Omaraha loan volumes and interest rates

For a significant amount of time Omaraha was one of the P2P lending sites that offered highest returns. This was largely due to the way their auction system worked – investor could essentially bid how much money they were willing to invest into a loan and at which rate. The system started filling the loans from bottom up (lowest to highest rate) and then the person taking out the loan got an average rate based off those.

This meant that if you kept an eye on how the loans got financed you could get into loans at ridiculously high interest rates while the borrower could still get a reasonable total rate. Best example of this is probably in the 7- and 10-year loans which have been removed by now, where investors were rather shy to commit, meaning you could get into loans at the max rate allowed – 60% gross (48%net for investor). This was also possible for 5-yr loans.

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All good things must come to an end though, and the 7-yr and 10-yr loans were removed (largely due to the total rates failing to comply with the legal max interest rate limits) and the cap for max interest rates was also brought down, so you could no longer make autobidders with such insane rates. Good for the borrowers, sad for the investors.

Current situation

Somewhat as a result of those changes the average interest rates started to come down. A section of borrowers disappeared from site (those who got higher rate loans, but were no longer able to), and since the site itself had become much more popular among investors and the total available cash number kept increasing (up to 1mil at times), which started to push down the average rates.

As a result the drop has actually been rather immense. Another contributor has probably been the fact that Omaraha has elected to be less of a black box – before you had to take the time to figure out the interest rates yourself, now, however they show you the maximum rates that offer a chance to get into loans. Today’s stats:

rates

As it stands, since the buyback rate offered (used to be at 80% for a long time) has started to slide back closer to 60%, then clearly the squeeze is two-fold both less security in buyback and lower interest rates. Since they’re also reduced the max amount per loan that an investor can contribute, this makes previous strategies much harder to use as well (it’s no longer as efficient to “ladder” interest rates for separate autobidders).

As a result Omaraha has dropped to somewhere in the middle of the pack when it comes to returns with one significant downside – lack of a secondary market, which means making an exit is much more difficult than on some other sites. As a result, for the first time in two years I’ve actually taken out some money since it started to build up too much.

 

Crowdestate now has a secondary market – good or no?

It’s definitely interesting that after years of hoping and waiting for Crowdestate to open a secondary market, there are interestingly a few downsides to it that are tied to the current situation on site and the economic situation.

The good

It’s definitely good to have an option to sell investments. Due to a large amount of projects having a ~2year deadline, then the flexibility of being able to sell, means more people would probably have the courage to lock in their money into projects.

Also, the secondary market will be an interesting way to play around with increasing your earnings, people can be quite emotional when buying, especially since with CE projects the fear of missing out is rather big, so people might want to buy into deals if they miss it.

The bad

I think the biggest issue currently is the fact that adding a secondary market is likely to make it even more difficult to get into projects. People would be motivated to make multiple bids (automatic bids) through more than one account and then sell one of the pieces. I know that I had this idea, so I’m assuming others did as well.

This means that there will likely be even more autobidders active, which means that even less of chance to get into projects manually. One of the last projects listed was pretty much completely filled with automatic bids, meaning manual access was impossible.

While playing around like this means potential for better income (essentially making profits from reselling pieces), then I’m seeing a lot more disappointed investors who aren’t able to participate in projects. But who knows, maybe they’d be happy to have the chance to buy from the secondary market?

Overall, the best fix for this would be to have more projects listed to decrease the competition for investors to get into projects, but currently it seems like there isn’t much in the pipeline, and I’m unlikely to increase the amount I place per investment due to wishing to keep some level of diversification (currently capped at 500 per project) and therefore like most other p2p investors I’m also currently moving any free money to Mintos to take advantage of the cashback offers.

Mintos cashback vol 3

Well, 2018 has started well – by mid-march I will have achieved the cashflow returns that took me all of 2017 to reach. Goes to show that sometimes having a bit of luck and cash at the correct time happens completely accidentally.

My biggest portfolio move this year was selling the small 12m2 rental apartment I had in Tallinn. While it was offering good rental returns, then in the long run it wasn’t in a very good house and 16m2 apartments have slowly started to gain popularity. Also, the prices of 12m2 apartments have reached ridiculous heights and since I needed to cash out something from my portfolio since I bought a new home which is being built, and I have to have cash available for various expenses in late autumn.

