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 […]
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.
News Comments Today’s main news: Lending Club wins motion to compel arbitration, avoids class action. Orchard: Q3 originations move up. A quiet crash in bank lending? Abundance IFISA attracts nearly 10m GBP investment. Dubai regulates first P2P lender. Today’s main analysis: The Velocity of money. Today’s thought-provoking articles: SFIG Vegas 2017 recap. Legacy banking systems are the risk. Indian FinTechs attracting […]
Lending Club (LC) wins motion to compel arbitration, avoids class action. GP:”While the agreement between Lending Club and the borrower was supposed to compell arbitration, the industry was concerned that a ruling could override that clause of the contract. Had that been the case the cost of disputes would have been much higher, which is great for the attorneys but not that good for anybody else. We are glad the arbitration clause held the scrutiny of the court.” AT: “This is a huge plus for Lending Club, and for all platforms.”
AltFi adds Prosper to AltFi Data Analytics platform. GP:” A good validation point for AltFi Data. We continue to believe that data transparency is a must in order for the industry to succeed. We would like to see more student loan, SMB lending data and Real Estate Crowdfunding Data. I strongly believe that Lending Club’s openness with their data put this industry on the map. And for Prosper having a 3rd party independent company validate and publish their own research on their raw data also should serve as an addition point of confirmation and comfort for anybody doing business with them.”
How the velocity of money affects economic growth. GP:” Inflation is controlled by inventory of money and velocity of money. This piece means that inflation is still nowhere in sight, which should affect decisions on central interest rates. And interest rates are at least a little bit important for our industry. ” AT: “Some interesting points, but it isn’t good news for optimism.”
REITs vs. RECF. AT: “Again, a good read, but not favorable toward RECF. Actually, this piece attacks head on the selling point RECFs use to attract investors over REITs. Investors shouldn’t make decisions based on sales pitches, anyway.”
A quiet crash in bank lending. GP:”Net loans to small businesses by the largest UK banks fell by a hefty £536m from December to January. Gross lending by the banks in question fell further still, nosediving from approximately £5.1bn in December to £4.05bn in January. I continue to say that we should compare Dec 16 vs Dec 17 and Jan 16 vs Jan 17, to take into account seasonality in the lending business. P2P volume of 208m GBP is therefore now roughly 5% of the UK bank lending market. “AT: “An excellent read.”
Lending Club (NYSE:LC) has was a significant court victory regarding its ability to compel arbitration. The case Bethune v. LendingClub Corp. was filed in the Souther District Court of New York in 2016.
The issue pertained to the interest rate a New York resident was being charged (29.5%). The amount was higher than the statutory limit of 16% under New York’s usury laws. The judge presiding on the case sided with the defendant, Lending Club, by granting the motion the motion to compel arbitration on an individual basis and thus stayed the case pending the outcome of the arbitration. The decision also means Lending Club will dodge a class action lawsuit.
AltFi Data Announces the Addition of Prosper Marketplace to the AltFi Data Analytics Platform (AltFi Data Email), Rated: AAA
AltFi Data today announced that it has added the Prosper loan portfolio historic origination data to AltFi Data Analytics USA. The data for loans originated through the Prosper platform can now be presented according to AltFi Data’s established standards. This allows investors to review a track record of net return, together with all supporting metrics, to perform like-for-like analysis against the other marketplace lending platforms that make up AltFi Data Analytics UK – including Zopa, Funding Circle, RateSetter and MarketInvoice.
The availability of standardized data will further facilitate the due diligence that ultimately drives investor adoption of this asset class. The addition of loan data from the Prosper platform also represents the first time that a viable comparison has been made available across geographies.
Prosper Marketplace Net Return to the AltFi Data Marketplace Lending Returns Index methodology
The 12 month trailing net return that investors have achieved through Prosper Marketplace can now be reviewed based on the same standard as the major UK platforms. In addition to analysis of net return, AltFi Data also provides further analytics covering lending rates, bad debt, arrears, term, gross origination, and net lending/change in outstanding principal.
Back in the 1980s and 1990s, politicians could always count on having their debts and spending programs bailed out by economic growth. Politicians are expecting the same thing today. All they talk about is how they will spend money to grow the economy, and the economic growth will wipe out the debt. It’s a fairy tale that used to work at the end of the last century, in a generational Unraveling era, but stopped working about 13 years ago when we entered a generational Crisis era.
What nobody wants to talk about is the velocity of money. This indicates the rate at which people are willing to spend money. You can’t have economic growth if people aren’t willing to spend money, which means that the velocity of money would have to increase. Instead, we have this:
When the real estate bubble burst in 2007, and the financial crisis occurred, millions of people went bankrupt or lost their homes. At that point, people stopped spending money. They used what money they had to pay off their debts and save money. As a result, the velocity of money has continued to fall steadily since then, just as it did during the Great Depression and World War II.
