What are the risks you face as an investor/lender?
For a lender / investor, the key risks are as follows:
Borrower credit risk
The risk that a borrower defaults. If this happens, a lender may lose all the money that was lent to the defaulted borrower. To mitigate this risk, a lender can check the credit rating of the borrower and hold a diversified portfolio of loans.
Platform credit risk
The risk that a platform may fail. If this happens, a lender may lose all his cash held on the platform. The platform companies in Singapore are relatively new and backed by VC money. They should be able to sustain their operations for a several more years before they break even. To mitigate this risk, a lender can use an escrow agent or do regular cash transfer of cash from the platform back to his bank account.
The risk that a platform lists a loan that is likely to fail. If this happens, a lender may inadvertently lend to a high-risk borrower. To reduce this risk, a lender can observe the default rates of each platform and understand the credit approval process of each platform.
Although crowd-lending to SME is not regulated in Singapore, there are some grey areas regarding the interpretation of certain guidelines under the Securities and Futures Act that may apply to lending platforms. MAS is working on more specific guidelines and may introduce new rules to regulate the industry.