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Success Story – P2P Loan To Manufacturer

This article first appeared Lets Crowd Smarter, a digital publication about crowdfunding and investing in Singapore and Asia.

Not all crowdfunding schemes are fraudulent. We (the Let’s Crowd Smarter Team) have invested in over 50 crowdfunding schemes across different platforms and our overall experience has been great.

Yes, there are a few problem loans whose repayments are always late. And we’re lucky not to have encountered any outright default yet. But we have seen more successes than failures.

We believe that as long as investors stick to the more established crowdfunding platforms (such as Funding Societies, MoolahSense, Capital-Match, Crowdo and New Union) and have a widely diversified portfolio, the overall returns should be positive.

As an example, our p2p loan portfolio is earning a cash return of about 1.5% per month, or about 12% so far this year.

Read Also: Spotting Red Flags in Crowdfunding Schemes

Crowdfunding Success – A Real Story

Here, we’ll share with you a crowdfunding success story – a p2p loan that we participated with Funding Societies in December last year. The effective interest rate was a cool 23.6% per annum. (We also have similar successes with other platforms and will share them next time.)

The loan ID is SB-1512005 but we’ll respect the borrower’s confidentiality and not disclose its identity. Below are some of the key features of the loan.

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To summarize, this company is borrowing $100k as working capital for a $780k project. It promised to repay over 6 months. Effective interest earned by the lender is 23.6% per annum. As this is a 6-month loan, the actual  interest earned is roughly half of that.

Funding Societies provided further financial information and comments on the borrower. We did a quick review and find the risk to be acceptable. Hence, we decided to lend $1,000 on this loan in December last year.

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Prompt Repayment

Over the next 6 months, this borrower repaid promptly every month. The final repayment was in June 2016. On this loan, we earned the 23.6% effective interest rate per annum – exactly as promised.

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Verifying Our Return On Investment

Now let’s verify that we are indeed earning 23.6% effective interest per annum.

But before we do that, we’ll need to explain the difference between effective and simple interest rates.

Effective interest rate refers to the interest earned on the outstanding loan. When the borrower repays its loan every month, the outstanding loan balance declines. The interest earned by this declining loan balance is known as the effective interest.

On the other hand, simple interest is basically the total interest earned by the loan as a percentage of the initial loan amount. It does not take into account the declining loan principal or the repayment every month.

We prefer to use effective interest rate. Using Excel’s IRR function as shown below, we easily show that the effective return is indeed 23.6% per annum.

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Is it really so easy?

If crowdfunding is so easy, why are there still plenty of negative news about defaults and frauds?

In our view, most of these platforms that ran into trouble are poorly managed. Many are fly-by-night operators that nobody has heard of. Their loan underwriting process is not credible at all. For the recent First Asia Alliance case, there were so many red flags, including the fact that the director of the crowdfunding platform is also the shareholder of the investee companies.

But there are also well-managed crowdfunding platforms that already have or in the process of getting CMS licenses from MAS. This includes Funding Societies, Capital Match, MoolahSense, New Union and Crowdo.

We (at Let’s Crowd Smarter) are comfortable with and have invested our own money with this second group of crowdfunding platforms. Overall, our investing experiences have been great. Of course, we do have some problem loans and late repayments, but these usually form less than 10% of our total portfolio. Success stories still far outnumber the failures we had.

If investors choose the correct platforms, investing into crowdfunding schemes can generate attractive returns without too much risk as shown in this example.

Read Also: Traits Of A Successful Trader

Funding Societies is a DollarsAndSense Brand Connect partner. Funding Societies is Singapore’s leading peer-to-peer (P2P) lending platform. They provide working capital loans for small and medium-sized enterprises (SMEs), along with attractive investment opportunities to the broader public. If you are interested to know them better, you can find out more on what they do on our DollarsAndSense Brand Connect Page.

How To Manage Your Investment Portfolio Like A Pro

Managing an investment portfolio is a lot like managing a business. With a disciplined, patient, and proactive approach, you can preserve and protect your wealth while attaining financial independence. Your investment strategies might differ, but you’ve to begin with some principles that are consistent at its core, which not only match the markets but your individual characteristics as well.

It’s also important to remember that not all investments in a portfolio may generate returns. It’s a lot like a badminton match – you will lose some points, but to win a game you’ll just have to win more points than you lose. Read the following keys to investing and know how you can ace those points!