Investors who are pushing the stock market to new parabolic heights are completely oblivious to the fall in the velocity of money, and in fact have the vaguest clue what it means. Similarly, they’re oblivious to the debt ceiling crisis that’s approaching.
Orchard’s platform published their quarterly report a few days back covering Q4 of 2016. According to Orchard, loan volume increased in Q4 reversing a trend that began in Q4 of 2015. While originations ticked up in Q4 versus Q3, they are still nowhere close to where they were back in Q4 of 2015 where they hit an all-time high of more than $3.8 billion.
According to Orchard:
Loan originations totaled $2.045 billion in Q4. In Q3 of 2016, loan originations came in at $1.85 billion
2014 and 2015 vintage charge-offs have increased more steeply than in prior years.
Borrower rates continued their decline in Q4, falling another 42bps from Q3 levels, largely due to a sharply falling share of subprime originations in the second half of 2016.
The SFIG Vegas conference set an attendance record this year, mirroring improved investor sentiment amidst an improving economic backdrop. Several participants drew comparisons to the 2004 environment which also featured a rising rate environment, deregulatory agenda, and conditions leading to an acceleration in ABS volumes.
On the regulatory front, the US District Court of the Southern District of New York issued a decision in Madden v. Midland on remand.
Money360 is experiencing rapid growth in the marketplace lending sector for real estate. Recently Money360 announced it had surpassed $200 million in commercial real estate loans after exceeding $100 million last August. Money360 expects to top $500 million in real estate financing by the end of the year representing a rapid acceleration for the peer to peer lending site. Money360 launched in California in 2010 and expanded across the US two years later.
The company looks to provide financing for real estate loans between $200,000 and $5 million.
When searching for ‘REITs versus Crowdfunding’ on Google, one can quickly find many different Crowdfunding websites trying to sell their product in a very biased manner relative to REITs. The main arguments that they seem to make are always the same: REITs are not real estate, REITs are riskier, and REITs are therefore less attractive than real estate crowdfunding investments. I disagree with all these points and will aim to explain why REITs offer in fact much superior investment characteristics compared to any crowdfunding platform.
MYTH #1: REITs are not real estate
Crowdfunding websites make sure to quickly point out that REITs are traded in the form of stocks to try to scare investors away from these supposedly “highly volatile and risky” investments. On the other hand, crowdfunded real estate investments are independent of the stock market and are hence pure real estate.
While this is true, it is in my opinion very unreasonable to assume that REITs are less of a real estate investment than crowdfunded deals simply because of how they are traded.
MYTH #2: REITs are riskier
REITs offer the opportunity for investors to invest in broad and widely diversified portfolios of properties in a liquid and cost efficient manner. Crowdfunding websites, on the contrary, allow you to invest in a concentrated, illiquid and often cost inefficient manner with potentially higher conflicts of interest between sponsor and investor.
Crowdfunding investors are also able to diversify by investing small sums in multiple deals. But this will never achieve the same scale as investing in REITs, which (often) own thousands of properties across different property types and geographical locations.
MYTH #3: Crowdfunding is superior to REIT investments
You are at the mercy of the deal sponsor and pure luck. Real estate is a local business and if you are not actively involved in the local market, you simply cannot assess an individual property investment. You need to be able to analyze the macro and micro location, the surrounding infrastructure, the growth trends, the demand and supply factors, etc.
This is the beauty of REITs: You do not need to know everything; you have a professional management team taking care of all the operational work.
My conclusion: If you are not a professional real estate investor, forget any form of private real estate investing including crowdfunding. And even if you are a professional investor, you might be better off investing in REITs.
One company looking to help with that advice is Cinch with its on-demand app. We sat down with Cinch’s cofounder and head of company development, Kerri Moriarty, to learn more about how the company is helping guide everyday financial consumers with on-demand finance advice.
KM: Cinch is about making it easy for everyone to have access to unbiased financial advice, specific to their personal situation.
KM: Cinch comes with a free trial and then has a monthly fee for continued use. We think of it like a true client and advisor relationship. To truly remain unbiased, we ask customers to pay a fee.
KM: There are some budgeting and credit card tools like Mint or NerdWallet that we consider competitive that offer on-demand financial recommendations, but hardly any do so in the context of consumers’ entire financial situation. We think there is a big opportunity for Cinch to be one of the first companies in the FinTech space to offer a dedicated and unbiased financial advisor anytime it’s needed.
