What are the Risks in Peer to Peer Lending?

At Carilend, we make the process of getting a loan convenient, fast and fair.

Peer to Peer lending connects people who want to invest money (Lenders) directly with people who want to get a loan (Borrowers). Using technology, we make that process a great customer experience and do it at a lower cost enabling us to be a better experience, faster and better value for both Borrowers and Lenders.

Whilst Peer to Peer lending offers fantastic returns to Lenders, it is important to fully understand the risks involved. This post sets out the key risks to consider and explains how Carilend mitigates those risks for our Lenders. Managing risks for our Lenders is one the most important jobs we do at Carilend and is at the core of what we do.

 

“Whilst Peer to Peer lending offers fantastic returns to Lenders, it is important to fully understand the risks involved.”


 

Borrower Defaults

At Carilend, we only approve people who have a good income from steady employment and are good with their money. However, there is still the risk that due to unforeseen circumstances a Borrower may default on their loan. This could be due to ill health, loss of employment or even something more disturbing like deliberate fraud.

Borrower defaults could negatively impact returns for Lenders so we have put in place measures to lessen the likelihood or the impact of such events. 

Fraud and Criminals

Our protection starts by “keeping out the bad guys”. We have adopted the highest global standards for screening prospective Borrowers and applied technology originally developed for the security and border control sectors to screen fraudsters, impersonators and other bad guys.

Credit Scoring

We individually credit score and credit check every prospective Borrower using a proprietary scorecard developed in conjunction with a global leader that specialises in credit scorecards for developing markets like the Caribbean. We only approve those who are good with their money and able to pay their loans without difficulty. We assign a risk grade to every loan and an individual price tailored to the Borrower’s individual credit score.

Diversify Your Money

At Carilend, your money is spread over many Borrowers to ensure you don’t put all your eggs in one basket. You can start lending with chunks as small as B$25, and we recommend that you don’t lend more than 1% of your total money with Carilend to any one Borrower. It is best practice to have at least 100 loans to diversify your risk and reduce your chances of one large loss affecting your returns.

The Reserve Fund

The Reserve Fund is built from contributions by made every Borrower at the time they take their loan. The size of their contribution is based on our assessment of their estimated risk level from our credit scoring process.

If a Borrower misses a payment, Carilend will investigate and follow up to get them back on track. However sometimes this is not possible, and after three consecutive payments are missed, the loan is in default. Carilend, in conjunction with a debt collection agency, will continue to try to collect the loan.

At this point, a claim will be made to the Reserve Fund for the outstanding amount. The fund will usually pay the claim and all the Lenders are repaid.

Insurance Cover

In addition to the Reserve Fund, we have taken out Third Party Insurance to cover for many of the most common forms of default due to total and permanent disability, critical illness or death. Whilst rare, these events do occur and our insurance cover, paid for by the Borrowers, is there to protect the Lenders.

 

As with all investments, your capital is at risk. However at Carilend, we have applied global best practice to ensure our Lenders are protected. For even more information on how we manage risks, please click here, or for detailed information on our Loan Approval Process, please see our blog post Carilend's Loan Approval Process.

We will be publishing more posts and blogs in the coming weeks giving more detail on Peer to Peer lending and how our business works. Like or follow us on Facebook, LinkedIn or Twitter or visit our site www.carilend.com to get more information now and register for updates as they happen.

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