Invest only in assets you understand

In many cases, retail investors take action in the fear of missing out on a “sure-shot” investment opportunity. The key is to avoid any frantic decision. Don’t worry about what you don’t know, worry about being sure on what you do know. If you don’t know how an investment actually works, you can’t know whether you really need it. There are plenty of alternative investment opportunities like P2P lending, which are easy to understand and implement. Consider investing in those.

Diversify

It is a prudent approach to create a basket of investments that provide broad exposure within asset classes. It spreads the risk and reward within your investment portfolio. When it comes to investing, the more diversified you are, the better.

We also advise diversification within an asset class or sector. For example, if you invest in P2P lending, you can distribute your investments across as many SMEs as possible to prevent loss in case an SME defaults. Even defaults hardly disturb your rate of return.

If you’re investing in stocks, make sure to not put more than 4% of your total portfolio in one individual stock. This will ensure that if a stock or two faces a downslide, your entire portfolio doesn’t suffer.

Invest for the long term

We believe that a long term horizon is a necessary ingredient for investment portfolio success. Investing is a marathon, not a sprint. Don’t get carried away with the ebb and flow of the market, and stay patiently invested. Also keep in mind that past performances are no guarantee of the future, and individual situations may vary.

Rebalance your portfolio regularly

Over time, your investments may fall out of sync with the original asset allocation. You may also want to restructure investment allocation. Re-assess your portfolio every six months or annually. Try not to tinker with your investment portfolio at short intervals of time – it’s also important to give time to investments.


This article was written by Funding Societies, Singapore’s leading peer-to-peer (P2P) lending platform. They provide working capital loans for small and medium-sized enterprises (SMEs), along with attractive investment opportunities to the broader public. 

Funding Societies is a DollarsAndSense Brand Connect partner. If you are interested to know them better, you can find out more on what they do on our DollarsAndSense Brand Connect Page.

The Best Advice We’ve Heard about Crowdfunding and P2P Lending

Don’t invest in a person or a company on the basis of its name and fame

The rise of crowdfunding and its offshoots have attracted big names. Celebrity artists like Neil Gaiman and Whoopi Goldberg have utilized crowdfunding campaigns. Businesses more familiar to our ears have tapped into peer-to-peer (P2P) lending. How exciting to invest in their projects!

Careful though! You know the saying: “if something is too good to be true… it usually is.” A famous person or big company can create awe and a false sense of security. We can automatically assume they are more investible. But be cautious, more often than not, crowdfunding and P2P lending are generally utilized by up-and-coming artists, growing startups, and SMEs. Of course, well-known establishments can choose to raise funds from crowdfunding or P2P lending, usually because crowdfunding provides a faster process.

How do we tell if these crowdfunding opportunities are the real deal? Treat famous names like any other investment. Objectively and don’t forget thorough due diligence. Ask the important questions: does this well-known figure have financial problems? How is this company doing according to its financial statements? Growing? Healthy? Well-run and profitable?

Do your research

Related to advice number 1, avoid fraud by asking for fact sheets (borrower background summary) and reviewing them. A crowdfunding or P2P lending platform should have performed their own assessment, but protect your funds by doing your homework and going through the assessment.

You are allowed to ask for the crowdfunded entity’s financial details if you are investing in it. In fact, be wary if you can’t access financial information easily.

It’s crucial to learn how to read financial documents. Learn which accounting elements show business health. Learn which accounting elements display promising business growth.

Read More: Is Your P2P Platform’s Interests Aligned With Yours?

Do diversify your loans

Our third advice relates more to P2P lending investors than crowdfunding donors. Crowdfunding backers tend to donate funds out of altruism or for intangible rewards. However, if you are crowdfunding as an alternative investment, diversifying your loans is a must do!

What is diversification? It simply means distributing your money across as many loans as possible to prevent loss in case of default.

No matter how thorough the due diligence, risk is an inevitable element of any investment. Diversification is the answer for such risks. For example, if you pour SGD 1000 in only one company and it defaults, your returns will drastically drop. You’ll probably lose money. Yet when you spread your funds to ten, twenty, even fifty businesses, your returns will remain positive and will stay close to the expected rate of return.