KM: We’ve definitely learned a lot along the way. I think one of the most important lessons learned, especially when it comes to tech or software, is that it’s important to just get something out in front of users. The longer you wait to test designs or features or even launch your product, the more risk you have of something “better” coming along or the needs of your customers changing.
Net loans to small businesses by the largest UK banks fell by a hefty £536m from December to January, according to the latest statistics from the Bank of England. It’s by far the biggest retrenchment in SME lending in the past two years, which is as far back as the data set stretches.
Gross lending by the banks in question fell further still, nosediving from approximately £5.1bn in December to £4.05bn in January. The figure for January is, again, by some distance the lowest figure for monthly gross lending by the banks to SMEs over the past two years.
Brexit may well lie at the root of the problem. It’s no secret that the banks have been pulling back from certain segments of the small business lending space since the UK’s vote to leave the European Union, but the January drop-off is by far the sharpest we’ve seen.
Funding Circle, the world’s largest marketplace lending firm for small businesses, lent £103m in January (£50m net). Meanwhile the peer-to-peer lending sector as a whole lent £208m during that same period, according to AltFi Data. There are then a raft of balance-sheet based alternative lenders, which are also lending millions of pounds to SMEs each month.
ABUNDANCE has attracted almost £10m of investment into its Innovative Finance ISA (IFISA), the peer-to-peer lending platform’s managing director has revealed.
Davis said £6.5m has now been invested and £3m is being held in a new cash holding account launched last month, which pays two per cent interest, in anticipation of new projects coming onto the platform.
Crowdstacker last month revealed it was attracting £7,000 on average in its IFISA, which is just above the average subscription of £6,338 across cash and stocks and shares ISAs in the 2015-16 tax year.
Bricklane.com offers a property Isa that buys buy-to-lets with cash and provides a return based on rental income and capital appreciation.
Landbay, on the other hand, is a peer-to-peer lender that allows landlords to borrow from private investors so they can purchase buy-to-lets. Returns are generated as the landlord repays the loan with interest.
It’s possible to put some peer-to-peer investments into the new innovative finance Isa, with many of these set to launch in April.
If you do consider investing, make sure that you do your own research, question any suggested returns carefully and weigh up the fees that are charged, which will eat into any money that you make.
Simon Heawood, chief executive of online Property ISA Bricklane.com, replies: People often like the security of investing in real bricks and mortar, and it has historically delivered strong returns – around 9.6 per cent a year through a combination of price growth and rental income.
You should remember though that property prices can rise and fall, and rental income isn’t guaranteed, so as with all investing, you need to do your research and invest sensibly. Any investment platform should clearly explain the risks to you and you need to make the decision that’s right for you.
If you’re looking for a simple way to invest your money in the property market, then you might want to have a look at something like our residential property Isa, which launched last autumn.
It is similar to an investment Isa and offers the same tax benefits as both a cash and stocks and shares Isa.
However, rather than returns being linked to interest rates or stock performance, they come from rental income and property price changes. As an example, whilst the best cash Isas are currently offering returns of between 0.9 per cent and 1.3 per cent, our Bricklane.com property Isa is presently delivering an average return of 3.5 per cent from the rental income alone.
Unlike crowdfunding, it can be included within a £15,240 2016/7 Isa allowance. If you find a property Isa that also uses the Real Estate Investment Trust (REIT) structure, then it will give you even greater benefits, with zero tax to pay on property price increases and rental income.
John Goodall, chief executive of buy-to-let peer-to-peer lender Landbay, adds: Your situation sounds similar to that faced by a growing number of people, keen to reap some of the well-publicised rewards from the UK property market, but without getting directly involved with the demands of owning, renovating or renting yourself.
As you rightly say, investing through a platform that lends to property developers, such as LendInvest is one obvious option – these loans help finance mid to large scale developments and offer returns of around 4 to 8 per cent depending on the risk you’re willing to take on.
Property development is a relatively higher risk investment than buy-to-let, there all manner of complications that could potentially derail a development project, but the returns do typically reward the higher risk.
For those after a more secure route into property-backed peer-to-peer, the buy-to-let sector is another option. A few platforms now allow investors to lend money to a diversified pool of buy-to-let mortgages lent to experienced and professional landlords.
Not only has this proven itself to be statistically the lowest risk sector in the peer-to-peer mix, but the demand for rental property is growing at pace, as the UK’s housing shortage leaves millions of people unable to buy a property outright.
Landbay for example lends solely to experienced and credit-worthy landlords and as such is positioned at the conservative end of the market, offering interest of up to 4 per cent, with many layers of protection for investors’ money.
With four adult Isas now available, you could be confused as to which one is right for you.
