P2P loans: who needs them and why?http://sofin.io
The founder of the online MFI "Loan Club" and the creator of the SOFIN p2p loan service project, Andrey Tuchkov, talks about loans and how to ensure their return on the p2p platform. He also talks about the problems the classical banking system has to deal with.
From MFI to p2p platform
The words "loan" or "microcredit" often sound scandalous in Russia and thus microfinance organizations cause extremely negative feedback. It is widely believed that such companies only make money on borrowers, who are people with incomes below the average, taking money out of debt without being able to pay it off. Of course, rates of 2% a day and 600% a year offered by Russian MFIs are impressive, and some of their values already create a negative background around organizations.
From this point of view, the platform of p2p loans looks much more attractive. In the lending procedure, it acts only as a platform where the people who need money and those who are ready to provide it can agree on their own. The service itself ensures the legal registration of the transaction, verifies the information about the participants and converts the currency. It can also provide additional services. For example, it can guarantee a timely return of a loan to a lender or can act as a guarantor for a borrower with good history.
Benefits of peer-to-peer lending
The platform of P2P loans has a number of advantages not only over MFIs but also over banks. It is easier for creditors and borrowers to agree with each other and not to deal with any financial intermediary when the system is transparent. At the same time, the average interest rate for borrowers (will be 15-20% per year according to our calculations) will be several times lower than in MFIs, and the profitability for creditors is two to three times higher than from bank deposits.
The platform of P2P loans also allows solving global problems. According to Worlds Bank, more than 2 billion people in the world don’t have access to financial resources today. In Africa, even the presence of a bank account remains a high-class privilege. In many Asian countries, the average loan rate is 20-30% per annum and people are ready to borrow money at such rates. In total, the population of such countries is at least 3 billion people.
On the other hand, there are European countries where the bank deposits rate is negative or does not exceed 1% per year, for example, in Germany. This means that people are simply losing their money taking into account the inflation. According to the research holding company Romir, at least 57% of Russians have savings and in 28% of cases, people depose them. The profitability is no more than 7-11%. Like any person from the financial world, I believe that keeping money anywhere is wrong. It is much more reasonable to put them to work. In this regard, the P2P platform is a very effective tool.
Firstly, it provides access to financial services to all segments of the population. Anyone can be a borrower here: from individuals with incomes below the average, who need to have some money till the pay-day, to businessmen who are looking for investors. Creditors can act as individuals with incomes above the average, who want to put money to work, and a group of people, banks, funds and MFIs. This way some people get the opportunity to take the necessary loan, and the others — to earn money using their assets. Secondly, a competent study of the project platform will allow working on completely legitimate grounds and mutually beneficial terms.
Guarantees of return and verification of borrowers
For effective work of the P2P-lending in the international market, at least two mandatory components are required: legal transparency and qualitative multistage verification of participants.
For our financial projects, we have thoroughly worked out the legal model from the very beginning, so that the SOFIN platform can take over all documentary support for the transaction. Because of legal considerations, we decided to issue loans not in the cryptocurrency, but in the fiat money of the borrower's country. In this case, all transactions are legally significant. At the same time, conversion of both fiat money and cryptocurrency is done via the platform.
We conclude the loan agreement in accordance with the legislation of the borrower's country but all the quantitative values: the terms, the amount of the loan, the rate — are determined by the parties themselves. The system automatically sends out alerts and warnings about debts and, in the case of a delay, it forms a pack of documents for the creditor which can be sent to court. As for the creditor, he also automatically receives reminders, for example, that he is obliged to pay income tax.
The second key point is multi-stage verification of participants, existing in all credit institutions. Each borrower on the platform is assigned a rating based on the uploaded documents, voice verification, credit history and confirmed place of work. These indicators will guide the lender. In fact, these indicators represent the fact whether the loan will be paid by the borrower or not. Our model works in four stages. The first stage is the verification of documents and data provided by the borrower: passports, bankruptcy information, IP-addresses, and so on — there is the list of 16 clauses, verification is free. The next stage is a telephone or video call. Over the years, we have learned how to effectively screen out insolvent clients with voice verification tools. Further, if the borrower is a newcomer to the platform, we can check his credit history by accessing data through the partner MFI. The last step is to check the place of work. According to the experience of using our model, we can say that such a multistage system is effective. Thus, the percentage of pre-trial returns in our online MFI "Loan Club" is 83% - this figure is above the average for the market.
If all the agreements and transactions concluded on the platform are legally significant, the procedure for securing the return of the loan acts in the same way as in the case of other credit institutions. In this case, the P2P-platform gives more freedom to choose the actions. For example, if both parties are gregarious, in the case of 3-4 days of delay in payment, they can agree on new terms of debt repayment and renegotiate the contract. In addition, for creditors and borrowers with a good history, we also provide a paid service of surety and guaranteed repayment of the loan.
If the borrower is not a gregarious person and delay is more than 10 days, then at the request of the creditor, the documents can be transferred to A.P.Y. With a debt of more than 30 days, the platform forms a package of documents for transfer to the court.
Despite the fact that the platform of p2p-loans is not a creditor, it makes profit on commissions for operations like any financial intermediary. To attract creditors to the platform, it is more reasonable that the commission for loans is paid by the borrower. He also pays for some stages of verification, which allows him to increase his rating and more likely to reduce the lending rate. As the project develops, commission fees will be distributed between both parties, depending on the rating and status of the participants. For example, if the creditor is a bank or an MFI, then the commission for the loan can be assigned to them.
In this regard, the peer-to-peer platform will effectively operate bonus systems. In particular, the SOFIN platform plans to issue tokens, which will serve as a way to pay commissions and simultaneously be the bonuses for transactions in the form of cashback from operations. The lender is able to issue up to 20% of the loan amount in tokens. The platform converts them into a fiat currency for the borrower. If desired, the creditor can also accept payment of interest on debts in tokens, which will allow avoiding income tax. The participants can come to our platform without knowing anything about cryptocurrencies, but later they will be interested in spending their bonuses. Thus, we contribute to the development of the cryptocommunity.