Alternative Credit via Marketplace LendingNov 16, 2017 Blog Marketplace Lending
What makes Alternative Credit via Marketplace Lending such an attractive investment?
When considering where to invest our hard earned money, we’re bombarded with a myriad of considerations. We’re faced with countless products on the market, and this number is growing exponentially. To determine which options are best for you, some of the main questions which need answering, are:
- Which options are accessible to me, and how easy is it to partake in the investment?
- How much risk can I afford to take, and how much return will I get for it?
- How much money do I have to invest?
- How long can I afford to lock my money in?
Let’s compare our latest loan to hit our marketplace, to some of the more common investment vehicles out there.
Investing in a buy-to-let property requires a large capital outlay, including the deposit, as well as the hefty professional fees. To partake as a lender in the RainFin marketplace, you’re able to invest with as little as R1000. Becoming a lender in the RainFin marketplace is as easy as registering on our platform, getting FICA’d & choosing the loans that best suite you. The lender journey is illustrated at the bottom of the page.
The latest loan to hit our marketplace, Quinate Property Developers offers an 18% p.a. return . How does this compare to returns on other asset classes. According to this article, which compares equities to residential property, expected returns for equity investments is 13% p.a. (we should add about 2.7% dividend yield to this), while investments in residential property can be expected to return between 7% – 9%. Comparably therefore, an 18% ROI is incredibly competitive!
Risk & Volatility
While investing in listed equities gets you about 15.7% pa (incl. dividends), one of the biggest challenges with equities is volatility. In any given year, your returns can range from a 94.4% gain (1979), down to a -23.2% loss (2008). The greater the volatility of the investment, the less your actual net returns will be – this concept is illustrated here.
With regards to alternative credit via marketplace lending, it’s important to understand that the loans on our marketplace are unsecured. This means that there are no assets attached to the loans. However, there are 2 things to consider:
- When a borrower applies for a loan on our marketplace, we conduct extensive risk assessment, using sophisticated algorithms that assimilate asymmetric data from multiple sources (Credit Bureaus, Moodys and the potential borrowers financial bank statements). This gives us a good indication of the borrowers financial health and probability of default.
- In the case of our latest loan, Quinate Property Developers, as a lender towards one of the sectional title units, you reserve the right to the physical asset, until such time as the loan has been paid up, or, in the worst case, the assets have been liquidated. This reduces the risk of this loan significantly.
When considering the liquidity of an asset, there are a few things one should consider:
- How quickly can the investment/asset be traded, at a satisfactory price. This is an important consideration, as the longer you tie your money up into an investment, the higher and more predictable your returns are generally. Listed equities (excluding some of the small cap companies) most often offer great liquidity, while physical property has a tedious & expensive trading process.
- A typical loan that appears on the RainFin marketplace has a lifespan between 12 & 48 months, paid monthly*. With a predefined payment plan, one is able to gain a good understanding of what returns from the investment will look like at the outset. Comparatively returns relative to listed equities and property returns are only clear closer to the time of when you sell the asset.
*Note – the latest loan on our marketplace is a bullet loan, meaning that the loan is settled in 1 bulk payment, at the end of the 12 month period.
When comparing these asset classes, alternative credit boasts many of the benefits of buy-to-let properties, as well as listed equities, while avoiding some major downfalls, such as volatility and accessibility. Lending on the RainFin marketplace enable one to tailor your own portfolio, according to your risk appetite and desired return.
Information contained herein is for information purposes only and is merely illustrative. It is not deemed as advice as defined in the Financial Advisory and Intermediary Services Act (FAIS Act).