It’s important to repeat: diversification keeps your rate of return steady, even in the case of defaults.

Read More: Investing In An Uncertain World

Do reinvest your returns

Our final advice also pertains more for investors building a portfolio. If you want to maximize your venture into P2P lending, you need to start reinvesting.

What we mean by reinvesting is using your gains to fund other businesses. Reinvesting multiplies your returns. The compounding effect of such reinvestment can be very strong!

Without reinvestment, you simply receive gains according to a loan’s expected rate of return. Here’s an example: You invest SGD 1000 in a business that offers an annual 20% rate of return. The business succeeds. You earn returns of SGD 200 in a year.

Let’s see what happens when you reinvest. You invest SGD 1000 in a similar business that offers a 20% rate of return. After month 1, you earn a return of SGD 16.70 (from annual gain of SGD 200 divided by 12 months). Immediately, at the start of month 2, you reinvest the money into a similar loan. At the start of month 3, you reinvest your earnings from month 2 into yet another loan. And so it goes until the end of the year, when it is very likely you have doubled your investment instead of only gaining a profit of 20%.

Reinvestment requires minimum effort and is a great form of passive income. All the more reason it is a definite do!

Should you be interested in learning more about the many benefits of investing in P2P financing, click here.

This article was first posted on the blog of Funding Societies (Singapore). Click here for the original article.

Funding Societies is a DollarsAndSense Brand Connect partner. If you are interested to know them better, you can find out more on what they do on our DollarsAndSense Brand Connect Page.

Why Invest in P2P Lending?

Many people are new to peer-to-peer (P2P) lending as an investment option. Questions arise. Is it trustworthy? Does it fit my needs as an investor? Who else have invested in it?

All valid concerns. Nearly no one wants to jump in blind when it comes to investing hard-earned money. Not billionaires, not angel investors – even they do extensive research prior to investing. People want examples of successful P2P investors and whether P2P lending works for their portfolio.

However, you’d be surprised by how flexible this form of alternative investment is.

Flexibility

Let’s start with individual or retail investors. Why is a relatively new investment opportunity so appealing to this segment?

The financial market can strike one as tangled, complicated, and unpredictable. Where does one even begin? P2P lending can feel like a breath of fresh air as it offers a much simpler concept. Basically, it is a form of alternative investment where investors collectively fund loans and earn interest-based earnings in return. Think of P2P lending as profitable crowdfunding! Where crowdfunding projects usually support charities and artistic ventures, P2P lending lets you collect attractive returns.

Due diligence and credit assessment guides your choices

Also, compare P2P lending with stock investment. Navigating the stock market requires expertise and research. Credible P2P lending platforms perform all the necessary due diligence and credit assessment to guide your investing choices, which saves time.

You still need to do some of your own research though, so you can decide for yourself which businesses you want to invest in. But overall, P2P lending jargon is more accessible compared to other investments.

Read Also: Three Key Risks of P2P Lending

alternative and affordable

Other bonuses? The affordable entry. At Funding Societies, you can invest in each small business with as little as SGD 100. P2P lending is also a profitable, with returns up to 14% per year.

It’s easy to see why individual investors are seeking alternative investments like P2P lending. Through it, you make passive income with ease and you earn higher returns from lower capital.

Read Also: 3 Alternatives To A Dividend Portfolio

More and more, P2P lending is gaining popularity. Respected media outlets such as Forbes have talked about its benefits. P2P infrastructure is thriving and all the indications point to one conclusion: P2P lending is here to stay!

This article was first posted on the blog of Funding Societies (Malaysia). Click here for the original article.

Funding Societies is a DollarsAndSense Brand Connect partner. If you are interested to know them better, you can find out more on what they do on our DollarsAndSense Brand Connect Page.

6 Different Types Of Alternative Investments You Should Consider

Whether you’re just looking, or starting out in investing, it will be helpful to understand the major instruments with which people tend to invest. This video gives an overview of 6 main investment options, as well as their qualities and characteristics. 

Read More: Starter’s Guide: 6 Different Types of Investments For You To Consider

Read Also: This App Can Help You Kick Start Your Investment Journey

Find out more about alternative investing at Funding Societies here.

Funding Societies is a DollarsAndSense Brand Connect partner. If you are interested to know them better, you can find out more on what they do on our DollarsAndSense Brand Connect Page.

