Omaraha portfolio, 6 months

Omaraha is a small Estonian P2P lending site, that I added to my company P2P portfolio. Out of all the other portals in my portfolio at the moment, this is the least international and smallest in terms of volume – they focus heavily on Estonian loans and do not have aggressive expansion plans, making it difficult to create a truly large portfolio there. However, they have been a nice addition to my portfolio and I think I’ve gotten into the groove of how things work there in the last 6 months.

Investment logic

By far, Omaraha has the most complicated auto-bidding system of any P2P site that I have used. The borrowers get assigned a credit group between 600-1000 and you can assign individual interest rates to all credit groups if you wish to do so. However, when assigning the interest rates you must take into account that Omaraha has a different profit model than other sites – they take 20% of the interest earned from the loans for themselves, so if you assign a 25% total interest rate, then only 20% is your part of it.

To make it even more complicated, they have two additional quirks added to their bidding system. Firstly there is something called a bonus, which essentially is you voluntarily giving away a bit more of your interest earned into the buyback fund with the purpose of getting ahead in the auto-bidder waiting queue. This means that you can either accept a lower interest rate or set up a higher interest rate, but agree to give a percentage of that away.

The much more problematic part of auto-bidding is the fact that Omaraha functions as a black box when it comes to giving out any information about what the interest rate averages are when it comes to different loan groups. This means that you’re taking a stab in the dark when trying to guess what to set the interest rates at.

Firstly, this means that you need to find someone who has invested there for a while to get some reasonable info about interest rates or you just set up your bidders and then come down one percentage point at a time to see at which point the money starts going out. As there is different amounts of borrower demand throughout the month, then the interest rates may float throughout the month as well by a couple of percentage points.

This means that maximising profits is rather difficult unless you wish to spend a large amount of time trying to fine tune your interest rates. I’ve made peace with not being able to squeeze more out of the system, though I know it is possible from several investors who have told me that they spend more time tinkering with the numbers.

Usability logic

There are two key things you must keep in mind if you want to invest in Omaraha. Due to them being so small and not wanting to develop the portal too much, there is no secondary market. This means that you are unable to make a quick exit through selling your investments. From what has been said from the forums, an exit can be done with you taking out a low interest loan to get your money out, but this still carries interest, meaning you will be taking a loss if you want to exit early. Therefore you should consider this one of the longest term investments in an average P2P portfolio.

Something that makes the investment length a bit shorter is the fact that Omaraha uses a buyback system. Their system works as a partial principal buyback, meaning if a loan defaults then they buy it back at 80% remaining principal value. It’s definitely not as generous as Twino or Mintos with their 100% principal buybacks, but Omaraha also offers a higher interest rate which compensates for that.

The issue for those who invest into P2P via their company, is the lack of proper reports. The screenshot you see below is literally the only reasonable report you can get from the site when it comes to your investments. As for myself, I take a screenshot of the investment status every month, and this is what my accountant uses as the base document for bookkeeping. Not ideal by far, but not seeing any changes there in the future.

Overall, I’d say I like their system, they offer competitive interest rates and the ability to invest into Estonian loans only. There is also a large amount of tinkering you can do, however I feel at this point it’s reasonable to just try to keep the investments going steadily instead of fine tuning it and wasting too much time. The lack of exit options is problematic, but this is also why I am limiting the portion of my investments that I put into Omaraha.

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I opened a Viventor account

Since Latvian sites are doing rather well at attracting Estonian investors, then I decided to also test out the third Latvian portal, adding a small amount of loans at Viventor to my investments, which already include Twino and Mintos.

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What does Viventor offer?

Viventor started off with offering low interest and low LTV real estate loans and they just recently added short term (1 month) Spanish consumer loans with a set 12% interest rate and a buyback guarantee. Essentially what they seem to be building towards in one sense is a Mintos-like marketplace where different originators can finance loans and have 10%ish returns with buyback. It will be somewhat interesting to see how the battle for their marketshare will work out when competing against one another, but since Viventor has seemed to start from southern Europe there might be enough room for all. Also, P2P in general holds such a small part of the overall lending market that there should be room for everyone.

