Here’s What Investors Have Been Asking Us During Pandemic – (Part 1)
We have been receiving numerous questions and comments on this topic over the last two months. And so this may be the best time to publish our first ever FAQ blog where we are addressing them.
Requesting to reach out to us with comments, questions and suggestions. We read and respond to (almost) all of them, and it aids us to keep improving and achieve great heights. Moreover, we would appreciate getting more feedback (both positive and negative).
- Is there any eligibility criteria for borrowers to opt for a moratorium request?
Since LenDenClub already follows stringent eligibility criteria while selecting the borrowers for the loan process. To opt for a moratorium request, there are no eligibility criteria. If one thinks due to the current COVID-19 situation, they’re facing financial crunch and won’t be able to pay the timely monthly dues then in such a situation, the borrower can opt for a moratorium request. You can read our “Borrowers Selection” blog to gain detailed information about our loan appraisal process.
- Will interest be charged on the deferred interest-EMI payments due to moratorium?
Under the relief package, the RBI has instructed to give borrowers a moratorium period of six months for payment of EMIs. During the moratorium period, the borrower is liable to pay interest, which can be paid during the moratorium period or can be deferred to be paid after the moratorium period along with EMIs
- Are the XIRR and ROI shown inclusive of such deferred payments due to the moratorium? Which one should be referred to?
It’s important to understand certain terminology, ROI is the rate of interest offered on a loan. It is decided by the platform after a risk assessment of the borrower. XIRR or Extended Internal Rate of Return is a measure of return used when multiple investments at different times are made. XIRR is inclusive of such deferred payments due to the moratorium. It gives you a more accurate broad level and time-based view of your returns. Also, it gives a better understanding since it is a metric used in capital budgeting to estimate the profitability of potential investments.
- As an investor, what can we do to improve XIRR and Net ROI?
To improve XIRR and ROI, the investor needs to follow 3 rules of investment in LenDenClub.
- Diversification – Spread your investment across a large number of borrower profiles from a different location, gender, occupation etc. Higher the diversity in your portfolio, higher the spread of risk. Auto-Invest is an automated feature introduced by LenDenClub which allocates the lenders’ investment across loans defined by parameters pre-set by the lender. This helps the lenders to build a diversified portfolio faster and more efficiently.
- Reinvest – EMIs, when reinvested, you earn further returns. It adds to the returns already made through the original investment. Hence, you get a compounding effect. Data shows that reinvesting can lead to higher net annualized returns.
- Investment horizon – You have to set an investment horizon of at least 12/24 months and continue reinvestment till then. By not reinvesting your repayments, you will bring down your own returns.
- How safe is it to invest in this pandemic situation in LenDenClub?
You are often apprehensive about lending money online and now especially due to the pandemic, they might be more in doubt. Lenden club is as secure to invest in as much any MF fund, or NCD since the risk attached to these instruments is similar. That risk being credit risk, i.e. the risk that a borrower does not pay his EMI. However, we have a very strong loan appraisal process. Our loan appraisal process includes evaluating the profession of the borrower, credit history (from CIBIL), and bank statements among other personal details. We give loans on an average to only 3 out of 10 borrowers who apply on our platform. This is unlike the additional risk of market fluctuation that you face in the equity market. To make it easier to understand, credit risk is applicable to all debt or fixed income instruments like NCD, bonds, CP, CD etc. where mutual funds also invest their money. Their credit risk is on corporates and our credit risk is on individuals. However, your portfolio is highly diversified across individuals at LenDenClub if it is compared with a Mutual Fund. While no investment is 100% risk-free, P2P lending is a safer option than many others.
- Defaults are still the same or increasing, is there any collection efforts done?
Our NPA is still the same. Platform’s till date NPA stands around 5%. We diligently follow up with each and every borrower when they delay their payments. You can track it from your dashboard where the borrower breakup under regular, closed and delayed borrowers is mentioned. As and when our team collects the money back, their status gets updated on a real-time basis. Collection support is a part of the services offered. We treat your hard-earned money like our money and put all possible efforts to recover it.
- What are the chances of getting my money back, Why is written-off/default count increasing day by day?
In finance, everything is relative. Always track numbers in percentage. The written-off/default count is not increasing day by day if you look at it in percentage terms. But if you look at counts, it is going up because the customer base is increasing and along with the number of delays, the portfolio size and etc.
Be completely certain of getting your money back in view of the fact that we follow a step-by-step Collection process. We diligently follow up with each and every borrower when they delay their payments. You can track it from your dashboard where you can see the borrower breakup under regular, closed, and delayed borrowers. As and when our team collects the money back, their status gets updated on a real-time basis. Collection support is a part of the services offered.
- What is the best time to invest in LenDenClub?
Now is a good time as any to get started with P2P lending. In September 2017, RBI issued a notification, passing a mandate for all P2P lending platforms to be registered as Non-Banking Financial Companies (NBFCs) and published a set of guidelines for P2P lending platforms. On 16th July 2018, LenDenClub received the registration certificate as an NBFC-P2P from the RBI.
Now, LenDenClub platform has settled and has provided 12% of returns over the last three years. It should be enough to boost the confidence of any investors like you. Start investment with a small amount of Rs. 50k or 1 lakh to learn how it works and its results.