 

How Technology Can Revolutionise The Way We Invest

The older generations love gold and properties as their mode of investment and method to hedge against inflation. With the advancement of the Internet and technology, the new generation of investors are now more well-equipped with information and new investment opportunities. This is especially so in recent decades, when the huge leap in technology opens up a whole lot of new sub sectors in the digital industry which can potentially revolutionise the way we invest.

Let us look into 5 growing digital sub sectors and how it can create new investment opportunities.

1. Crowdfunding

According to Investopedia, Crowdfunding refers to the use of small amounts of capital from a large number of individuals to finance a new business venture. Typically, crowdfunding is either reward-based or equity-based.

For reward-based crowdfunding, entrepreneurs or inventors will pitch their product idea to investors, in exchange for a free or discounted finished product. An example of such crowdfunding website would be Kickstarter, the world largest reward based crowdfunder where over US$2 billion has been pledged by more than 10 million people since they launched in 2009. Oculus Rift began as a Kickstarter project 3 years ago, and eventually raised US$2 billion. Pledgers of the project were promised to get the upcoming Oculus Rift for free (how we wish we knew this project back then!) However, this type of crowdfunding is not considered as an investment.

As for equity-based crowdfunding, investors can chip in for the projects in exchange for the equity of the firm. The more prominent equity-based crowdfunding platforms are Seedr and CrowdFunder. Locally, Fundnel also offers various funding methods for businesses and investors depending on their suitability.

Based on 2014 statistics, Asia is recording exponential growth in crowdfunding market, contributing 21% to the global funding volume. Globally, an estimated US$87,000 is raised every hour.

2. Peer-To-Peer (P2P) Lending 

P2P lending refers to a debt financing method which enables individuals to borrow or lend, without the traditional brick and mortar financial intermediaries. Investors can lend money to the businesses in exchange for periodic interest payment and the principal amount upon maturity. It is also known as social lending. Without the traditional financial intermediaries such as banks and finance companies, P2P lending narrows the interest spread between lenders and the borrowers which is beneficial to both parties.

P2P lending is usually deemed as risker as investors are lending their money to businesses that banks might have rejected their loans. However, there are many reasons why banks can reject a loan. And one of the main reason is that these SMEs do not have enough history of track records in earning ability or cash flows.

P2P lending platforms can help to assure the investors by doing first-round screening of the SMEs before posting them online. Financial information are also provided for the investors to do due diligence.

MoolahSenseFunding Societies and Capital Match are some of the P2P lending platforms in Singapore.

3. Bitcoin

Bitcoin is a digital currency (also known as crypto-currency) created in 2009 with the promise of lower transaction fee than traditional online payment methods. It is the most accepted digital currency and some businesses accept Bitcoin as a mode of payment for goods or services. Besides acting as a mode of payment, Bitcoin is also seen as a type investment for many people. However, price of Bitcoin can be very volatile. The highest recorded price was US$1,151 per Bitcoin in 2013 while the lowest was US$205 in 2015. As at 15 Feb 2015, price of 1 Bitcoin is at US$404.

To find out moreBitcoins Investopedia 

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4. Direct Purchase Insurance (DPI)

DPI enable consumers to buy basic life insurance policies directly from the insurance companies online, without having to go through financial advisors and hence, bypass commission charges. This initiative implemented by Monetary Authority of Singapore (MAS) to allow Singaporeans to have access to basic protection without any financial advice. Consumers can compare financial products offered by different insurance companies using online platforms like CompareFirst and take their time to decide which policy best suits them.

This initiative, together with vast availability of information online, people can make more informed choice and hence reduces the conflict of interest for insurance agents. The current commission based system might prevent some of the agents from recommend the soundest advice for their clients.

Read Also: Will Buying Life Insurance Online Be The Next Big Thing?

5. Ecommerce

Everyone loves Ecommerce. Yes, everyone, even the Durian sellers.

People love to buy things online for many reasons. It can be due to convenience, price competitiveness, price comparison or variety. The trend of buying things online is set to grow further and hence, listed ecommerce companies presents an unprecedented investment opportunities for the investors. The ecommerce sector is undergoing explosive growth, attracting US$112 billion worth of investments globally in 2014.

