Fraudulent loans in P2P – Omaraha example

One of the inherent risks of the lending business is the likelihood of fraud happening. People will always be motivated to try to get loans and not pay them back, and this isn’t something that’s limited to P2P – banks and other credit providers constantly try to improve their systems to stop fraud from happening.

However, when it comes to P2P a lot of portals have been rather tight-lipped about giving out any actual statistics for loan fraud, which is strange in the sense that it’s unlikely that no fraud has occurred. I remember from when I started out with Bondora, then the forums occasionally discussed some fraudulent applications, since back then it was possible to track the people you gave loans to because a lot of the borrower’s info was public.

Since then, when looking at Bondora defaults, then for quite a few you can see marked as “criminal proceedings started”, which implies fraud, whether it was giving false data, using someone else’s ID etc. For an investor this means that unless you are phenomenally lucky then you will at some point lose a bit of money to fraud.

Omaraha, the Estonian P2P portal had an interesting case happen, which hasn’t gotten a lot of attention, and to be honest if people weren’t diligent about their portfolios then I’m not sure if it ever would have been public info. Essentially, there was a dozen or so loans that were given out to Latvian borrowers, which in all likelihood used either fraudulent data or some other tricks to get through the system.

Obviously, it’s reasonable for Omaraha not to give out exact details which workaround was used to trick the system, but the fact being – in the range of 50 000 euros (+/- 10K) was lost to this one wave of fraud. Due to the way Omaraha’s system works, 80% of that will be absorbed by the recovery fund, and 20% will be lost for the investors. I was one of the people who managed to get lucky and hit quite a few of those loans with my autobidder, so I’ll be taking a loss in the range of 100 euros from this venture.

Now, why this is important other than the fact that it’s of course sad to lose the money; is the fact that this is an inevitable part of investing in to loans. No system is absolutely foolproof, and workarounds will be found. As an investor it’s your job to take that into account when planning your strategy  – the knowledge that at some point such losses may happen. For portals this is always something that would be nice to transparently explain, to provide investors with more confidence in the due diligence they do.

7 thoughts on “Fraudulent loans in P2P – Omaraha example

    1. The loans were given to people with Latvian names, yes, so it seems like a logical assumption of nationality. They somehow passed all ID checks and verifications (which they shouldn’t have). Of course details on how the scheme worked weren’t given out, so investors can only guess.

  1. Hello Kristi. Thank you for your posts. There is always something new!

    In this case I don’t understand. How you know the fraud has occurred and how to detect those fraudulent loans.

    1. Sadly the portal is not giving out information on how exactly the scheme works. Essentially loans were given out to Latvians (by name at least), which shouldn’t have happened (since OR only gives out loans in Estonia). They somehow passed the ID checks and background checks, which they shouldn’t have… So investors don’t know how the fraud was successfully committed either, other than the fact that the money is gone.

  2. As an investor I am always thinking on the possibility that I will be sending funds to a fraud borrower. I trust the platforms will do everything to avoid this cases but still I don’t feel confident to lend high values.

  3. I personally supported Latvian economy with around 500 € in this occasion. I got suspicious about these loans before omaraha admitted it, since if I remember correctly, 3 of those loans went out on the same day and all the users had similarly created names (name and 2 digits of birth year). So I contacted omaraha and asked about it, they said that those individuals have received loans in the past and are repaying as intended. Idk if its true or not…

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