A challenging environment for crowdlending platforms
The least we can say is that 2020 turns out to be a challenging year for crowdlending platforms.
As several P2B (peer-to-business) platforms proved to be scams, investors started to seriously question the safety of their funds. The situation worsened with the covid-19 crisis : many people lost their jobs, and businesses suffered as they had to stay closed. As a result, many borrowers may be unable to reimburse their loans.
In many countries, governments have imposed restrictions on loans repayments, allowing borrowers to defer them. Mintos’ blog features a very useful post which sums up the situation for each country. In addition to these national rules, several platforms decided to grant all borrowers a delay. Although it’s obviously annoying for investors to receive no interest for 3 months, it would make no sense to push borrowers into bankruptcy; this delays gives them a better chance to recover.
In addition, several loan originators A loan originator is the firm that originally provides the loan to the borrower.
They usually lend a small percent of the amount using their own funds, while the
remaining is put on sale on loans marketplaces. The part of the loan kept by the
originator is called called skin in the game; it’s typically 5%-10% of the
loan amount, and is supposed to encourage originators to provide quality loans. had troubles collecting repayments. Other ran into troubles because of wild currency rate fluctuations. With 70 loan originators, Mintos was particularly impacted.
It will take some time to assess the overall borrowers’ situation; however, I expected things to turn out much worse.
In addition, the lack of trust caused by the Envestio & Grupeer demise as well as the concerns caused by the the Covid-19 epidemics caused most platforms to get more transparent. Although there were exceptions, many of them communicated in a very open and transparent fashion. Among them, Mintos and PeerBerry especially stand out as they communicated very actively, and gave factual statements regarding the situation. Crowdestor has also communicated much more than they used to, although in a somehow disorganized fashion.
PeerBerry will likely join this list of favorite platforms in a next update, as well as BulkEstate. For now, the main change is the removal of Grupeer; however, I rewrote most of this article in order to incorporate recent changes.
P2P lending platforms
While these loans usually yield less than business or real-estate loans, they’re generally considered safer and most of them come with a buyback guarantee A buyback guarantee is a guarantee provided by the platform or a loan originator.
If repayment of a loan is delayed by more than a given delay (usually 30 or 60 days),
the platform or loan originator will buy back the loan. The guarantee may cover only
part of the capital, or in a much more interesting case, both the capital and accrued
interests. As the conditions vary from one platform to another, it’s very important
to check this point..
Mintos is probably the leading P2P platform in Europe, thanks to their large variety of originators providing a huge volume of loans.
This platform has many selling points, as well as a few drawbacks – most of them being are the consequence of the very large number of loan originators available on the platform -.
Let’s start with the positives. First, compared to many smaller-scale competitors, the platform is very large and regarded as reliable.
It also features a very large number of loan originators. Currently, 70 are available on the platform ! As a result, the amount and variety of available loans is huge. It’s possible to invest through many currencies, in a very large number of countries, with very varying degrees of risks and for any duration.
In addition, although interest rates vary greatly throughout the year, the returns are great and actually rather stable in my case – they’ve stood above 13% for many months -.
Finally, the platform is easily usable by beginner investors through Mintos Invest & Access.
On the negative side, the quality of the loan originators is very heterogeneous : several of them defaulted and many are considered as unreliable. The situation worsened during the covid-19 outbreak, as several originators were unable to fulfill their obligations towards investors. Among them were Express Credit and GetBucks in Africa, or Akulaku in Indonesia.
In addition, the auto-invest is very hard to configure compared to most competitors – unless you’re really, really fan of checkboxes -.
Finally, the liquidity for Invest & Access decreased a lot in March and April as panicked investors tried to withdraw funds, leading to very large delays. Several investors also criticized the lack of diversification in their Invest & Access portfolio; for this reason, I prefer to stick to the auto-invest, which allows me to be very picky regarding which loans originators I use.
Overall, Mintos is an excellent choice for P2P investors, as long as they understand that the higher returns offered by many originators don’t come without risk. Putting some effort in selecting the right loan originators – and resisting the temptation to gamble on high return/high risk loans – really pays. Using Invest & Access is obviously easier and quicker, but if you do so, make sure you understand its limitations in term of liquidity and diversification.
As investors are getting increasingly concerned about the safety of their investments, Iuvo‘s stringent selection of loan originators is likely to satisfy even the most conservative investors.
