Interview with Kuflink CEO – Narinder Khattoare
The Kuflink peer-to-peer lending platform was established in 2017 but is already an established player within UK-based property lending. We had a talk with Kuflink CEO Narinder Khattoare to learn more about his take on the P2P lending industry, Kuflink’s initiatives for the future, why they decided to launch a P2P platform, how they handle risk, and much more.
The Story of Kuflink
Today Kuflink is a well-known company among investors interested in peer-to-peer lending, but before your P2P platform went online in 2017, Kuflink was known as Alpha Bridging and focused solely on bridging loans. Could you explain a little bit about the story of Kuflink, for example, who are the founders? How is the ownership structure today? Why did you decide to launch a P2P platform?
The founders of Kuflink are the Binning Family based in Kent. They have years of experience in property development across the UK from residential and commercial development projects ranging from £1m to £15m. They watched closely as the market became harder and harder to get into after the financial crash, and after going through hard times themselves, they wanted to make it easier for people to manage their finances more efficiently and make it possible for people to earn better returns for their money.
The Management structure today has me, Narinder Khattoare, as CEO of Kuflink Group with Directors across Kuflink Bridging and Kuflink Ltd. Our Business has a mix of the ownership team with the management team to ensure we move things forward quicker and are hands-on for the growth of the business. Rawinder Binning (one of the founders) is a Director for Kuflink Ltd and is involved in the business day to day as Director of Regulatory Compliance. He has extensive experience within the property industry, previously having founded several successful property development companies as well as managing several large residential portfolios. Nattalie Weeks is a Director of Kuflink Bridging. She has extensive experience in financial services; during her 30-year career with Royal Bank of Scotland, she was a member of the corporate credit committee and was also a securities settlement officer. Tejwant Chattha is the other Bridging Director, and he brings over 15 years of experience being involved in both property investment and development. The Group has experienced Directors as part of its non-executive board such as Nayan Kisnadwala (ex Barclays and Premium Crédit CFO), Bal Thind (founder of Hakkasan’s) and Sukhdev Dhillon (38 years’ experience at NatWest Bank).
We decided to set up the online platform to help fund the growing short-term bridging business. We wanted to be able to offer better rates than the high street banks and allow investors to “dip their toes” into the world of investing and make better returns. The Select Invest product, as well as the Auto invest, was launched because we wanted investors to have a choice on whether they wanted to select their own opportunities or whether they wanted to be able to sit back and have their money diversified for them.
Kuflink’s Business Model
Kuflink’s primary focus is on loans secured against UK property. Why did you choose to focus on this specific business model?
Our business model focusses on loans that are all secured by UK property. I myself feel this is one of the safest ways of lending and feel this works for our investors. We pride ourselves on having an asset as security we can rely on should the worst-case scenario occur in case of a default. There are other platforms that lend to businesses purely on cashflow, and we feel this is higher risk. Although property values can go down, we felt the best way was to secure against bricks and mortar. We only ever lend up to a maximum of 75% LTV which means that in a worst-case scenario, we hope to be able to recover all funds that would be required in order to repay our investors. We also put in up to 5% on all the Select invest deals, and so in a recovery situation, we would take the hit on the first 5% before our investors had to lose any money. To date, no investor has ever lost a penny.
Investing on Kuflink
Could you briefly explain what type of investing you offer at Kuflink?
We have three different product offerings.
Select Invest where you can take control of your money, choosing the deals yourself that you want to fund from just £100. We provide as much detail as possible on each opportunity on the platform, including the valuation report for investors to make an informed decision before funds are invested.
The Auto-Invest product, which allows diversification of your funds. Our system will automatically spread your funds across a wide range of projects lowering your risk exposure and reducing the time you would likely spend researching individual opportunities.
The IF-ISA which works the same as the Auto Invest product, except it has the ISA status and so allows you to use your £20,000 tax-free allowance per year.
As mentioned earlier, all our loans are backed by a UK-based asset in the form of freehold or long leasehold residential or commercial property.
If I decide to place money at Kuflink and build a diversified portfolio, how much can I expect in net yearly return after losses and delayed payments?
If funds were to be deployed into our Auto-Invest product, you would be looking at earning 5%pa on our 1-year product, 6.1%pa on our 3-year product and 7%pa on our 5-year product. It is dependent on the deal in which the investments have been diversified against. If the loans are all performing, then in year 1, based on £100 investment, you will earn £5 in interest. If some of the loans are not performing, the interest will be affected, and if there was a recovery scenario, then the investment in that one particular loan would be affected too.
Risk Handling at Kuflink
You currently rank your investment opportunities from A1 (low risk) to C3 (higher risk) based on an algorithm that measures LTV, property location, credit score, loan term and more. How did you decide which parameters to include in your algorithm, and how do you choose which projects to list on your platform?
The algorithm has been designed by the team to ensure all departments (Underwriting, credit committee, accounts, and compliance) had an input. This algorithm is regularly reviewed to ensure it is always relevant and reflective of the market conditions.
