April Performance = 1.5% (Cash ROI)
So far so good. Jan = 1.1%, Feb = 1.8%, Mar = 1.5%, Apr = 1.5%. As long as I don’t hit any major defaults, I should be able to get a 15-20% return this year.
What is Cash ROI? Cash ROI = (Interest + Late Fees received) / Principal Begin
Instead of accrual accounting, I prefer to use Cash ROI because it uses the real cash that I received.
Out of my 33 p2p loans, 3 loans appear to be problematic. These are also the same 3 loans that were late last month. The borrowers behind the loans are: (1) a construction subcontractor, (2) a seafood supplier, and (3) a light snack supplier. The silver lining is that the borrowers attempt to make partial repayments regularly although they are behind by about one month. If the repayments fall behind by more than two months, I’ll be very worried.
Default or merely late?
Are the 3 loans (mentioned above) in default or just merely late? There is no clear answer because each p2p platform has their own definition of default. One has a grace period of 3 repayments, another depends on its subjective assessment. This is creating unnecessary confusion for investors. Without a common definition, investors cannot compare default rates across the different platforms.
Unhealthy competition and rollback of transparency
Call me paranoid, but I’m starting to fear unhealthy competition in the p2p lending space.
Clue 1: Surge of risky p2p loans (having DP7 or DP8) around Feb. Some of the interest rates don’t even cover the probability of default, which means that lenders should expect to lose money. The question is why are these loans there in the first place?
Clue 2: Platforms are rolling back on transparency: Loan repayment information not available, loan information removed once funding is complete, identity of borrower kept confidential, not even in the contract.
Clue 3: I see the same borrowers at different platforms but the interest rates on the loans are falling. Are the borrowers taking on excessive debts and the loans incorrectly priced?
Watch out for loosening of credit standards
I have three problem loans in my portfolio and I’ve also heard about several others: oil & gas subcontractor, electrical parts distributor, etc… With the stiff competition among the different platforms, I think investors need to watch out for a possible loosening of underwriting standards. After all, p2p platforms also need to make enough revenue to cover their expenses.
Other crowdfunding opportunities opening up…
Besides unsecured p2p lending, there are other variants: invoice financing and asset-backed lending. Like any form of investing, there will be risks, pitfalls and blind spots. I will be spending more time to understand these areas and putting my own money into such opportunities slowly. Also, equity and real estate crowdfunding are very big opportunities that may open up soon for investors. Exciting days ahead!