses.

Spain FlagThere are around 10 different active crowdlending platforms in Spain that totaled 13.7 million EUR in 2014. This is a very small figure compared to other countries, but it must be taken into account that most platforms don’t have more than 2 years of history and the growing rate has been huge (2.8 millions of origination in 2013) and the capital risen by these platforms is also much lower.

Specific P2P lending regulation should accelerate the growth rate

Last April 2015 the government issued a piece of legislation that specifically regulates P2P lending activities in Spain, ending a process of negotiation and hard work done by the regulators and most active platforms during more than 12 months.

The regulation will enter into force next march 2015 and I can conclude that it offers more positive than negative aspects in order to help grow the sector and offer legal security to investors, which is critical for everybody but especially for institutional or professional investors.

The law differentiates the figures of accredited and non-accredited investors, imposing a limitation to invest up to 10,000 EURO per year through p2p platforms for the s second ones. Although this limitation may appear too restrictive, in practice most of investors will easily go through the accreditation process enabling them to invest with no restriction at all. To be an accredited investor one needs to have annual income above 50K EUR or financial assets above 100K EUR, or to invest through a vehicle of certain characteristics or to assure receiving professional financial support. All professional or institutional investors, that internationally and also in Spain represent a great part of the investment volume, won’t have any restriction at all to invest and create their portfolio. Continue reading →