Little Latvia is one of Europe’s largest FINTECH-markets. The two lending platforms are popular with German investors because of the high chances of profit.
In an era of low interest investors looking for alternative investment options that promise higher profits. One such opportunity — the so-called peer lending. Here private individuals lend money to other private individuals or small companies. This is done not through traditional financial institutions, and through the Internet platform.
These alternative financial platforms that are FINTECH sector, over the past few years have shown significant growth. The largest markets are, along with Britain, France and Germany in an amazing way also much smaller country — Latvia, as shown by a study from KPMG in December last year. In the area of equal lending, this platform Twino and Mintos, who managed to win not only Latvian, but also a significant part of German customers.
Based on two years ago, the platform Twino investors can invest in unsecured consumer loans, which Twino gives out through subsidiaries in Poland, Georgia, Denmark, Russia and Spain. “German investors have invested in loans on our platform more than 35 million euros,” — said the head of Eugenic Twino, Kazanis. This corresponds to a quarter of the invested funds. 3,000 German depositors registered in Twino, half of them over the past six months. On average, they invested 3150 euros, the largest sum — 500 thousand euros.
Minimum amount is ten Euro, but investors may completely Fund the loan. Twino recommends investors to allocate investment across multiple loans to spread the risk. For the protection of investors, Twino provides a guarantee of payment and rights of repurchase. If the borrower delays the payment is made, Twino pays. If the payment is delayed over 30 days, Twino compensates as the amount invested, and loss of interest. Although Twino there are also loans without guarantees, the majority of investors makes the choice in favor of lower risk, 98 per cent of loans have a guarantee of payment or of redemption.
Kazanis, compares investing in the platform with the loan companies. The difference is that investors Twino earn interest and repay the amount monthly.
This scheme is somewhat different from the business model of the Mentos. On the platform was various non-Bank lenders that offer investors to invest in loans. We are talking about lenders specializing in auto loans, mortgages or loans for entrepreneurs, as well as on factoring or short-term investment loans.
Director and co-founder Mintos Martins sult compares the business model of the platform with the Amazon model. As well as Amazon brings sellers and customers, Mintos driving investors and lenders that make loans to individuals and small companies.
Investors in Germany invested in Mintos of the order of 46 million euros, representing a quarter of the total volume. In addition, with a total number of 8000 investors Germany is almost a third of all depositors. What amounts they invest, it also depends on the age. 20 years investing an average of over 500 euros, people over 60 years — an average of more than 5500 Euro. According to Soult, the Germans think up a good their investments — investment portfolios are formed carefully and distributed on various types of loans and lenders as well as countries.
“German investors in the first months of the platform’s work has played an invaluable role,” says Soult. They see great potential in the future. Until the end of the year the number of German investors could double. But the Sult wants to attract not only new investors but also creditors of Germany, whose credits can be financed through Mintos. Currently, 22 of the creditor countries from Georgia to Denmark and Spain take money from Mintos.
Unlike Twino, Mintos not liable for borrowers who are unable to repay the loan or for late payments. But there are measures to minimize the risks. So, the lender independently involved in each credit — participation in the risk of the lender is from 2 to 15 percent of the loan amount. For some types of lending (mortgages, auto loans) of the borrowers require a guarantee. For specific loans lenders offer a buy back guarantee if the payment is delayed by more than 60 days.
The success of the Latvian platforms is associated largely with the fact that in the EU they do not exist in unified legal framework. Legislation is the responsibility of individual countries. Latvia is currently developing a draft law, which should form the legal framework is thus to support long-term business and to inform and protect investors. Is considered the minimum size of fixed capital for the platform or the minimum amount of own funds of creditors.
Like any investment, and credit platforms the rule — the higher the profit, the greater the risks. Profit investment platforms Twino and Mintos depends on the loan type and risk level. On average it is from eleven to twelve percent annually, as reported by the platform.
Inspired by the financial crisis
Alternative lenders are often looking for consumer loans persons whose solvency is insufficient for the obtaining a loan in traditional financial institutions. Alternative funding opportunities are looking for companies whose business plans are submitted to banks too risky. In Latvia the economic and financial crisis almost ten years ago has played a significant role in the emergence of alternative lenders.
After banks had to deal with a large share of overdue loans, their lending policy became more cautious. Also, the willingness to take risks impact and more stringent regulation. However, technical progress has allowed to introduce new methods of assessing credit quality and the quick loans through the Internet.