Local Crowdfunding investment in SME

[brattzz]

still no safety of capital despite the risk... why not test ur luck at Genting RWS/MBS instead?

[brattzz]

http://www.businesstimes.com.sg/consumer...-disappear
another case in the making....:O

TLC car run away with P2P money too...

"We are not aware of any documents fraud on the side of borrower," said Pawel Kuznicki, director at Capital Match, noting that the borrower also has bank loans, which back "the integrity of information".

Capital Match said that TLC Cars had also borrowed some S$1.5 million from financial institutions. The company might also owe private creditors money.

TLC Cars had further borrowed S$500,000 from another major, but unnamed, crowdfunding platform. And it still owes about S$30,000 to investors who invested through credit marketplace Funding Societies. The total loans amount was S$100,000, funded in January this year. Investors have received S$66,500 in repayments to date.

"Like other platforms, we're pursuing collections hard but with limited results," said Kelvin Teo, co-founder of Funding Societies.

[specuvestor]

(Bloomberg) -- China’s savers are rushing to pull money from peer-to-peer lending platforms, accelerating a contraction of the $195 billion industry and testing the government’s ability to maintain calm as it cracks down on risky shadow-banking activities.
In some cases, savers are turning up at the offices of P2P operators to demand repayment, spooked by reports of defaults, sudden closures and frozen funds. At least 57 platforms have failed in the past two weeks, adding to 80 cases in June, the biggest monthly tally in two years, according to Shanghai-based Yingcan Group. The researcher defines failed platforms as those that have halted operations, come under police investigation, missed investor payments, moved into other businesses, or had operators flee with client money.
“Investors have lost confidence in the smaller platforms, because they have no idea if those companies will survive,” said Dexter Hsu, a Taipei-based analyst at Macquarie Capital. Only a handful of the 2,000 or so remaining firms are likely to endure, he said.
China’s P2P industry, the world’s largest, is one of the riskiest and least-regulated slices of the nation’s sprawling shadow-banking system. A government clampdown has weighed on P2P platforms for two years, but the pressure intensified in recent months after China’s credit markets tightenedand the banking regulator issued an unusual warning to savers that they should be prepared to lose all their money in high-yield products.

<snip>

PS I think Singapore crowdfunding also died?

Interesting summary:

"So Singapore's subaltern finance industry came up with what
looks like an efficient solution for working-capital financing:
crowdsourced promissory notes.
As long as the notes raise S$100,000 ($74,000) or more and
expire within a year, they aren't technically securities that
need to be sold with a prospectus. Earlier this year, Epicentre
Holdings, an Apple reseller, made news by becoming the first
publicly traded Singapore company to get money via crowdfunding,
raising S$1.5 million for a year at 13.5 percent.
But before excitement turns into frenzy and dubious
practices spring up, Singapore has decided to put an end to
crowdsourcing of promissory notes, and have proper securities
sold via regulated platforms instead.
Restricting crowdfinancing to a high-stakes parlor game
among consenting adults makes sense. It should help reduce the
cost of finance for small businesses, and sate the desire for
yield of moderately wealthy Singaporeans who didn't get into
Facebook before its IPO. The former have more assets than cash;
the latter have spare cash, but want assets.    
So why not let them transact?
For middlemen who promise to channel money only from
accredited and institutional investors, the Monetary Authority
of Singapore has decided to drop the base-capital requirement by
80 percent to just S$50,000, and scrap the security deposit of
S$100,000.
As for platforms that want to broaden the field, they don't
have to worry about both a retail investors' expertise and
suitability. If a customer is prepared to lose all his capital
and ready to hold on to an investment for 10 years, he's fair
game, even without a high-school diploma.
Companies can even now raise up to S$5 million in any 12-
month period without having to issue a prospectus.
Crowdfinancing can tap that limit, provided the securities offer
isn't made to the CEO's gym trainer -- unless, of course, she's
looking to get in on such deals"

http://www.bloomberg.com/gadfly/articles...-singapore

http://letscrowdsmarter.com/p2p-portfoli...16-update/

Interesting portfolio. Will be keen to follow up 12 months later.

Unlike Bitcoin that IMHO has no fundamental logic (see my posts in that thread) except scarcity perception, there are fundamental logic in P2P if done correctly though I think the risks are very high as main concern is return of money. For example I would be concern if entities with access to capital markets suddenly need this high cost channel

This guy's portfolio seems to be chugging along despite defaults. Take the % returns with pinch of salt as it doesn't take into account cash drag

http://letscrowdsmarter.com/portfolio-update-may-2016/

[CY09]

Crowdfunding is actually still going strong. However it is mainly those invoice financing (backed by receivables) which are going strong.

