No, no… We are not talking about torrents. We’re talking about peer-to-peer (p2p) lending, also known as crowd-lending or marketplace lending. p2p lending is about lending money to individuals or businesses through an online lending platform, by-passing banks and financial companies. Since it started about a decade ago in UK and US, p2p lending has taken the world by storm and the movement has spread globally.
Are you ready for p2p lending in Singapore?
In Singapore, several p2p startups began operations last year. The main players are MoolahSense, Capital Match, Funding Societies, New Union and CoAssets. If you are interesting in understanding more about p2p lending in Singapore, here are the key things to get you quickly started.
1. p2p lending is not p2p!
Yes, you heard it right. Peer-to-peer lending is not about lending among peers (individuals), at least not in Singapore. Here, p2p lenders are mainly individuals (like you and me), while borrowers are local SMEs. Why is it called p2p lending then? The name stuck because p2p lending first started as lending between individuals. But as the movement grew, individuals and institutions participated on both sides – as lenders and borrowers. Other names for p2p lending are crowd-lending and marketplace lending.
2. p2p lending is largely unregulated but it may change
Being a new space in Singapore, p2p lending is largely unregulated (see MAS’ MoneySense for more details) However, MAS published a consultation paper on this topic last year and may introduce new rules soon. Mr Lee Boon Ngiap, Assistant Managing Director, Capital Markets, MAS, said, “These proposals seek to strike a balance between facilitating investments in start-ups and small businesses and ensuring that there are sufficient safeguards for investors…”.
3. Not all p2p platforms are the same
Every p2p platform has its unique strengths and investors need to find one that suit their needs. For starters, MoolahSense, Capital Match and Funding Societies are probably the easiest platforms to get started. New Union is slightly more complicated with overseas loans and collateral management, while CoAssets is mainly in real estate financing. See my previous post on the different platforms.
4. p2p loans are risky, but they generate attractive returns
p2p lending is unregulated, borrower may default and platform may fail. But if you do your homework, you can mitigate and reduce these risks. What are the returns? Typically, you should be able to get 12-20% return, which is really not bad at all considering how global markets are performing recently. For my p2p portfolio, I aim to make 15-20% return per year, after defaults. On the key risks faced by a p2p investor, please read my previous post.
5. You need to pay tax on p2p interest income
Unlike stock and bond investments, interest income from p2p loans is taxable, according to IRAS. The specific tax rate will depend on an individual’s income bracket.
If you think that p2p lending is too risky, good for you. I expect MAS to regulate the sector soon and put in safeguards for investors.
If you still want to learn more about p2p lending, great! You are an early adopter. When the industry really takes off in a few years’ time like it did in the US, early adopters will be well-positioned. To get started on your first p2p loans, follow my Beginner’s Guide to P2P Lending.
You can also follow my actual p2p portfolio on my blog. I publish a monthly update and post my latest investments on twitter (@CrowdSmarter). Do also follow me on Facebook (https://www.facebook.com/letscrowdsmarter/).
Cheers and happy p2p lending!