Indeed, all loan originators on Iuvo are profitable companies, and the level of skin in the game The skin in the game is the amount of capital invested in a loan by the originator,
using their own funds. It’s usually between 5% and 15% of the loan’s capital. The
goal of this mechanism is to encourage the loan originators to provide quality loans,
as a borrower’s default would mean a financial loss for them. is much higher than for other loan marketplaces – 30% for most of them, compared to the usual 5% – 15% range -.
On the minus side, although all loans are covered by a buyback guarantee, this protection is less advantageous than at many competitors. Indeed, apart from a few exceptions, it only covers the principal; interests are excluded. As a consequence, investors won’t lose money, but returns may be lower than expected. Also, the delay for the buyback guarantee is 60 days for most loan originators at Iuvo, which is rather long.
Of course, the increased safety also leads to decreased returns compared to more risky alternatives. My current returns are slightly above 11%.
Real-estate and business crowdfunding platforms
These projects usually involve much larger amounts than P2P loans, and the loans duration is usually longer.
After many P2B proved to be scams, these investments are now regarded with suspicion by many investors. As a matter of fact, among the remaining platforms, both TFGcrowd and Wisefund are currently on my blacklist.
However, several platforms are still worth investing in. I’ve sorted them by what I perceive as the increased level of risk – mostly based on their track record and interest rates -.
As time goes by, I grow to appreciate EstateGuru more and more. I was initially a bit deceived by the interest rates, which were lower than for competing platforms; however, EstateGuru actually delivers the expected performance.
In a more general fashion, it seems to be by far the most trusted platform for P2B (and even crowdlending in general), and there are many reasons for this.
One of their recent newsletter mentioned their “ongoing quest for total transparency”; unlike several competitors, these don’t seem to be just words. Indeed, although there’s no buyback guarantee, this platform has built a very strong track record in term of default recoveries. Similarly, their transparency level is very high. In addition, all their loans are property-backed; they’re usually safer than many of CrowdEstate‘s equity-backed loans.
The platform’s risk management and recovery process is excellent, as proven by their track record. As of June 2020, although several projects defaulted, no investor has lost money. Even better, the average return for defaulted loans is above 10%, and the recovery delay is extremely short (around 6 months).
Even Kristaps Mors who’s very vocal in criticizing P2P and P2B rates EstateGuru as “almost investable” in his most recent platforms comparison.
Of course, just like for Iuvo, this increased safety will mean that the portfolio’s performance will be lower than for more risky competitors – around 10% – 11% annually -.
While the suspicions regarding many P2B platforms grew in early 2020, Crowdestor is still regarded as a trustworthy platform, although the level of transparency regarding the financed projects could be improved.
Crowdestor has many positive aspects, starting with a large supply of diversified loans, and a good performance – although it was greatly decreased by the lack of repayments during the coronavirus outbreak -. The financed projects are very heterogeneous, and sometimes surprising. Indeed, among more typical loans for a grocery store or an hostel renovation, one can finance the production of Warhunt, a movie starring Mickey Rourke, or the mobile game Dystopia : Rebel Empires (formerly called Mafia Stars).
Most projects are medium or long term, and interest rates are usually anywhere between 12% and 20%.
During the coronavirus crisis, CEO Janis Timma started to actively communicate regarding the status of current projects. They announced a 3 months leniency period for repayments; as a result, most of them are postponed until the end of June. In the worst case – loans granted to tourism industry in South-East Asia -, no repayment will happen until 3 additional months. A complete overview for the remaining loans is expected at the latest on June, 12th.
In addition, the platform announced ambitious expansion plans for the future. While many competitors reduced costs during the Covid-19 outbreak, Crowdestor took the opposite way and grew their team. Future large-scale automation is supposed to allow for much faster loan applications processing; this will in turn result in a larger volume of loans on the platform.
Regarding Crowdestor’s drawbacks, there are some concerns regarding future performance. Indeed, until Spring 2020 there’s been no default or serious delay in reimbursements. It’s however unlikely that this excellent track record will continue for long – especially after the crisis caused by the coronavirus outbreak -. As repayments are expected to resume in late June, we will soon be able to evaluate the impact of this crisis.
In terms of transparency, the lack of information regarding borrowers of several projects was also criticized. Similarly, the buyback fund mechanism is unclear and gives investors a false sense of security, whereas it actually covers only a fraction of capital. Finally, there’s no secondary market so investors are stuck with their investments for a long period of time.
Performance-wise, the XIRR for my Crowdestor portfolio took a large hit after 3 months without interest; it dropped from more than 15% to slightly less than 12%.