As peer-to-peer lending platforms mature, many are seeing some level of defaults. On rebuildingsoicety.com the returns have, on aggregate, been sufficiently high to cover losses. The average platform net return is 7.8%* pa. However, there is a broad distribution of average net returns among lenders.
rebuildingsociety.com have today launched a feature whereby peer-to-peer lenders may buy and sell microloans with a vendor guarantee to buyback the microloan, if a repayment falls 60 days past due.
The feature creates a lower risk option when using the secondary market, by allowing two lenders to share the risk and reward. Buying microloans with the BuyBack Guarantee means lenders don’t need to concern themselves with the inconvenience of non-performing loans, or delays in the legal enforcement process, which causes anxiety among many new lenders.
For vendors, the BuyBack Guarantee earns quick premiums of up to 15%, but in the medium term they will end up holding microloans through the enforcement process, which can take years. We expect the short-term and long-term gains to be rewarding, but vendors may see a medium-term lull.The platform helps guarantors to budget a ‘cover amount’ from 1 day past due, so guarantors are aware of potential upcoming buyback liabilities. Guarantors may only offer the BuyBack Guarantee on microloans amounting to no more than 40% of the value of their performing portfolio.
“Many lenders are understandably nervous to try P2P lending because of the lack of the Financial Services Compensation Scheme, so the BuyBack Guarantee provides a level of reassurance for lenders. We believe it will be popular because it allows seasoned lenders to profit from their credit risk analysis skills, while creating a lower-risk p2p lending option for novice and time-poor lenders interested in the asset class.” says Daniel Rajkumar CEO.
“It’s important to remember, the guarantee is made between the lenders, from the vendor to the buyer. As a platform, we help to automate the administration of honouring of the guarantees between the parties. It’s a good innovation for new lenders who should familiarise themselves with the terms and conditions and remaining risks.” says Kylie Greeff, legal & compliance Manager.
Lenders wanting to buy microloans with the BuyBack Guarantee should look for the shield icon on the secondary market, where they can access rates up to 13%* with a BuyBack Guarantee. Anyone may buy microloans on the secondary market with the BuyBack Guarantee, but selling a microloan with a guarantee, is restricted to sophisticated and HNW lenders who have used the platform for at least six months and pass an appropriateness test.