04-03-2016, 02:24 PM (This post was last modified: 04-03-2016, 02:32 PM by Debronic.)
(04-03-2016, 09:14 AM)CY09 Wrote: Hi Big Toe,
For Moolahsense, the way they put their interest rates is a bit unique. For the metal fabrication company, while it is stated 18%, it is a nominal rate. As their loan was structured to be an equal installment monthly repayment, the effective interest rate is approximately 10%. For a company of this size, a loan of 10% is just slightly higher than what banks charge for similar size SME (8-12%). So effectively, it is around bank's rate without the hassle of pandering to Relationship Managers.
I think you are mistaken. At nominal interest rate of 18% and with equal installments of principal and interest repaid monthly, the effective interest will be much higher than 18% p.a., not lower. If you use excel to calculate, you will get something like 38% p.a. In fact, this is similar to how a typical microfinance operation work.
Edit: Am assuming interest calculated on nominal rate and principal to be repaid in equal monthly amounts based on what I read from the report. I did not look at the actual terms at moolahsense because that requires a lengthy registration process.
(04-03-2016, 03:28 PM)CY09 Wrote: Attached is a 19% repayment scheldue. Interest is about 10+%
Thanks for the schedule. Like I clarified in the last post, I only made the calculations on the basis of non-reclining balance as expected from a typical microfinance operations and based on my understanding of the article. i.e. calculate total interest of 18% p.a. over entire amount (1.5%*150,000 per month), add to each equal monthly principal repayment (150000/12) to get total monthly repayment. The schedule, I assume is from Moolahsense, shows that the payment isn't calculated using the same assumptions as I did so that was my mistake.
However, based on the payment schedule, if you were to calculate the effective interest rates with principal of $1000, repayment of $92.16 and 12 installments, it would still be 22.6% p.a. Your 10% I assume is referring to total ROI which is about 10.6%?
There are many form of crowd-funding, I reckon, this form is the lending-based crowd-funding. I have not participated in similar activities, but I am perceiving the followings from the perspective of a small private equity fund owner.
The platform has enabled a new possibility for small private equity fund, i.e. de-risking by diversification. It is difficult for a small fund to diversify efficiently in conventional activities.
As an example, a PE fund of 1 million, split into 50 parts, with 20K each, and participating in 50 crowd-funding projects at one-time. Cash flow will be managed and re-invested as appropriate. The cost should be minimum in term of time spent and transaction fees. The return should be better than passive instrument e.g. ETFs (~10%) even after factoring in defaults. It may become one of the valuable asset classes of a PE fund.
04-03-2016, 11:05 PM (This post was last modified: 04-03-2016, 11:16 PM by Big Toe.)
I thank CY09 on sharing the repayment schedule. Now I have a better understanding.
The scheme is actually quite contradicting even though it is met with success with most companies repaying the loans.
1. If very stringent checks are on the company, not many companies would quality.
2. For those that qualify and with a decent track record of positive cash flow for many years, why would they need that extra bit of money?
3. If I had a company, better to scrip and save to fund our own projects rather than to go around asking for money. Not a matter of pride but other people's money always come with strings attached. And that is why it is very important that the company that I invest in(say in SGX) MUST be very prudent with borrowings, a good cash stash and good cash flow.
05-03-2016, 09:14 AM (This post was last modified: 05-03-2016, 09:14 AM by weijian.)
Banks have been around for a very long time, surviving the many innovations that came to want to disrupt it. Banks and their disruptions are subjected and impacted by negative black swan events but banks seem to have a better chance to survive with the rules and regulations working FOR them (deposit insurance, Central Bank's moves to taper/accelerate borrowing to counterintuitively change their behaviors, Big Daddy as lender of last resort, and the laws working FOR them to help them to seize collateral when things don't work fine)
As in all things, a rising tide lifts everything and it is only when the tide comes, we know who has been swimming naked. I will prefer to let others who are excited over this to try this out first. Easier to sit back and watch the action. If crowd funding platforms survives the next tide down and comes out stronger, I will be excited. In anyways, it is free to sit back and watch, opportunity costs are at a minimal with so many other alternatives and the need for capital from such crowd funding sources will never cease (if they survive).
If we do a decision tree with the highest default rate (as computed by the funding platform) and compare that with the alternative of leaving your money in say OCBC 360, the interest rate required to compensate one to offer funds to them should be higher. It is far easy for a layman to be seduced by the rates bandied around.
Next, if I am not wrong, one has to declare income received from such lending activities for income tax.
(06-03-2016, 10:38 PM)Caelitus Wrote: If we do a decision tree with the highest default rate (as computed by the funding platform) and compare that with the alternative of leaving your money in say OCBC 360, the interest rate required to compensate one to offer funds to them should be higher. It is far easy for a layman to be seduced by the rates bandied around.
Next, if I am not wrong, one has to declare income received from such lending activities for income tax.
IIRC, bank interest is also subjected to income tax. The only exception is POSB.
I don't quite understand the first paragraph. I reckon, diversification is a necessity to participate the crowdfunding. Concentrated approach is never right IMO.
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