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How does the site work?

Overall, the site at this point works rather weakly. It seems to be developed live, meaning a lot of things investors are used to from other sites are missing. This includes things like a properly functioning autobidder, data export, easy to read cash flow report, and a whole pile of comfort functions.

I invested into my first loans manually and supply isn’t an issue in the sense that the site doesn’t really have a whole lot of investors yet and their history is by far the shortest of all P2P sites nearby. However, provided that they manage to work on usability they might have a volume issue rather soon as well (at this point there are 144 loans listed on primary market).

Overall, I hope for very quick improvements for the web, proper reporting would be step number 1, since  I created a business account and require usable documentation. Secondly, adding on other originators would likely increase their trustworthiness a fair bit as well. Interesting times at least, seeing Latvians claim large parts of the Baltic P2P investors’ money.

Social lending portfolio (January, 2016)

This month has been fun in social lending. I’ve been discovering new portals, rearranging investments to switch things to my business account and overall making plans for this year.

Bondora personal portfolio

I’m starting to take money out of my personal portfolio as of this month. Currently I’ve set it to invest into Estonian AA & A loans, seems like getting about 10 of those a month is a solid enough strategy. I’m hoping to take out all the money invested within the next two years and then make a full exit within the third. Despite that, January was a record month since the lack of reinvesting isn’t felt yet.

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Total interest earned climbed a bit over 110€, next month should probably be a bit smaller in terms of the total amount yet. This month brought about many changes at Bondora, a lot of the new reports I like, the lack of meaningful recovery data is still a bit annoying, but overall I like the new cash flow, especially the predictive part of it.

Bondora business portfolio

There isn’t much to report here yet. I’ve invested into about 150 loans, and most of them start repaying in February. January interest income was ~10€, but the interest income for February should already be in the range of 50€. Current strategy is Estonian loans, up to C class (a bit of D as well), currently investing 20€ per piece mostly, seems like getting 100+ EST loans with non-strict criteria is rather easily doable.

Omaraha portfolio

Now, Omaraha is rather interesting. The guesswork included in trying to figure out which interest rates to use is definitely an intriguing thought exercise. Seems like I’ve managed to reach a sort of a sweet spot where I have, on average, one loan go out per month. No loans have reached delinquency yet, but time will tell how that starts impacting my portfolio. The defaulted loans get sold off to a buyback fund, so you can assess your returns in a more immediate manner than you can do in Bondora.

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I started with the portfolio in November already, the interest payments are however just now ramping up, February totals should be somewhere in the range if 45€ already. Overall, not much to follow here and you don’t really have access to any meaningful data to analyse. Lack of secondary market is still problematic, so this can’t ever be the biggest part of my portfolio, even if the returns at this point seem rather good.

Mintos & Twino

The two Latvian sites are also in experimental stages at this point. Since I wanted to add money into short term loans, then so far Twino has been winning out on that – super easy and sleek user interface, no cash drag to speak of, and a wide array of loans to invest into. For Mintos, it seems that short term loans (or invoices) are in short supply if you want to actually diversify reasonally. Due to this I’ve added less money into Mintos so far, and I’ve had to pick out more long term loans to actually employ all the money. Both sites have secondary markets though, so exit is possible. So far looks like Twino will be winning out for me personally in this duel.

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Estateguru & Moneyzen

I did not add in any money to Estateguru or Moneyzen. If possible, I would exit Estateguru as a private person and switch to a company portfolio. For Moneyzen a lack of a secondary market and lack of volumes makes me not want to add more funds either. Currently I’m just seeing how their recovery processes work.

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Crowdestate

Not much happening on this front either. Waiting for some projects to end (the first one I was involved in, was finished in December). There will be a new project open on Monday so I’ll look into that and decide whether to contribute as well. Still hoping they manage to actually hit the pace of 1 project/month.