With increased connectivity and the advancement of technology, it spurs a new wave of innovation and the birth of new subsectors. This also presents more investment options hence moving investors away from the more traditional investment methods. It is worth looking more in-depth in digital sector than ever before.

To find out more about the digital sector, visit sgx.com/digitalsector

Funding Societies is a DollarsAndSense Brand Connect partner. If you are interested to know them better, you can find out more on what they do on our DollarsAndSense Brand Connect Page.

Source of top picture

Investing in an Uncertain World

Here’s an example of how uncertainty can affect the average investor: prior to the 2016 US Election Day, most polls had projected a Hillary Clinton victory. The eventual result was different, not to mention unexpected. The shock impacted the markets even before the official winner was declared. As Donald Trump’s victory became more and more assured, gold prices soared; the metal is generally seen as a safe asset and a hedge against inflation. Meanwhile, emerging market stocks tumbled and the US dollar reached its highest point since 2003.

In the immediate aftermath of the 2016 USA elections, the markets certainly reacted and the fluctuation reflected anxiety for the future. Investors asked: is long-term market stability still possible? Will the markets continue on this volatile streak? Will they calm after a while? Given a situation of financial instability, what should the typical investor do?

Donald Trump’s victory was a catalyst for financial swings, but the reality is, market instability often happens and investors need to prepare accordingly. Certain (but not excessive) precautions should be taken to buffer against unexpected upheavals. How to do so? Diversify your portfolio, hunt for new investment opportunities, and stay calm even during choppy times.

Diversify Your Portfolio

Political events often upset both the markets and investor confidence. Some investors choose to behave in a more conservative manner (see the spike in demand for gold immediately after the 2016 USA presidential elections). Others choose to try and time the market in the middle of insecure times by pulling their assets and getting back in later when the markets stabilize.

But timing the market is a very risky affair, even for experts. If you want to fortify your portfolio in anxious times, you should diversify across different asset classes and rebalance your instruments periodically to maintain your risk profile.

Telling investors to diversify is very basic advice, but think about it. Diversifying your investments is something you can control in the midst of uncertainty. You get to choose which instruments to purchase and how much money you are comfortable allocating into each asset class.

The main idea here is to balance the potential for risk and reward. For example, let’s say your portfolio consists of company stocks and precious metals. Your stock value may have been erratic over the USA election season, but the value of your gold has gone up. As you can see, with a well-diversified portfolio, you remain in the clear if the stock markets fluctuate for the long-term, as your returns aren’t determined by the performance of a single asset class.

Don’t overload yourself with real-time market information, but do look at all asset classes and see how they will fit into your portfolio and your risk tolerance. The bottom line is: if your overall portfolio is doing fine, then geopolitical situations matter less.

Read Also: This Infographic Will Tell You All You Need To Know To Defend Your Investments

This Is a Good Time to Hunt for New Investment Opportunities

If you think your investment portfolio is already well-balanced and you have covered the basics (fixed deposits, bonds, gold, stocks, etc), you can research new places to invest your money. There is an advantage to routinely looking at all the available options and seeing how they fit your portfolio because over time, asset classes produce different results. So to maintain your preferred risk profile, an investment portfolio needs periodic rebalancing.

If the current market climate is rendering you a little skittish, you can try investing small sums into alternatives. Technology, for instance, can be a promising sector.

Internet stocks are obvious suspects. Think about how essential brands like Google have become. But note that unless you are an early investor in these tech companies, your returns won’t be spectacular. Also, if you already own company stocks, other areas in technology can answer the gap in your portfolio.

Innovative and profitable technology companies are not exclusive to Western markets. One technology-based investment opportunity that’s growing in Singapore is peer-to-peer (P2P) lending, which utilized online platforms to match borrowers and investors. Borrowers take out financing for working capital or other business necessities, while investors who had collectively funded the financing opportunities gain interest-based earnings in return. Investing in P2P lending has several benefits: good return rates higher than deposits or bonds, a low entry barrier suitable for those wanting to try the business model first, and a streamlined online process.

Despite being a relatively new instrument, a study by the UK Peer to Peer Finance Association (P2PFA) stated that so long as investors are educated and the regulatory framework is sound, P2P lending does notcreate systemic risk. In fact, defaults would need to increase at least threefold from current levels to whittle down investor interest rates to below zero.

