In our blog post Investing in Loans through Carilend - A Different Approach, we reviewed that Lenders who invest through Carilend are investing their money directly into loans. We outlined the steps we take to enhance the quality of these loans as investments and how Borrowers who use the site are properly assessed for creditworthiness and their ability to repay. This is a critical part of our process as managing risk is one of our most important functions and is at the heart of what we do. The following describes in summary the steps we take:
Screening of Applicants
Since a significant part of our process is automated, we rely on the latest technology which is purpose built for this type of business and customised to work in the Caribbean region. We leverage technology in the areas of identity checking, anti-money laundering and fraud. By partnering with world leading technology solutions providers, we are able to quickly ascertain that people who use our system (both Borrowers and Lenders) are who they say they are and that their transactions are legitimate. However, we have not removed the human element from our screening and assessment process. Our team reviews every application received for consistency, reliability and to validate all of the information collected.
“At Carilend, we take our responsibilities in risk management very seriously. Assessing the creditworthiness of the Borrowers who use our system is critical for the success and security of Peer to Peer Lending”
Salary Slips, Employment Letters and Bank Statements
Income is the starting point of every application, and these three documents help us to verify this important aspect. The salary slip helps us to confirm the applicant's salary and any automatic deductions. This will lead us to the applicant’s net salary, which is a crucial element when assessing the ability to repay. The employment letter validates the salary amount and reveals the tenure of employment, which a salary slip does not. Furthermore, we scrutinise bank statements to ensure that the net salary reported is credited to the Borrower's bank account and that all other financial information submitted on the application form is consistent.
Using the above documents, we validate that the applicant’s information is correct and consistent. In addition, we check with financial institutions, hire purchase companies and credit bureaus, where applicable, to validate other debts. At the end of the day, affordability is determined from net income. Therefore we take careful steps to ensure that net income has not only been entered accurately, but also that net income is sufficient to cover the requested loan amount.
Credit Scores and Pricing
Our use of technology also includes a robust automated credit scoring system. This was built in conjunction with a company that has extensive experience in building scorecards and operating credit bureaus in developing markets, including the Caribbean. After our team verifies all of the supporting documents and the relevant information, the system will determine a credit score for a Borrower, which indicates that they are creditworthy and can afford the loan repayments.
Based upon the credit score, our system then allocates a Risk Grade. These grades are a guide to the relative creditworthiness of each Borrower and are used to assign a risk-adjusted interest rate to the loan. In addition, the Risk Grades help us to match Borrowers to Lenders since Lenders allocate their funds according to their risk preferences using these grades.
At Carilend, we take our responsibilities in risk management very seriously. Assessing the creditworthiness of the Borrowers who use our system is critical for the success and security of Peer to Peer Lending, given that Lenders are investing in loans. We trust that by outlining our approach to managing these risks we can inspire confidence to invest so that you can benefit from Peer to Peer Lending through Carilend.