This deal however ended up being surprisingly well timed because I was able to drop most of the money from the sale into Mintos’s cashback program, which over the course of the last month has created some nice returns

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Of course the campaign has been very popular – there are days when there are no 60+mo loans and days when even the supply for 48mo+ loans has run out, but checking every now and then allows you to pick between countries and loan lengths to boost your portfolio. Since I’ve been investing mostly into Mogo loans anyway then I didn’t really feel much increased risk from temporarily increasing my exposure to them.

While this is a short term boost to investments (since when the cashback ends I will slowly have to start withdrawing money from the repayments), then it’s safe to say that Mintos has helped me boost my returns for the year significantly. Those who still have some cash laying around, then the campaign lasts for another 10 days (until March 16).

Mintos cashback vol 2

A bit more than a week after last Mintos cashback bonuses were paid out, another cashback program (actually two of them) was announced. Since I’ve seen some investors seem confused about the value of such a program, I thought I’d discuss it a bit. So, why offer a cashback?

  1. The obvious – bring in more money

As I predicted in my last post, the cashback pushed people to deposit more money, Mintos finished December with 46,9 million euros worth loans financed. This means more money for Mintos instantly (since they earn money based on the volume of loans financed), and a bigger growth push for them (since people who deposit money will not withdraw it instantly after the program is over).

2. The less obvious – encouraging long term commitment

I personally know a lot of people who invest in Mintos but only choose short term loans since long term loans seem too scary. What better to help people overcome mental hurdles such as this (taking on more long term risk) than extra money? Once people have dared to invest into longer term loans once, then once they have them in the portfolio it’s easier to add more long term loans (If you’ve already taken in 60mo+ loans then some more 12+ month loans seem less scary than having to “jump” from 1-3 month loans).

3. The practical – the money remains in the portal for a bit at least

Once you’ve invested into long term loans you can’t just instantly jump out again. Either the loan has to finish (take a long time), it has to get bought back for some reason (unpredictable) or you have to sell it on the secondary market. To sell on the secondary market someone else has to buy it – meaning other investors are likely to bring in more money. Or, if you’re in a hurry to get out then you’re likely to sell at a discount, and everyone is happy (other investor gets investments cheap). You can already see people selling BBG loans at a discount after having cashed in their discount.

4. The logistical – easier to manage

If an loan company (or Mintos) wants to increase amount of money from investors then logically you would have to increase interest. For long term loans a slight increase in interest is problematic since for a long term loan that comes to a large amount of money. If you list loans with the same interest rate as before, but offering a cashback it’s easier to manage (get to predict volume) and investors are less frustrated if loans get bought back later. It’s also more instant – increased interest rates will not motivate people to make deposits as quickly as a time-limited cashback offer.


 

Overall, since I’ve been investing into mogo loans for most of my Mintos career then for me the buyback is a nice bonus to have. I even sold some older loans at a bit of a discount to benefit from the cashback (I was interested to see that people were actually buying!). Some people are probably still a bit too scared to take in such long term loans, but, well, more left for those who pick them.

Mintos cashback program

It seems like Mintos is growing at such a rate that they need more investors’ money and therefore they are offering for the month of December a cashback program for investors willing to invest into long term loans via the primary market.

As someone whose portfolio in Mintos mostly consisted of long term loans (mostly mogo) anyways, then this is not a particular hardship to take part in – the cashback offers 2-5% cashback depending on the length of loans you are willing to put your money into.

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You can already see the effect this promotion is having by the fact that a) the primary market is pretty empty if you go looking for 60+month loans and looking at the stats for the whole month then half way through the month, Mintos seems to be on track of 45-50 million euros worth of loans being funded. Essentially they are reaching a point where through Mintos as much money is invested as through most other Baltic P2P portals, so super impressive for them!

Looking at the amount of money invested, and assuming maybe half of it would be invested into loans which qualify for the program (since there’s plenty of people who still wish to have only short term loans) the expense for the cashback I would assume, would run somewhere into the range of a couple of hundred thousand to half a million euros to be paid out to the investors.

I’ve also added a bit of extra money to Mintos this month, and will probably add another top-off to benefit from the cashback offer. There are a lot of interesting aspects to this offer, I assume at least some investors will be selling the loans they invested into on the secondary market once the program is over, so I’d expect it would be reasonable to stock up some cash to pick up bbg loans which are on sale on the secondary market at the start of January.

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For my portfolio it’s a nice boost to have, probably in the range of 50-100 euros max depending how much I deposit extra, but a nice Christmas present overall. The cashback gets paid out within a week as well, so if you invest now, then you’ll have time to reinvest the cashback amount as well after it’s deposited.

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