The loans we put forward to the platform go through intense due diligence with several checks by multiple professionals i.e., Underwriters carrying out various checks on the borrowers (ID checks, credit checks, asset checks), Directors undertaking site visits on some of the developments, valuations carried out by RICS approved valuers, using solicitor firms that have a minimum of two solicitors that have been appointed by the Solicitors Regulation Authority (SRA), two in-house credit committees, compliance checks and checks done by the Accounts team prior to release of funds.
The above is a quick summary, but as you can tell, we scrutinise each deal, and many don’t get through. But when they do, we are confident to put them on the platform and co-fund them.
Kuflink co-invests up to 5% alongside investors, but it only applies to the Select-Invest option. Why is that?
We used to have a stake in the Pool when the LTV/LTGDV was around 70+%. However, the Pool has managed to get an overall LTV/LTGDV of around 66%. So, there was little point in having a further stake. This is reviewable should the % go above 70% again. This was also requested by some clients, where we would take a stake and leave less for investors to take up.
If the unlikely event should occur that Kuflink goes out of business. What will happen to the investors’ money?
If we decided to wind the business down, we have a full wind-down plan to ensure as little disruption to our investors and their existing investments as possible. In this scenario, our collections team will administer the active loan book, keep collecting payments from our borrowers, and pay this back to investors as and when they fall due or funds collected.
All monies that we hold are held in a separate client account, and these funds are never mixed with our own funds. We hold several accounts with our bank, so there is a clear segregation of funds when they are not invested on our platform.
No investment is guaranteed. The value of the asset can go down as well as up, and it’s down to the investor to make that decision and do their due diligence on the investment they make. We provide as much detail on our loans as possible.
Kuflink versus Competitors
Who do you see as your biggest competitors, and what sets Kuflink apart from them?
Secured lending peer-to-peer platforms such as Crowdproperty, Proplend, Octopus Choice, Assetz, and Ratesetter
Some of our Unique points:
1) Up to 5% skin in the game on all Select Invest Deals
2) A new App Launched in Beta
3) In House Collections Department
4) In House Tech Team
5) Our customer services
6) Enhanced Due Diligence process; and
7) Much more.
A good business is built from strong foundations and a team with both knowledge and experience. It is key to have a good mix of experience across the team, and we are proud to have this. First and foremost, we have extensive experience in property development and investment, but we also have experience in lending, underwriting, due diligence, and general financial services, which are all key for the business.
We have a thorough due diligence process with all loans being fully vetted before they are approved, and our underwriters and credit committees ensure we only accept fully viable projects. We have another credit committee who will then assess the loans prior to them being made available on the platform to ensure we have a good opportunity for our investors. We want to be confident in every single loan that goes to the platform.
Our rates are also sustainable, and that is how we plan to keep them. Some of the other p2p companies offered higher rates that simply were not sustainable, and unfortunately, we have lost some p2p names from the market. But for us, we keep rates at a level that are feasible for us as a business, and our new investor numbers are continually growing.
Narinder Khattoare on the P2P Lending Industry
What do you think the future of peer-to-peer lending looks like? Which challenges do you see for the industry in the coming years?
Peer-to-Peer has just gone through Brexit, and we are still in a pandemic. Our model of having only property as an asset class compared to simple SME loans has proven successful. Granted, the asset class is illiquid, but our due diligence has paid dividends during this period, where we have returned over £22.5m to investors between April 2020 and February 2021. We continue to see full and partial capital repayments. We have seen a surge in investments since November 2020, and this is continuing through the lockdown, where we are breaking internal records on new investments, new signups, ISA transfers in, etc. Peer-to-Peer is based on Tech infrastructure, and this allows the sector to be nimble and responsive. Provided the sector is fairly regulated, the platforms ensure clients from both sides of the A36H agreement are treated fairly. Peer-to-Peer should survive any pitfalls that come its way.
The Future of Kuflink
What is Kuflink’s strategy for the coming years? Have you planned any new initiatives? Do you have a vision for the future?
Our Purpose is to connect people to financial Freedom. Lending to those who need a loan secured on property and giving a return has created a new asset class for investors. Regulation is what keeps us all in check, and there are platforms that are ahead of the regulation (such as our model of sticking to our default definition compared to the FCA definition). We need to ensure all parties are treated fairly.
Tech Development: New features are what drive the team every month. We have just launched a Beta version of an APP. Currently, we have a new ISA wrapper around our Select Invest product being developed and new segregated SIPP and IFISA wallets being created. The roadmap has quite a few new proprietary features driven by us, and we are looking forward to sharing these when they are live.
We learn tremendous amounts on how borrowers behave under pressure, and we then pass this understanding across the business to underwriters and committees to ensure our investors are better protected and borrowers can prosper with a Kuflink peer-to-peer loan.
Together, we are all a community that is making the platform great.
In the unlikely scenario, Kuflink no longer exists when we look ten years down the road: What went wrong?
Regulation is the variable that can make platforms disappear overnight. The regulation has been proactive, and the peer-to-peer revolution has taken hold throughout the world. It is interesting to see how the UK has taken a lead, and through our unique standing in the world as a leading Financial Centre, we will all need to work hard and smart to ensure the Financial sector, including peer-to-peer, stays strong and a beacon for the rest of the world to live up to.