Grupeer: Let’s talk about risk management

This is the first blog post from the series about how some of the P2P lending platforms in Europe manage the risks (like creditor or platform bankruptcy, project failures, buyback guarantees, etc.) and how their strategy is aligned with the investors’ interests.


All answers are officially provided by Grupeer @ https://grupeer.com/

Questions and Answers

Q1. What is the procedure when an loan originator (LO) bankrupts? What is the worst thing that could happen to an investor in this scenario?

A1. In the case when loan originator (LO) bankrupts, the borrower is informed about the change of his creditor, and the investor has direct claim rights towards the borrower. In most cases, a bankruptcy administrator will be appointed who will manage payments. The worst thing could happen is that the loan originator (LO) will not inform the borrower. In such a case the borrower will be informed later during an official bankruptcy procedure.

Q2. What happens if the platform (or the company behind it) bankrupts? What is the worst that could happen to an investor in this scenario?

A2. Platform actually is an asset of the company. In case if the company bankrupts, investor can claim directly from the LO as LO still has liabilities towards all investors made investments to LO projects. All relationship is between investor and LO. We are working very active over new independents tools, that aimed at increasing the level of investors protection in case of default.

Q3. Who secures and provides the Buyback guarantee – Grupeer or your creditors/originators?

A3. Loan originator provides the Buyback guarantee. The existence of Buyback guarantee for a particular loan means that in case the borrower delays the current payment for the loan for a period exceeding 60 calendar days, the credit company that issued this loan is obliged to immediately buy back both your share in the loan and the shares of the rest of the investors in the amount of outstanding principal of the claim and accrued, but not paid interest. Buyback guarantee is stipulated in the agreements between the Platform and credit organizations. The existence of such a guarantee for a particular deal offered on the Platform is specified in its description, as well as in the description of the acquired claim right during the conclusion of assignment agreement. At the moment all deals offered on the Platform are secured with Buyback guarantee.

Q4. What guarantees the payment of the Buyback guarantee – is there a specialized fund that would supply it? If there is one, what happens if there are not enough funds or liquidity to cover the Buyback guarantee?

A4. Platform (or Grupeer) evaluates every single LO before cooperation. We review legal and financial documents, as well as interview management in order to understand rights, financial stability and performance of LO. LO has portfolio of loans and most of these loans are not placed on the platform, hence LO has the ability to repay the project in case of its failure. Obligation of Buyback is set forth in the contract between Grupeer and LO. By accepting these liabilities, it is up to LO to decide whether it can accept it and set required financial reserve for fulfillment of (possible) Buyback. Generally, if LO has a bad balance sheet our analytics would probably notice that during initial examination and inform our management on possible risks. However, this does not safe everyone from willful fraud of persons being employed at specific LO.

Q5. Is it possible for the Buyback guarantee to get delayed, longer than the expected 60 days term?

A5. The Buyback guarantee comes into the force in case of payment delays by the borrower for more than 60 calendar days + 5 business days according to contracts with loan originators, which in turn may vary from time to time. Therefore, we may place on the website information that buyback term is 5 b.d. more.

Q6. Is it possible for the Buyback guarantee to not be applied (or just partially) and under what conditions (e.g. a lack of financial funds due to a lot of defaulted loans)?

A6. In case the Buyback is not applied, the payment will be made to you after the procedural actions on debt recovery and sale of collateral in accordance with the legislation of the country where the loan was issued. The Buyback guarantee does not apply partially. In case of financial funds due to a lot of defaulted loans the investor acquires a claim right to the borrower, thereby becoming a joint claim right holder. Then it is not a BuyBack, but LO bankruptcy, see paragraph 1.

Q7. What guarantees that the value of the loan’s collateral will cover the loan’s nominal value after 1 year?

A7. If in loan deal we have real estate collatereal all customers is provided with colleteral valuation. If we speak about Real Estate, Platform evaluates development projects and also follows up the process. In fact, our CEO, who is highly experienced in development projects, visits these projects on-site. In evaluating the loan, analytics take into account the set of factors.

Q8. Is there a risk of early repayment of the loan that would decrease the future expected yield (interest)?

A8. Yes, this is mentioned in assignment agreement. As the repayment depends on the borrower, there might be a situation that a borrower wants to return the credit earlier. In this situation, you will get all the accrued interest and the principal payment before scheduled time. Investor will receive all investments made in this specific project and accrued interest up to repayment date. We would definately not use the word risk, as it only reduces investor’s risks, but possibility of early repayment.

Q9. Do you plan to release any public information about your financial statements of the platform and the company behind it and if you do when can I expect it?

A9. Should you wish to see an annual statement of Grupeer, it is available in Lursoft database. Kindly note that, since the platform is an electronic marketplace, under European accounting legislation all investment transactions are off-balance also you can find our financial statement on www.p2p-banking.com and statement about our sold projects on Facebook.

Q10. Do you plan to add a Secondary market and if you do when? Currently, the lack of a secondary market does not allow us a quick unplanned exit from the investment.

A10. We are working on the Secondary market, but we do not have a release date yet. All our investors will get an email regarding the Secondary Market, as soon as it will be ready to be exposed on our web page.

Q11. Do you plan to regulate your activity through a European financial regulatory authority and when can we expect it?

A11. We are not regulated by any financial regulatory (like FKTK in Latvia). Such activity is not regulated in Latvia. We are now switching to Ireland where our main company will be located. Ireland is more welcome to crowdfunding and p2p businesses. For the moment Grupeer has changed it’s jurisdiction, and is situated in Ireland, and probably in future we will be able to regulate our activity trough financial regulatory. As of now, we are not required to get licensed. It is one of our goals, but our priority is quantitative and qualitative growth, as well as wealth and happiness of investors.

Q12. What is the actual profit margin of the platform?

A12. All information for the year 2017 is already available on www.lursoft.lv, the statement for the year 2018 will be available in April.

Q13. What is the expected/forecasted loan default rate?

A13. We have never had any default so far, therefore, our default rate remains 0%. Behind the loans that we placed on our platform sits back a top due diligence team, consisting of auditors, lawyers and risk analysts. They go through every loan originator and loan deal and make a decision of it is safe for our investor to invest in. Only after their wise conclusion products are placed on our platform.


© 2019 Martin Nikolov All Rights Reserved

Published by Martin Nikolov @ FT.com

I work as a Senior Software Engineer at Financial Times. I am a software craftsman. Passionate about system design, architecture and building highly scalable and distributed cloud systems. My hobbies are sports, finances and investments in the FinTech industry.

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