This article will cover all Buyback Guarantees and Provision Funds offered by P2P Lending Platforms. There are many different ways the platforms promise to ensure cashflow to lenders and try to make sure the investment process is as smooth as possible for anyone choosing their platform.
But what should you be aware of on the different platforms? And how are all the different Buyback Guarantees, Provisions Funds and other insurance-like products in online lending structured?
Difference Between Funds & Buyback Guarantee
The goal with this type of financial insurance product is to ensure lenders a steady cashflow with a mechanism that results in lenders cashflow not being that effected through the process of debt collection when borrowers defaults. This mechanism can take many forms and have very different risks and effects for the lenders.
There are mainly two different ways of doing this. One is a Buyback Guarantee based solely on the guarantee or promise of the entire company behind the platform/loan originator to be buying back defaulted loans. The other option is a Fund based on a tangible amount of cash or other highly liquid assets, stored in a specific unit which is protected against the company/platform operational risks and with only one purpose: to pay lenders in case of default.
Below is a list of all Buyback Guarantees and Provision Funds in the market of P2P Lending with a short explanation of how they are structured.
List of all Buyback Guarantees & Provision Funds
Most loan originators at Mintos provide their own Buyback Guarantee with different terms yet usually promises to repurchase the loans if they are delayed more than 60 days with or without penalties and interest income on delayed payments.
The platform itself (Monethera GROUP OÜ, Reg. No.: 14616437) guarantees to buy back loans at a 5% fee anytime you want/need to exit before the final installment. To further secure the lenders, they guarantee 35% of outstanding principal in their so-called Reserve Fund in case borrowers default. Also, Monethera will reimburse 35% of the remaining principal instantly while the remaining up to 65% principal will be reimbursed when the case has been through court and collateral realized.
The platform Assetz Capital is a direct peer-to-peer lending platform, with automatic portfolio accounts that each are covered by its own Provision Fund that holds a certain amount of money ready to be distributed to portfolio account holders in case of defaults. Each account has an expected default rate and the funds are then covering x times the default rate. Here are the rates from 31. March 2019:
Quick Access Portfolio
Expected Loss Rate: 0.48%
Provision Fund Coverage: 6.57x (3,15%)
30-Day Access Portfolio
Expected Loss Rate: 0.48%
Provision Fund Coverage: 5.32x (2,55%)
90-Day Access Portfolio
Expected Loss Rate: 0.48%
Provision Fund Coverage: 1.72x (0,83%)
Secured Property Portfolio
Expected Loss Rate: 0.27%
Provision Fund Coverage: 6.80x (2.2%)
Great British Business Portfolio
Expected Loss Rate: 0.24%
Provision Fund Coverage: 4.42x (1,1%)
The platform itself (SIA TWINO, Reg. No.: 40103919184), and not the loan originators, provides either a Buyback Guarantee on loans delayed 30 days or a Payment Guarantee ensuring installments even if the borrower is missing payments.
Some of the loan originators at VIAINVEST provides a Buyback Guarantee when loans are delayed 30 days and the platform itself offers a Buyback Button that allows lenders to cancel the investment after 120 days since investment date.
The platform itself (SIA AV Marketplace, Reg. No.: 40203073653) offers to buy back the loans with full accrued interested if the payments are delayed more than 60 days.
The platform itself (SIA Swaper, Reg. No.: 40203005445) offers to buy back selected loans covered with ‘BBG’ at full accrued interested if these loans are delayed more than 30 days. If a loan is not covered by the ‘BBG’, the lender has the option to sell it at the Secondary Market.
All loan originators at IUVO Group are obligated to buy back the loans without accrued interest if payments are delayed for more than 60 days, counted from the day of the first unpaid installment.
The loan originators at Grupeer provide Buyback Guarantee on selected loans when payments are delayed for more than 60 days. At the moment all loans on the platform are covered by this guarantee.
The platform itself (NEO Finance AB, Reg. No.: 303225546) offers to buy back terminated (some time between 60 to 130 overdue days) loan contracts at 50%-80% of face value. NEO Finance also offers the option for lenders to select the Provision Fund for a fee depending of the creditworthiness of the borrower but always between 0.44% to 22.91%, guaranteeing to buy back defaulted loans if the service is optionally selected.
NB. NEO Finance recently notified that they started using a portion of the Provision Fund to invest in consumer loans.
- Fast Invest Buyback Guarantee & MoneyBack Service
The loan originators at Fast Invest provides Buyback Guarantee on selected loans when payments are delayed over 3 days and the platform itself (Fast Invest LTD, Reg. No.: 08338389) offers to buy back loans at any time within 1 business day at the initial amount in return of the all interest accrued since investment.
NB. Fast Invest does not disclose any information about the Loan Originators offering the loans and guarantee (only if they go bankrupt). The platform itself is registered in the UK but is operated from outside the country with a CEO appointed at age 18 (Low Skin in the Game).
Some of the loan originators at Lenndy are obligated to buy back selected BBG loans with accrued interest if payments are delayed more than 60 days.
The Provision Fund at SAVY is an insurance that investors can choose to add when lending on the platform. When adding the insurance you will receive a maximum of 10% yearly interest and be compensated if borrowers do not honor their obligations for 90 days. The difference in interest is kept by the company PLC Bendras Finansavimas for future compensations.
The platform itself (Envestio SI OÜ, Reg. No.: 14433607) offers to buy back loans at any given time instantly as long as there are sufficient funds to execute the buyback immanently. The costs of selling back vary from project to project and its situation and can be found in the project description.
Some of the loan originators on Bondster provide Buyback Guarantee. The terms can be found under loan parameters and usually ranges from 30-60 days with a 7 day protection period, paying back with unpaid interest.
The development companies at ZLTY Melon guarantee the principal at the time of selling the borrowers flat. If the buyer stops to repay the installments or fails to repay at maturity date the preliminary contract is cancelled and the development company has 3 months exclusively to sell the flat. If the flat is not sold within 12 months, buyback is obligated whether the flat is sold or not, in most cases with interest.
The loan originators at Debitum Network provides Buyback Guarantee on selected loans when payments are delayed for more than 90 days, buying back loans with accrued interest.
Instead of the platform itself guaranteeing the buyback of defaulted loans, Crowdestor has created a fund that will compensate investors by initially putting in 50.000 euro and devoting 1-2% of commissions from each project on the platform.
NB. The Buyback Fund is at the moment so low that it is very close to irrelevant. Buyback Fund status July 2019: 109.402 euro
Loans outstanding July 2019: Over 6 million euro.
- TFGCrowd Buyback Guarantee
The platform itself (TFGCrowd OÜ, Reg. No.:14278391) provides a Buyback Guarantee on selected loans, compensating lenders with accrued interest in case of repayments being delayed for more than 30 days.