Saturday, February 21, 2015

Singapore's Very Own P2P Lending

For a while now I've known that places like the US and UK has been having quite a strong and vibrant P2P lending scene.

Essential, it's about making private loans and earning an interest on it. Needless to say, this is very risky.

Singapore has it's own version and it is called MoolahSense.

They are currently running a campaign to raise money for a media and design school planning to expand its operations. And no, I did not get paid at all to talk about them. I just think that this is a very cool idea. Even MAS thinks so. They are taking comments from the public so that they can come up with a proper policy stance for this.

With this campaign, creditors can look to gain up to 12% of interest with a 1 year loan, or lower if there is a high demand. A high demand means that creditors think that the risk of loss is low and thus are willing to accept a lower interest rate. This is a win for the debtor, since they will eventually pay a lower cost for debt.

I don't want to talk too much about the specific campaign because I can't remember all the terms and agreements that I agreed to when I signed, but I'm sure there is something against sharing non-public information.

However, I just want to share some of my findings that might be useful. Based on Reuters, these are the yield spread based on credit rating, but for Industrials. (industrials are more cyclical than service, right?)

I also have the default rate of the different credit ratings of S&P over the years of 1981 to 2011. Realistically, I think that companies would fall within the red box range. Slightly riskier than investment-grade, which is why they cannot get cheaper cost of debt, but not a basket case scenario either.

Finally, the last piece of the puzzle is the credit rating assigned that local companies would have.

If you can add A + B + C together, all separate information, I think some people might get what I am trying to hint. Of course, you have to do some brain work yourself.

Personally, given the large yield spread over the implied level of default risk, I think that the current campaign being run on MoolahSense looks very attractive. Of course, don't put all your eggs in one basket. I have not decided yet if I want to take part in this, but I must admit that it does look like a pretty decent opportunity.

Would you lend a company money for a year to get back 12% return? Eager to hear what others might think about this!


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