Friday, April 1, 2016

Singapore P2P Loans?

P2P loans is actually quite a decently big thing in other parts of the world.

The biggest P2P players I think are RateSetter and Zopa in the UK. I honestly have not read all the details about all these players to find out whats their differences are, but I roughly know that P2P lending involves a borrower and a lender agreeing on a loan amount, interest rate and the tenor.

One of the things that makes me scratch my head is how do they know that the borrowers are credit worthy? Do they take collateral? Apparently, it does not seem so and they only have a contracted debt owed outstanding against the borrower. Of course, since RateSetter is big enough and have been operating long enough, they do have a "Provision Fund" that can help cover losses in case of defaults, and that's quite a nifty feature. Zopa has their own "Safeguard" which is sort of like an insurance fund against losses too, but only for the more risk adverse lenders who don't mind lower returns.

All this is pretty hunky dory since RateSetter currently offers a 4.2% return for essentially a 1 year fixed deposit. That's pretty good, isn't it? Do take note that the UK 10Y is lower than the SGD 10Y (1.4% vs 2%), which means that their risk-free rate is actually lower than ours. That means if this was in Singapore, we could be looking at returns of 4.5% or more, I'd reckon.

But alas, Singapore does NOT have P2P lending (at least until I found out about something of that sort in the next paragraph). I don't know if its because of MAS regulations or because the SGD is not a major currency and the P2P lending scene is still considered too green to even begin. Personally, I have always been quite bummed out about it and I have even asked a banker friend of mine why hasn't anyone set up such a business in Singapore. I suppose if it could be done, it would have already been done by one of the many big successful companies that have done well overseas.

Interestingly enough, I stumbled upon something very very interesting today. I never knew, but Silver Bullion has been offering P2P loans for a while! There are some important distinctions from the RS or Zopa model.

The most important key feature of these P2P loans is that the borrower has to put up collateral in already stored precious metals worth a minimum of 200% of the value being borrowed. This means that if a borrower wants to borrow $10k, he needs to have a minimum of $20k worth of precious metals already stored with Silver Bullion.

What is more interesting is that if the value of the precious metals falls to 110% of the loan amount, and the borrower isn't able to fund a margin call, Silver Bullion has the right to liquidate the collateral to pay back the lender.

Personally, I actually think that this is actually rather safe for a few reasons:

  1. There is collateral
  2. The collateral amount is 200% the value of the loan
  3. The collateral is kept with a 3rd party and not by the borrower
  4. The collateral would be liquidated at 110% to ensure the lender does not lose capital

If you ask me, the only problem that I see so far is the reliability of Silver Bullion to hold up their end of the bargain, which is to monitor the collateral value, liquidate it quickly enough and finally, to responsibly manage the money and not run away with it.

Then again, they do have a bloody vault in Singapore with tons of metals in there. It's not like they can just up and go without nobody knowing. At least, I suppose not. Not easily, anyway.

As much as I do enjoy BullionStar as my precious metals dealer, I must admit that they are seriously losing their competitive advantage. Their BSP programme is clearly still a big draw and plus point to them, but their pricing is really slipping and making them seem not as competitive. There are quite a large number of products that are cheaper at Silver Bullion than BullionStar. I do remember that the last time I did my research many moons ago, this was not the case. Either Silver Bullion got a lot more competitive, or BullionStar has been getting greedy as of late.

Anyway, I do not vault all my precious metals, except those that I already know and plan to sell in the future for capital gains. Likely, I would use BullionStar to continue gradually accummulating BSP to realize potential capital gains in the future. However, I had already registered at Silver Bullion and I will no longer hesitate to purchase my physical holdings which I keep at home from the dealer with the cheaper price. Finally, I will be looking and exploring this P2P lending that Silver Bullion is offering.

Any comments and thoughts on P2P lending? I do find this very different from crowdlending, which are done by MoolahSense and CapitalMatch. Looking forward to hear from anybody!

3 comments:

  1. I guess it's for big business? For personal loan if I need to park 200% collateral with some party I don't really trust why why don't I just liquidate 100% and keep the other 100% myself?

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    Replies
    1. Hi Lynn Ling,

      Yes, that's exactly what I was thinking as well. It wouldn't make sense from the perspective of someone who has no bullion holdings at all.

      However, I think many of the borrowers actually already have bullion, and large quantities of it vaulted with Silver Bullion. This seems like a way for customers to be able to "unlock" the value of their holdings (think of it as drawing down bits of a previously untouchable whole life insurance policy), while still having the option of reclaiming back full ownership of the precious metal collateral in the instances that the value of the collateral goes up, or if capital controls are placed in their own country (many of the vault users are foreigners).

      This P2P lending does seem to synergize with their vault services because it would entice customers to store precious metals with them by giving them the option to temporary borrow against themselves if need be. For people with large amounts of their net worth stuck in precious metals and are against liquidating them at these prices, it is a pretty attractive option in my opinion.

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