Local Crowdfunding investment in SME

[dreamybear]

Seems like several P2P might be affected by the current covid-19 situation - there are recent comments abt defaults :

https://seedly.sg/reviews/p2p-lending/funding-societies
Comment by a Level 2 Rookie 4d ago : "My portfolio is 90per cent defaulted and ...."

https://seedly.sg/reviews/p2p-lending/moolahsense

[specuvestor]

That's how long it took for crowdfunding to unravel. Disintermediation has a limit

Aiyo crowd funding is the modified version of 'ton-tin chit fund model' of which long ago been started by China and cases of the founder run away with the money.

For MoolahSense, you bit for the interest rate, the lower u bit the better chance u get it, if its a popular company wanted to borrow money, like the recent a Mobile scooter company closed at 13% p.a.

But usually not popular company the allocation is 'first-come-first served' basis like the coming a manufacturer of elastomer seals. Target to loan 200k, offering 19% p.a. on 12 mths equal installment.

You may apply to be their member, go into their website and you will notice some companies (e.g. a mobile related co) every month loans 150k - 200k from this scheme and becos of the lucrative commission (3k -5k) per application they will just approve it and pass the risk to the greedy investors.
Take upfront money return interest to investors, like using many credit cards scenario.

To me, its a 'Ponzi' scheme, capitalize on human weakness that is 'greedy' wow 19% p.a where on earth u can find this return.

The borrowers will keep on coming to this place to take easy money, one day if you don't approve my loan , I no money pay you and I will default...run road or declare bankrupt.

As for China case, the founder using 'Gemini Chit Fund' method, create all the fictitious hollow companies all money go to actually one person, then run-road.

Well, its only my personal opinion.

Actually the tontine structure is a discounted loan upfront which reduces counterparty risk. In addition the people in the structure knows almost every one through grapevine.

These are not evident in crowdfunding. Counterparty risk is too high unless borrower has physical asset collateral else my sense is crowd funding is doomed as an investment product except for social non profit ventures

I'm actually wondering if this crowdfunding thing falls under the Chits Fund Act ie tontine or can we revive the tontine structure?

[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).

Inspired by specuvestor, took some time to re-read this thread. Seems like the movie is ending soon but probably stay around for the post credits.

Reminds me of the subprime mortgages that was all the rage in the early 2000s when the Fed kept interest rates low. These P2P loans are very similar in terms of their quality and positioning in the capital cycle.

Wash. Rinse. Repeat.

[specuvestor]

Agree but frankly in this COVID crisis I don't have a sense that the system is overly leveraged, except maybe Private Equity. P2P, bitcoin, property has been more or less deflated which is the good part, unlike GFC, dotcom, AFC or south american debt

That means this COVID recession is less financial but more operational ie no demand => no production => unemployment => lower demand etc. Governments are all trying to curb the 3rd order impact of financial and social breakdown but brace for the 2nd order impact.

[weijian]

How much the system is "overly" leveraged is still relative and dependent on the external stress in the system, isn't it? The best example is with a stroke of the pen, just like that S-REITs' leverage limits are changed.

Leverage itself is a catalyst but probably almost never the trigger point for a crisis to happen. There needs to be an external disturbance into the system to expose leverage. Bear Stearns was highly leveraged for a long time but only went down after it started to own those subprime mortgages and had to write them down based on mark to market rules.

This is why pessimism is controversial - On one hand, pessimism is sexy and intellectual sound because you will be right one day. But on the other hand, it is always discouraged because you don't know when you will be right.

"This COVID recession is less financial but more operational ie no demand" --> That is the interesting thing about this crisis! No past crisis is quite similar to this crisis. We could trace back to the Great Depression to get something similar but then again, that Fed actually shrank their BS after 1929, and it run contrary to the current Fed. When this whole thing blows over, it will be a good case study but nothing beats real time observation and understanding of all the actions and interactions of this crisis.

This is the season for surviving (health, earning power and balance sheet) and learning.

[holymage]

Agree but frankly in this COVID crisis I don't have a sense that the system is overly leveraged, except maybe Private Equity. P2P, bitcoin, property has been more or less deflated which is the good part, unlike GFC, dotcom, AFC or south american debt

That means this COVID recession is less financial but more operational ie no demand => no production => unemployment => lower demand etc. Governments are all trying to curb the 3rd order impact of financial and social breakdown but brace for the 2nd order impact.

You may want to take a look at US corporations historical debt. The debt is not with the banks, it is from the bond market.

[dreamybear]

You may want to take a look at US corporations historical debt. The debt is not with the banks, it is from the bond market.

Aha, that probably explains why the stock mkt is holding up so well, with the Fed going all in with unlimited buying. 

With the banks now much more well-captialized due to the new Basel rules and not as much non-performing loans, they may be a bargain in this current crisis.

[specuvestor]

Agree but frankly in this COVID crisis I don't have a sense that the system is overly leveraged, except maybe Private Equity. P2P, bitcoin, property has been more or less deflated which is the good part, unlike GFC, dotcom, AFC or south american debt

That means this COVID recession is less financial but more operational ie no demand => no production => unemployment => lower demand etc. Governments are all trying to curb the 3rd order impact of financial and social breakdown but brace for the 2nd order impact.

After 9 months, I’m starting to sense the equity bubble is here, which is ironic and surreal within a pandemic. The unintended consequences of Govt and monetary stimulus to avoid 2nd and 3rd order impact of COVID

Like I posted before, I don’t agree with Greenspan that you can’t spot a bubble. But it’s you won’t know when it will pop. Neither am I saying the bubble will end soon but VBs should be aware, and also rethink buy and hold at this stage ?

One can choose not to waste a bubble, progressive reduce exposure, ride the themes, switch to value etc. Same environment, different personal circumstances, varying investment decisions. Have a safe 2021!

[weijian]

This sort of invoice financing reminds me of trade finance (LOC issued by merchant's bank) and yes, some sort of due diligence is done and so in theory, it is safe....until when rogue players (like OK Lim) see it for what it is, and it becomes unsafe.

Another P2P Lender Goes South: Millions on the Line for Capital Match’s Investors

The US$7.7 million in question represents payments on over 2,800 invoices that were issued by Jeams Transportation Warehousing – an SME borrower on Capital Match’s platform – to Sanmina for services rendered between 2016 and 2019.

In theory, arrangements like the one Capital Match has with Jeams are low-risk investments.

Assuming invoices are properly verified, the investor takes on the credit risk of the debtor – often an established blue chip company – instead of the SME’s, says Louis (not his real name), who has invested in hundreds of facilities on Capital Match since 2016.

https://blog.seedly.sg/p2p-lender-capital-match-news/