Saturday, 2 April 2016

Local Crowdfunding Expansion and Defaults

March has been an eventful month for the P2P industry with high profile loans being issued. While p2p loans are innovative, there is still one risk that remains - default.


March too has seen a few defaults. One of which has been covered by another blog. The company is a travel agency who has a few p2p loans.

Similarly, Moolahsense too has encountered a default on a bullet term loan by one of its issuers. And yours truly too has a late repayment by one of the companies in my p2p portfoilo. 

What can we do?

The only probable way is to research on the company issuing the loan and diversify your portfoilo to minmise your risk. Letscrowdsmarter has  good write ups on beginners tips for p2p loans which you can read here and here.

Basically, what we individuals have to do is research more on each company we intend to invest in, know the risk and diversify. This will take time like in stock researching

What the industry can do? Trust

The P2P industry here is new locally. And being a new kid in the block, building trust is paramount. Talks with many of my friends, shows not many people are willing to trust such third party sites as wealth building vehicles yet, this is because of the red flags and lack of regulations in these otherwise promising industry. There are few who are only willing to give new comers a chance as the risk borne is high. Hence for such p2p service providers, it is important that they first build up trust among the community that p2p loan is viable, and not a cowboy town despite being in an unregulated industry.

It is indeed nice to read reports of million dollar loan issuance, however if the industry is riddled with defaults and recourse of non payments by issuers, many people will not want to invest due to a lack of trust. Furthermore, P2P loans are not exactly cheap; one has to invest at least a few hundreds or one thousand dollars. Unlike taobao or, where you are putting a few dollars at risk, the money quantum in p2p loans are larger. You can laugh off being scammed $3.99 for trying to buy a USB cable online but losing a $1,000 due to default is something you will definitely kpkb and remember for a long time. This demonstrates how and why the public will require a larger degree of trust that these platforms are credible/have done their due diligence before approving these companies.

No doubt, these companies have turned to crowd funding because of the probable fact they are unable to obtain bank loans. But P2P platforms should be aware that as pioneers of this industry; unless they are only planning to be profitable for the next 12 months, rapidly expanding without due consideration to the type of loans issued will result in the erosion of the public's trust in p2p loans.

Trust is important to building the foundations of any business. While it is tempting companies are now knocking on the door for crowd funding loan, compromising on the aspect of service delivery for profits is a recipe for disaster. 


  1. Agree with your comments. Trust is very important and I hope platforms do their part in maintaining strict screening of borrowers. If we have a healthy p2p lending environment, everyone benefits: platforms, legitimate SMEs and p2p investors. If there are too many defaults, which investor would want to invest?