Marketplace lending also referred to as peer-to-peer (P2P) lending, is a US$200 billion asset class globally. Bringing together finance, risk management and technology; marketplace lending takes place through online platforms that use technology to bring together creditworthy borrowers who are underserved by traditional lending institutions, with investors who are seeking attractive yield-generating investments.
Marketplace lending shares similar characteristics with short-maturity bonds and high-yield bonds. For this reason, many investors look to marketplace loans to diversify their investments in equities, property and corporate bonds while receiving monthly cash flow of principal and interest. Across Southeast Asia, there is growing interest from institutional and savvy investors; with over US$400 million in loans originated via marketplace lending.
Advantages of Marketplace Lending (or Peer-to-peer lending)
1. Marketplace Lending allows two ways of Diversification
An allocation to marketplace lending may provide investors with exposure to a technology enabled shift in the way consumers and small businesses access capital.
Diversification across asset class
As an asset class, marketplace lending has low correlation compared to other major asset classes i.e., equity, real estate, and traditional fixed income. This has been supported by marketplace lending’s underlying credit exposure, which stems primarily from SMEs and consumers rather than from corporate or government credit exposure that generally dominates traditional fixed income allocations.
Diversification within loan portfolio
PeerPower enables hassle-free matching of loan fractions with investors. On average, each investor on our platform has exposure across 15 loans, e.g., by loan purpose, business sector, credit quality, loan amount, loan duration.
2. Marketplace lending provides better risk-adjusted returns
With an increasingly volatile equities market and a rising interest rate environment, marketplace lending may offer attractive risk-adjusted returns.
Marketplace lending provides a combination of better yield and low duration that stands in sharp contrast to the traditional fixed income universe today. Marketplace lending’s low duration reduces sensitivity to rising benchmark interest rates, while loan portfolio diversification and risk-based pricing provides a cushion against credit loss in economic down cycles.
3. Investors can earn monthly cash flow of principal and interest
When compared with other asset classes in Thailand, PeerPower provides a diversified loan portfolio with monthly cashflows of principal and interest, with the option for auto-reinvestment to compound returns.
Real estate investments provide monthly rental income and capital gains upon property sale; though are susceptible to rental occupancy and real estate asset cycles. Corporate bonds and Bills of Exchange provide interest (coupon) cashflows paid quarterly or annually with principal paid at maturity. Such instruments have risk concentrated to one specific enterprise.
PeerPower is the leading Online Marketplace Lender based in Thailand. Our mission is to provide better rates for borrowers and better returns for investors. We’re a team of experienced business leaders with over 40 years of experience collectively in finance, risk management and technology.
PeerPower is operating under the commercial code of Thailand and is working closely with the Bank of Thailand and Securities Exchange Commission (SEC) towards licensing. This is expected to be completed by the fourth quarter of this year (2018).