Debitum is a Latvian-based marketplace platform that offers European retail investors the opportunity to invest in business loans. Debitum offers investments in pools of business loans issued by third-party loan originators in this interview, you will learn from the CEO Henrijs Jansons what it means to invest with Debitum.
This is a written interview with Debitum. P2PMarketData does not receive statistics data to perform in-depth checks of the information and numbers presented by Henrijs.
Get a quick overview of Debitum on P2PMarketData.
First, could you tell the readers a bit about your own background? How did you become interested in working with finance?
When I was 5 years old, I remember I was given a gift by my parents – a pink calculator. My father at that time was running a meat shop, and he said he lacked the knowledge of an economist to run the business efficiently. Subsequently, I decided I wanted to become an economist.
Later I discovered I love math as it’s purely logic-based, and once the international university of Stockholm School of Economics in Riga (SSE Riga) opened providing the highest quality education in English I did everything I could to get in there which I later succeeded. I had always felt I would perform as a leader therefore I often found myself as a head of some organizations, for instance, president of the student association at SSE Riga, president of the choir, chief organizer of various events, etc.
I started my professional career in real estate and then moved to an IT company as an analyst for Business Intelligence tools. I could deep dive into the very details of finances, performances, and operations behind the numbers and later I was comfortable taking fact-based decisions in managerial and operation roles. As the saying goes – Money makes the world go round. And I am very excited to be part of it.
How do you find and assess the investments Debitum makes available to retail investors?
Finding the loan originators has come rather naturally – we have met potential partners at conferences and exhibitions, and some have connected to us through personal recommendations as well as LinkedIn.
For the assessment of each partner, we onboard, we have experienced in-house specialists with private banking and top-notch Fintech experience for the due diligence process. Also, we have a strict policy to focus only in supporting SMEs as end customers on the borrower side, which guarantees we are not affiliating with consumer or pay-day loan providers.
The additional perk of working only with business loans is that we can access (for assessment purposes) and make a publicly available (for investment transparency purposes) broader range of data (for example, financial data) that wouldn’t be possible for consumer loans as that would breach privacy and GDPR regulation.
Furthermore, we use independent 3rd party creditworthiness scoring for probabilities of default for the provided loans from such global leaders as Creditreform. This allows us to have an unbiased opinion and show trustable ratings (A, B, C, etc.) to our retail investors for clear and fair decision-making.
Why should our readers choose to invest in Debitum?
Peer-to-peer platforms have historically provided stable and expectable growth to investors by providing an attractive combination between solid returns and relatively low risk. But still, the risk is there in the P2P industry. The question is how to increase guarantees for investor funds thus maintaining appropriate interest rates. And here Debitum steps in.
Firstly, since Debitum is a licensed platform, the risk of scams is eliminated (like Grupeer, Envestio, etc.) and investors can be confident that we will be there for years to come.
Secondly, thanks to the EU-wide Investor compensation scheme, the Latvian government and regulator will cover all misappropriated funds for 90% (up to 20 000 EUR) for each investor.
Thirdly, as Debitum services only SMEs and each asset is backed by collateral, it adds an additional safety layer to the investors. For example, investments in our UK partner Triple Dragon which finances mobile game developers, are backed by receivables from such companies as Google, Apple and Microsoft, and other industry leaders. To my mind this is huge.
Finally, by investing in Debitum investors support the growth of European businesses that provide meaningful services and products that benefit society.
What sets Debitum apart from other resale marketplace lending platforms?
As partly mentioned above there are some key differences:
- We are a regulated platform which means all our actions are closely monitored by the regulatory body, and we must maintain the highest standards for running the business.
- We are a niche marketplace – we only offer investments in business loans to SMEs. This means we can access and provide our investors with more detailed financial data.
- We use independent 3rd party scoring from industry leaders for all our underlying assets available for investment to give a fair and comparable assessment for each investment.
- We are an independent provider of the service (like Airbnb) that connects investors to the business in need.
- Our products, Asset-Backed Securities are regulated financial instruments that are available to retail investors starting from just 50 EUR while the same products at private banks are usually only accessible if you have a spare 100 000 EUR for investment purposes.
How do you decide when a loan is defaulted or with minimal chance of recovery?
Since 90% of our portfolio is generated by LO’s that have zero affiliation to the owners of the Debitum, we perform close monitoring and due diligence process regularly – a minimum of once a month. This approach has been proven effective during the more than 4 years of history of Debitum, as we have never had defaulted loans. It has been accomplished since we have managed to off-board problematic LO’s before they couldn’t settle the obligations to our customers.
Since the end borrower is SME, we can assess the financial situation and data much more precisely (unlike it was a consumer loan in Uganda or the Philippines, for example). Additionally, we have quarterly credit committees where our financial department presents the data about each of our partners with exposure on the Debitum platform, and the joint decision is made to continue or discontinue the collaboration.
How is Debitum regulated?
In September 2021 Debitum obtained an Investment brokerage license in Latvia issued by FCMC (https://www.fktk.lv/en/market/investment-service-providers/investment-firms/sia-dn-operator/). FCMC is the same institution that regulates banks in Latvia, thus criteria for the regulated platforms are also very strict. We must undergo regular AML, MiFID, Financial, and Operation audits.
Since the 1st March only investments in regulated financial instruments that are approved by the regulator are possible. The onboarding of new partners also must be approved by the regulator. As a result, onboarding a new partner now takes at least 90 days.
What do you think the future of resale marketplace lending looks like? Which challenges do you see for the industry in the coming years?
We believe that in the future all platforms will face regulation one way or another, therefore, we wanted to ensure we are the first ones to become regulated and properly managed. Of course, such transparent regulation has its cost, which means that the interest income offered to the investors will be lower than non-regulated platforms. It will depend on the investors – do they want to bear more risk or be more on the safe side?
We also believe that consumer lending will become more and more regulated, therefore, on Debitum we only focus on the facilitation of business loans as there will always be business and a need for capital to sustain growth.
What’s next for Debitum? Where do you see your platform in five years?
Debitum is looking to expand our partner network and plans to onboard new loan originators. We are currently negotiating with businesses operating in the real estate, forestry, and energy sectors to provide investors with more investment diversification options.
The nearest future development plans aim to increase investors' convenience to make investments and give Debitum clients more features to control their assets. This will be realized by bringing back an optimized Auto Invest program for financial instruments and opening a secondary market so investors can trade financial instruments between themselves.
In 5 years, we see Debitum as the market leader as a facilitator for SME financing in Europe or becoming acquired by a bank to strengthen its investment banking service by offering easy-to-use 21st-century technologies for the retail investor market.