After a slow start, our Crowdo Portfolio generated 1.14% cash return in September (or 13.6% in annualized terms). We started with IDR 200m (USD 15k) and our portfolio is now diversified across 140 loans. Our risk is relatively low as almost all our loans are secured against gold or jewelry collaterals. Looking ahead, we plan to slightly increase our exposure to unsecured loans and target to achieve 13-15% return per annum.
We started p2p lending on Crowdo’s platform in mid-July. Our review post on Crowdo covered our assessment of the platform. With an initial capital of IDR200m (USD 15k), we took about a month to diversify our investments across different loans.
August cash return was low at 0.43%, mainly because most of investment were not yet generating any repayment.
September cash return was 1.14% (or 13.6% in annualized terms). This was exactly what we expected as most of our loans had interest rate between 13-15%.
As earlier mentioned, we took about a month to build up a diversified portfolio. We could have simply invested our initial capital into just 10 loans. But if we did so, we will have too much concentration risk. A single loan default would mean a 10% hit to our portfolio.
The key principle is to diversify across as many loans as possible, so any single loan default will not damage our portfolio too severely. Hence, we try to keep each loan investment at about IDR 1.5m-2m (or USD 120-150).
At the end of September, our Crowdo Portfolio is almost fully deployed into 140 different loans. Assuming roughly equal amount of investment in each loan, a single loan default would only mean a 0.7% hit to our portfolio. This is far better than a 10% hit if we had a loan default in a portfolio of just 10 loans.
So far, the repayment record has been decent. On-time repayment was 93% for August. This figure fell to 91% in September. However, we’re not too worried because almost all our loans are secured against gold and jewelry collaterals. In the event of two delayed repayment, the collaterals will be liquidated to repay investors.
Indeed, we have 14 ‘closed’ loans in September. Some of these loans had early repayment. But others had their collaterals liquidated due to 2 delayed repayments (for Aug and Sep). Either way, we got our principal and interest back.
For September, we received IDR 55m (USD 4.2k) cash in repayment, comprising principal and interest. This was quickly invested into new loans.
The key idea here is that we want our money to be working hard and not idle away earning nothing. As far as it is practical, we aim to deploy any cash payment into as many new loans as possible. This will help maximize our return on the Crowdo Portfolio. Of course, the new loans must not be too risky and should earn reasonable returns.
Only 1 out of the 140 live loans is on an unsecured basis. From a risk perspective, that is great because the chances of loan loss are very low. From a return perspective, it is probably not that the wisest thing because we are taking too little risk on a portfolio basis. Going forward, we will look for opportunities to participate in some unsecured loans that we feel are less risky.
Unlike stocks, the return on loans are represented by their interest rates and are always contracted upfront. The only unknown is the likelihood of default. As our loans are secured against collaterals, we are fairly confident that our Crowdo Portfolio can book in about 1.1% return per month (or 13% per year) for the next three months.
Over a medium- to long-term basis, we aim to obtain about 13-15% return. This may be lower than our Singapore’s p2p portfolio returns (with underlying loans and invoices from Funding Societies, MoolahSense and Capital Match), but the risks are also lower.
The bottom line for our Crowdo Portfolio: low risk loans earning 13-15% annualized return. We’ll take it.
How to sign-up?
Crowdo’s p2p lending platform is open to public, including international investors. To sign up, please click here.