Alternative lending has had a profound effect on consumer and small business lending around the world. The evolution and success of P2P lending can be gauged from the fact that the market had an exponential growth in 2015, having a value of $26.16 billion. It grew to almost $50 billion in 2016-17. The market is estimated to be worth $897.85 billion by the year 2024, and by 2025, the value is anticipated to reach $1 trillion. The alt-lending market is predicted to grow at a compound annual growth rate of 48.2% between 2016 and 2024.
The Middle East and Israel
In 2015, a total of $158.8 million were raised in the online alternative fund market of Middle East. Equity-based crowdfunding dominated the market followed by reward-based crowdfunding and peer-to-peer business lending. Israel is the market leader as far as regional markets are concerned, which, from 2013-2015, accounted for between 75%-80% of total market activity while UAE, Qatar, Jordan, Lebanon, and Palestine accounted for the remaining activity.
Israel’s Alternative Lending Market
The Israeli fintech industry is relatively nascent, but the country has an advantage of human capital across various fields. Given Israel’s innovative and well- managed financial sector, it is the market leader in the Middle East as far as alternative lending is concerned. In 2017, transaction value in the Israeli marketplace lending segment amounts to US$88 million.
P2P lenders in Israel
- Blender – Founded by Gal Aviv in 2014, Blender is an online P2P lending platform that provides multi-continental and cross-border lending services in developing, emerging, and western-world countries. It has been established with a view to providing a quick, flexible, and hassle-free credit solution as compared to the expensive loans given by banks and credit card companies. To date, it has raised $5 million in various rounds of funding. As per the company’s claims, within eight months of its launch, it provided loans amounting to NIS10 million (1 NIS=0.29 USD) with an average loan amount of NIS15000 – 20000. The average annual interest rate is 6%.
- Tarya – Tarya is one of the largest Israeli P2P lending platforms and was started in 2014 by Eyal Elhayany. It has designed a digital platform where people can lend directly to other people, thus avoiding any middleman. The company’s rate of interest for borrowers ranges from 3.5%-8.0% depending upon the borrower’s credit score. Loan origination fees range between 0.9% – 5.5% and depend on both the credit rank and loan term. Lenders pay a fee of 1.0% on returns whereas lenders investing in diversified and micro-financed portfolios averaged between 5%-6% returns after fees. It has raised $2.6 million in funds since its inception.
- eloan – eloan.co.il is a peer-to-peer lending platform founded in 2012 by Yigal Alkaslasy and Yoram Gavish. It allows private individuals to receive loans of up to NIS 47,500 for a period of up to five years. Each lender is entitled to lend up to NIS 1,000. Almost 84 Million NIS (approx $25 Million) has been financed by an estimated 4000 investors for over 4200 borrowers.
Until recently, P2P lending platforms were not governed or supervised by any regulatory body in Israel. Due to no regulatory oversight, these platforms were able to scale their models. But the absence of regulatory supervision always concerns investors about the delinquencies and overall safety of funds on such platforms. This led Knesset, the unicameral national legislature of Israel, to pass laws regulating the activities of P2P platforms.
The new amendment imposes a licensing obligation on operators of P2P lending platforms and subjects the platforms to supervision by the Supervisor of Regulated Financial Services. The P2P lending segment will also be divided into two licensing categories: A basic license for a limited volume of activity, and an expanded license for a material volume of activity.
Within the scope of the law, and in order to also enable small businesses to obtain loans being offered via P2P lending platforms, the Securities Law was also amended so that companies can seek and obtain a loan of up to NIS 1 million through P2P platforms provided they are not deemed reporting corporations.
A platform licensee constitutes an operating entity that must perform particular actions vis-à-vis borrowers and for the lenders in the system, such as debt collection. With the objectives of ensuring proper management and protection of the lenders’ funds being transferred, the amendment clarifies that a licensee will be required to manage a trust account for the funds of lenders and borrowers being transferred to it. A platform licensee will be allowed to charge commissions from both lenders and borrowers for the service it is providing, out of the funds being managed in the trust account.
The Supervisor is authorized to issue various instructions to platforms relating to their ability to offer loans, considering the potential conflict of interests that might arise between the licensee and the lenders. The Supervisor is also authorized to prescribe rules in relation to various operational concerns.
With the objective of providing optimal environmental conditions for growth to P2P lending platforms, the banks and the credit companies owned by them are prohibited from entering the P2P lending segment for three years after the inception date of the law.
Although the Israeli alternative lending market is in its nascent stage, the country’s tradition of investing in and fostering innovation and technology will certainly make it an important market in the region. The new laws help in pushing the $318 billion dollar economy in to the future of lending.
Read more about the alternative finance market in Africa and the Middle East, including Israel, here.
Written by Heena Dhir.