The total amount of money you can invest in one or more Isas is capped at £15,240 for the 2016/17 tax year. However, this limit will rise to £20,000 for the new tax year, which starts on 6 April.
You can save all or part of your annual Isa allowance into a cash Isa.
These accounts are available from banks, building societies and credit unions and can take the form of an easy access account, notice account or a fixed-rate bond.
Right now the top rate on an easy access account is 1.05% from Paragon Bank which you can open with £1.
Suitable for: Anyone uncomfortable with risk and willing to accept a lower rate in return for security.
Stocks & shares Isas
Alternatively you can invest all or part of your annual ISA allowance into a stocks and hares Isa.
You should only really invest in a stocks and shares Isa if you are happy to take a risk with your savings as investments can go down as well as up in value.
Suitable for: Long-term investors who are happy taking on an element of risk in order to get a potentially better return.
Innovative Finance Isas
Investors can use an Innovative Finance Isa to get tax-free returns from the money they put into peer-to-peer loans made via platforms like Lending Works and Landbay.
What kind of returns can you get? Annoyingly, most of the biggest peer-to-peer lenders, including Zopa and RateSetter, have yet to launch their Innovative Finance Isas.
However, you can get a rate of 7% at Crowdstacker.
Suitable for: Investors who understand the risks involved with peer-to-peer lending and crowdfunding.
Help to Buy Isas
The Help to Buy Isa was launched to help first-time buyers save a deposit for a home worth up to £450,000 in London or up to £250,000 in the rest of the country.
You can save up to £200 a month into a Help to Buy Isa (or £2,400 a year) and when you first open an account you can deposit a lump sum of £1,200. The money you save will boosted by a government bonus of 25% when you come to buy your first home.
Suitable for: Aspiring first-time buyers trying to build up a deposit. Ideally able to set aside money each month rather than in a lump sum.
Every once in a while the financial community gets itself in a fluster about fintech. Mark Carney, governor of the Bank of England, is the latest person to raise concerns about the technology. Speaking at a G20 conference in Berlin, Carney said fintech presented “systematic risks” to the banking system, hinting that the next financial crisis could be caused by tech. The usual reasons were rolled out: liquidity, risk of cyber attacks, and the ability to subvert anti-money laundering laws.
Many bankers are mortally scared of new technology; of changing their systems or reforming the way things are done.
Secondly, you can’t ‘contain’ the reach of fintech.
The truth is that technology can actually make banks and the financial system safer.
Regtech allows regulatory officers in investment banks to detect suspicious figures submitted by potentially rogue employees; banks to detect hidden signals in their data which might suggest fraudulent activity or money laundering; and regulators to monitor the early warning signs of crises.
New machine learning technology also gives us the power to monitor the financial markets in real-time, looking for telltale warning signs of crises, and alerting regulators and officials when something needs investigating more thoroughly with a human eye.
The irony is that the real risks lie in the legacy core banking systems that many of our banks run on.
RateSetter, the nation’s second-biggest peer-to-peer lender, has wooed former ING Direct chief Vaughn Richtor to accelerate the fintech company’s quest to gain scale and take on the big banks.
The appointment expands RateSetter’s board to five, including co-founder of the British group Peter Behrens, chief of the Australian arm Daniel Foggo, Stratton Finance boss Rob Chaloner and Martin Dalgleish.
When money and technology is gender agnostic, then any space of the business cannot be gender bias towards women, be it fintech. However, the smart phone penetration happening rapidly across the country and fintech has become a vibrant space before and after the demonetization. Now we see more number of women entrepreneurs venturing in fintech space.
There is no more talk of absence of women entrepreneurs instead the focus is on their competencies and equipping them to be more competitive and exploring the potentials.
Indian women are very good money manager, responsible investors and wealth creators in the world. In the fintech space women can be a great leader and rise to the top of the hierarchy with the help of regular mentorship.
In India Inc the participation of women as an entrepreneur and board of director is just 8 percent compared to 33 percent globally.
Credit Suisse has announced, “enhancements” to its digital private banking platform in Asia by partnering with Fintech company Mesitis Pte Ltd to provide its clients the ability to access “Canopy”, an automated account aggregation platform and reporting solution through Credit Suisse’s digital private banking platform.
Dubai-based Beehive said on Sunday it had become the first peer-to-peer lender to become regulated by the Dubai Financial Services Authority (DFSA), the regulator for the Middle East and North Africa’s largest financial centre.
Beehive is one of the few peer-to-peer lenders in the region. Nearly 4,500 investors have provided more than 75 million dirhams in loans via Beehive since the platform launched in November 2014.
The DFSA last month launched a consultation on its proposed framework for regulating loan-based, crowdfunding platforms.