These days, certain apps can give you real-time updates on your favorite investments or even figure out the best investment mix for you. New opportunities are out there. Take the time to research and find new investments you can be confident in. Look for instruments with good growth that you can feel secure in.

Stay Calm and Don’t Make Rash Decisions

Yes, it can be difficult to enact this advice when your portfolio contains your hard-earned money, future hopes, and retirement plans. Investing can be as emotional as politics, making it difficult to stop watching the market’s every move. Yet it is counterproductive to overanalyse the current situation; there are too many variables. All the information overload can induce panic and cause you to “sell low, buy high” instead of the other way around. Additionally, don’t succumb to the temptation of making speculations. Impulsive decisions can change your portfolio drastically and at the moment, you need a balanced and stable portfolio.

Read Also: Invest Based On Your Investment Objectives, Not What Others Are Saying

Funding Societies is a DollarsAndSense Brand Connect partner. If you are interested to know them better, you can find out more on what they do on our DollarsAndSense Brand Connect Page.

The future of peer-to-peer lending in Asia

This article was first published by GTnews

The financial services industry has taken huge strides in the last 20-odd years, with path-breaking innovations in the financial system such as the advent of automated teller machines (ATMs), credit cards, online banking, mobile banking and sophisticated loan and deposit products. The speed of innovation has been unprecedented.

One new offering that has developed more recently is peer-to-peer (P2P) lending, also known as marketplace lending or crowdfunding. The concept seeks to leverage on the existing gaps in the lending system and serve the underbanked borrower segment while at the same time providing excellent returns to the lenders, who are usually retail investors with excess cash.

Since P2P lending is primarily an online proposition, the inherent costs and overheads are low. P2B (peer-to-business) lending seeks to use this concept to fund businesses which don’t have access to bank funding. Personal loans and loans to small businesses are the two most common lending products within the P2P framework.

The roots of P2P lending lie in the UK and US and go back to 2005-06, with lenders such as Zopa (the first P2P lender), Prosper, Lending Club and Ondeck being the pioneers. Thereafter came other big players like Funding Circle (UK) and Society One (Australia). Over the years, however, Asia has overtaken the US, primarily led by China. In 2015, P2P lenders globally originated loans worth US$64bn, with China contributing more than half of the total. Major lenders in Asia include:

China – Lufax, Dianrong, Yirendai
India – Faircent, Lenden Club, i2ifunding
Southeast Asia – Funding Societies, Modalku
Hong Kong – WeLab
Japan – Maneo

Unlike in the US and UK as well as some other developed markets, where P2P is predominantly an online model, a majority of the P2P lenders in Asia have a mix of online and offline models. Lack of data availability, low internet penetration, manual processes and regulatory challenges in emerging Asian economies are some of the challenges that inhibit growth of completely automated online models.

In the last few years, a new set of completely online P2P lenders has emerged. They use behavioural data from social media, acquire data through partnerships, and also use innovative technology-based credit scoring methods for giving out faster and lower-cost loans to underserved segments. One such example is Paipaidai in China which uses the online trading history of the borrower to underwrite loans.

Another recent phenomenon is the advent of cross-border P2P lending. Crowdcredit funds borrowers in emerging markets including Europe and Latin America through retail investors based in Japan.

The P2P segment has also attracted a significant amount of venture capital (VC) activity in recent times, as well as other funding, with some of the most notable funding for P2P lending companies in the Asian context including:

Lufax: Raised about US$19bn in their Series B round

Dianrong: Raised about US$1bn in their Series C round

WeLab: Raised U$160m in their Series B round

Funding Societies: Raised about US$7m in their Series A round

The key growth drivers for P2P lending in Asia include:

  • Rapidly-developing and high-growth Asian economies with large but credit-worthy underbanked populations
  • Huge funding gaps where banks are not able to lend due to structural inefficiencies
  • The availability of a large pool of retail investors with excess cash
  • Increasing internet and mobile phone penetration that complements the online product proposition and reach
  • Fintech-led fast online processes that help reduce costs and overheads while aiding customer adoption
  • Support from regulators and government bodies towards inclusive financial growth
  • According to Statista, P2P lending globally is expected to cross US$1 trillion in loan origination by 2050. Asia, given its unique positioning, should account for a significant portion of that total.