Eyebrows were raised in March when Epicentre Holdings Limited, a reseller of Apple products, raised S$1.5 million (US$1.1 million) on Singapore-based peer-to-peer (P2P) lending platform MoolahSense. The issuer is a subsidiary of Epicentre Holdings, which is listed on the Singapore Stock Exchange’s junior board, Catalist.
The first two tranches of S$500,000 each were fully subscribed within 26 hours, while a third tranche listed three days later was completely taken up in a week.
Epicentre Holdings would have had little trouble getting a bank loan given the amount involved and its company profile (revenue for FY2015: S$178 million). But at a nominal interest rate of 13.5 percent, the MoolahSense fund-raising might be better than what banks could offer. And whereas banks could take up to 90 days to process paperwork and release funds, Epicentre got its money within a month.
Even taking into consideration a two to four percent fee on the debt issue for a successful listing, dozens of small and medium enterprises have gone ahead and successfully listed some 45 debt issues in total
“Actually, many of the [borrowers on MoolahSense] are bank-eligible customers,” reveals Lawrence Yong, founder and CEO of MoolahSense. “Perhaps the banks couldn’t give them a solution that they were looking for with regard to speed of approval or flexibility of repayment. Also, banks typically do not focus on short-term lending. If they approve your case, they would prefer to give you a three-year or five-year loan so that it justifies their interest margin.”
“Our longest tenure is 12 months, and some business owners prefer [going through crowdfunding] especially if it’s for transactional or trade-related matters,” he adds. “Why lock yourself into a long-term liability?"
Speed and flexibility
Epicentre’s three tranches were for the purpose of “working capital,” as per MoolahSense’s website. Even taking into consideration a two to four percent fee on the debt issue for a successful listing – “If it’s a three month product, we charge a lower fee,” says Yong – dozens of small and medium enterprises (SMEs) have gone ahead and successfully listed some 45 debt issues in total.
“When we started we only had one product, which was the equal instalment loan for 12 months,” Yong explains the business’s evolution. “Thereafter, after hearing the voice of our customers who desired more flexible short term solutions, we introduced other repayment methods that span from three months to 12 months.”
The market mechanisms have also been fine-tuned. MoolahSense auctions used to be conducted on an auction basis, where offers with the highest lending rates were eliminated by lower ones once an issue is 100 percent funded. Borrowers now have the option to go for “first-come-first-served” auctions, which are closed once funding targets are met.
What about defaults?
The speed with which the Epicentre listing was completed suggests plenty of demand among investors for fixed income opportunities offered by P2P platforms. But some lenders are ignorant of, or choose to overlook, the fact that debt default is a possibility.
“In terms of default rates, one needs to be clear on what it means to default on a debt,” Yong explained in a presentation at a recent SMU Institute of Innovation & Entrepreneurship talk. “In the credit business, that means being 90 days in arrears. With respect to that number, we have zero. Do we have notes that are 60 days late? Also zero.”
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