After the wake-up call in 2020, 2021 has proven to be a change in paradigm regarding how users approach P2P lending investments. Risk management has now taken a crucial role in both platform and asset selection decisions for investors and only the most robust and best adapting platforms are proving to thrive in these conditions…
Today we have with us Aleksandra Georgieva, Loan Originators Partnership Manager at IUVO, and one of the top specialists in lending risk management in Europe, to discuss and dig deeper into a few of these risk management topics…
1 – Hello Aleksandra, and thanks for coming to TodoCrowdlending. Let me start with a big question first: from a risk / return perspective, do you think P2P lending is a valuable asset for an everyday investor compared to other assets such as bonds, stocks, etc.?
Hello to the great TodoCrowdlending community, it’s really nice to have a chance to talk with you and share my experience! On the question, absolutely yes, the P2P lending is the balance and middle ground compared with other available investment instruments on the market such as bonds, stocks, saving accounts, gold and etc. Shorter as an investment horizon and with better yields than traditional low-risk instruments/bonds, saving accounts, etc. /, less risky and much less volatile than stocks. Additionally, the low thresholds to enter in the investment, easy access and possible early exit are making the P2P lending really good alternative for low to medium risk investors.
2 – For me, it is clear that IUVO is a platform very focused on risk-management, committed to inform and protect its investors whenever possible; in fact, it is notorious that your English slogan is precisely: “Invest in loans. We made it safe”. What separates IUVO from the rest of the crowdlending platforms in terms of making investments as safe as possible for its users?
The word is compliance, strict internal rules and procedures, strong due diligence process, regular monitoring and multi-level approval structure. Furthermore, in line to upgrade and future development of the whole compliance processes, not just internal, but on branch level as well, Iuvo have started an initiative for establishing a unified, best practices“ in the sector. The main idea of the initiative is to make the P2P market more secure, transparent and united in the finance sector.
3 – If the 2020 crisis has revealed anything, perhaps one of the most relevant lessons for us investors has been how critical is the right filtering and selection of Loan Originators (LO) in a platform. Being LO Partnership Manager at IUVO can you tell us more about this LO recruiting / monitoring process you carry out and how does this benefit us as end users?
Yes, indeed I believe the COVID-19 was a good lesson for all of us, not just in professional aspect but on personal as well. A major focus was given to the importance of the due diligence process, for the existing of each platform has, a fact that we have been aware of all the time and helped us build a strong recruiting model.
Talking about the main aspects of the due diligence we have built a three-stage recruiting system:
- Legal due diligences – verifying and examining all of the documents that can bring valuable information for compliance existing of each entity- licenses, permission, registration, shareholders structure and the UBOs, clear certificates from the main regulators, etc.
- AML and KYC due diligences – fully and deeply examining all of the internal processes and procedures, not just on company basis, but also local regular frame-FATF/ Moneyval reports, rating according Basel Institute, reputational risks and etc.
- Business and financial due diligence – examining business and assessment models of the company, strong financial analyses, assessing risk of the UBO and management of the company, loan portfolio analyses, competitive environment and etc.
Additionally, to verify the continuity of the compliance of the listed originators, a strict monitoring is being performed on a quarterly basis.
4 – Many things have been said about the Buyback Guarantee in these last months, some platforms are even changing the name to Buyback Obligation instead, showing that after all there is no such guarantee if the Originator is unable or unwilling to fulfill it… From an industry-wide point of view, is the whole Buyback concept obsolete?, how can we evolve or reinforce this concept to further preserve our interests as investors?
In my opinion the buyback guarantee/obligation concept is not outdated at all, it is a really good instrument protecting the investors and mitigating the risk of loan default. But when we are talking about the company’s default, the concept is not applicable. What we can do and how we can manage the risk in this line is referring again to the quality of the due diligence process and ongoing monitoring, to the assessment of the ability of the companies to fulfil their obligation and to cover main financial indicators.
5 – What is going to change with the upcoming crowdfunding / crowdlending European Regulation?, what can we expect both from a IUVO perspective and from an industry-wide perspective in terms of risk management and relations with LOs?
The upcoming EU crowdfunding regulation is aiming to unifying the rules for crowdfunding, to sets a high standard for investors’ protection as well as determine common practical and transparency requirements.
6 – Anything else you would like to add or share with our TodoCrowdlending.com community?
Currently, the market is in processing rapid changes. We can see that the new EU regulation is coming, crisis of 2020 changed the map of crowdfunding, but the line is correct – strict regulation and transparency. If P2P lending keeps this pace it will have a tremendous part in the future development of the finance sector.
Thanks very much for your time, Aleksandra!