Crowdfunding of companies has grown weaker because a lot of P2P lending has gone sour. For me I have stopped P2P investing because 3 out of my 11 P2P loans went sour. Net-net I lost a small portion of my capital despite the interest earned from the other 8 successful repayments (which included Epicentre that formed close to 40% of my investments).

It's a classic Nassim Taleb's expected probability example where the lower probability but higher loss scenario results in a net loss.

[specuvestor]

IMHO 3/11 is not low probability. I think that’s the key issue

[weijian]

It's not easy to admit losses (which means you are wrong and suffering cognitive dissonance as a result), especially in an online forum. So kudos to CY09 for been able to do so.

3/11 companies, assuming equal allocation to all companies, means the rest of the companies must give ~40% returns to at least have a chance to break even. So yes, 3/11 is not low probability.

But i reckon the probability should be weighted by the amount of money put in (eg. 40% of the investments came from Epicenter which didnt default), so if CY09 you dont mind, maybe you can publish those numbers for all of us here to learn?

http://letscrowdsmarter.com/2017-update/ --> This guy seems to have stopped in Jan2017 for us to follow up on this real time. Either he is really busy or probably lost money (who wants to spend time updating losses to public?)

[karlmarx]

You don't hear of many cases of success in investments in crowd funded loans. Most investors acknowledge that the high return comes with higher risk of default. And for most of them, their solution to this high risk is to diversify. The problem is that if the credit quality of each borrower is similar, then diversification will not lower the risk. See Portfolio 1 vs Portfolio 2.

Portfolio 1:

Probability of Default of Company A: 80%

Probability of Default of Portfolio 1: 80%
.................................................................

Portfolio 2:

Probability of Default of Company A: 80%
Probability of Default of Company B: 80%
Probability of Default of Company C: 80%
Probability of Default of Company D: 80%

Probability of Default of Portfolio: 80%
.................................................................

Investors should instead be trying to diversify their loan portfolio by having more higher quality borrowers. See Portfolio 3.

Portfolio 3:

Company A: 80%
Company B: 60%
Company C: 40%
Company D: 20%

Probability of Default of Portfolio: 50%
.................................................................

The reason why investors using crowdfunding platforms is unable to construct Portfolio 3, and hence lower risk through diversification, is because most (if not all) of the borrowers on the numerous platforms are of poor credit quality. In an environment of low (albeit rising) interest rate, these borrowers must be really at the bottom in term of credit quality, to be willing to borrow at more than 10%. In other words, investors using crowdfunding platforms did not have a good chance to succeed since the start, because all the issuers are more or less equally poor.

If one desires to be a lender, then a good first step is to mimic the banking and lending institutions. What do they do differently? The majority of their loan book consist of high quality borrowers. Unsecured loans? Sure, but it is a small portion of their entire loan book. Even then, they make sure their unsecured borrowers have high credit scores before lending to them. If you were granted a banking license, would you make your entire loan book out of those borrowers from crowdfunding platform, or even lend to them at all?

Bankers don't hope and pray that their borrowers don't default; they know that their loan book is robust enough to withstand some non-performing loans. If you find yourself hoping and praying that your borrowers don't default, it means your loan book is not well constructed.

Since crowdfunding platforms do not offer higher quality borrowers, it is better for retail investors to stay away entirely. Or if you must, own a small proportion (to overall portfolio) but be ready to write them off.

If you have suffered from crowdfunded loans, take heart that even listed companies have placed themselves in such a risky position.

[CY09]

For some of the defaults, investors like me got back some of our capital. However, we had to sign non-disclosure settlements to get back part of our capital.

[brattzz]

For some of the defaults, investors like me got back some of our capital. However, we had to sign non-disclosure settlements to get back part of our capital.

1) Luckily you got some of your capital back.
2) What's the deal with the NDAs?... now there is a lack of transparency already?

[wonghw12]

I believe that crowdfunding returns is highly dependent on the quality of the underwriting of the platform. Thus far, I have invested in MoolahSense, Funding Societies and Capital Match. MoolahSense is undoubtedly the champion of poor underwriting.

Have invested in 60 campaigns in MoolahSense since last year. Out of which, 9 fully repaid and 8 defaulted, which puts the default rate at 47%. Amongst the remaining loans, 10 are stressed (more than 45 days late) and another 4 are late, which puts the  non-performing loans at 33% for the remainder. Hence, agree with the analysis that diversifying does nothing, especially if you are investing via a platform with poor underwriting standards.

Comparatively, I have invested in 46 campaigns via Funding Societies. While not exactly apples to apples when comparing against MoolahSense as I did more invoice financing on FS, 22 borrowers have fully repaid and another 24 loans are still ongoing (with 100% of repayments on time so far). Clean sheet with 0% default rate.