Factoring / invoice financing as an investment opportunity

Most P2P investors start by investing into loans – either loans to people or to small businesses. However, as time goes on, the opportunities offered by P2P portals expand, and one of the newest, which is quickly expanding, is factoring (also known as invoice financing).

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What is factoring / invoice financing?

The core idea of invoice financing is to help businesses manage their cash flow. If company A is a small business that bills a big business, company B, then factoring allows company A to sell the bill instantly with a small discount to investors instead of having to wait the full period for company B to pay the bill.

For an investor the chance here is to invest into short term claims, mostly in the ranges of 1 month – 2 months, allowing for reasonably quick turnover with similar returns to other P2P investments. Theoretically, since in this equation company B is generally a reasonably big company, with a good payment history, then risk should also be reasonably low.

Who offers invoice financing?

Currently there are two P2P portals that can be easily accessed by Estonians that allow you to invest into invoice financing. The Estonian Investly, which offers factoring in addition to SME loans. The second option is the Latvian marketplace Mintos that lists investments from different originators. (Currently Debifo, hopefully more soon.)

The process of invoice financing is essentially identical to investing into other P2P investments. You can set up automatic investment settings to make bids, but you can also spend time to manually look into the information provided about the business to assess its reliability.

Recovery process

One of the key issues with P2P investing however is assessing likelihood of defaults happening and how the recovery process works from there on. I asked both Investly and Mintos for a short comment about recovery.

Mintos: Loan Originator monitors all incoming payments and the system tracks late payments. In a case of unexpected payment delay, Loan Originator contacts the Borrower to discuss the situation and to decide on the next necessary steps to receive the full payment. In most cases, the discussion acts as a reminder to the Borrower to contact the Purchaser regarding the payment. If the payment is late and the Borrower does not cooperate, Loan Originator contacts the Purchaser directly to resolve the issue.

Investly: Investly actually enforces a repurchase obligation. There is in depth info about this in their user’s agreement6.12.2. If the repurchase term has passed since the due date of the Invoice (Repurchase Term) and the Client has not fully paid the Invoice underlying the Claims assigned to the Investor, the Invoice Seller shall be immediately obligated to repurchase the Claims from the Investor and the Investor shall be obligated to re-assign the Claims to the Invoice Seller for a fee (the Automatic Repurchase Obligation).

How does invoice financing help diversify your portfolio?

One of the key elements of investing is diversification, especially when it comes to P2P investments. However, diversification is more than just having multiple loan/investment pieces, it’s also diversifying across different areas that’s important.

Currently the three key points that factoring offers you are:

  • Chance to invest into the success of SME businesses
  • Generally short term investments
  • Likelihood of acting differently from P2P loans in different economic cycles

However, there are also some potential issues:

  • Difficult to assess risk (rather new area even for P2P)
  • Recovery process doesn’t have tested history (yet)

I am personally currently investing into a few Debifo invoices to see how the system works. Since I’m more interested at the moment in adding in short term investments, so factoring could be a potential option here to balance out all the long term 5-year P2P loans that I have in my portfolio at the moment.


If you happen to want to start investing into Mintos, then they have an affiliate program if you wish to support my investments there. Click here.

Twino vs Mintos, initial impressions

I recently added both of the Latvian P2P platforms into my portfolio, and I’ve got some questions about my first thoughts so I thought I’d discuss a few things that have stood out to me within the first few weeks.

Loan terms

One of my key expectations for both portals was to have the ability to invest into short(er) term loans. Since my P2P investments in Estonian portals (Bondora, Omaraha, Moneyzen) are rather long deadlined (5 years), then for flexibility’s sake I wanted to invest into 1-6 month loans. This has proven to not be equally easy.

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For Twino loan volumes aren’t an issue. Any money I transfer in gets invested momentarily, which is one of the reasons why I’ve added in money twice already. Currently the only problem with portfolio building is limiting your own enthusiasm towards transfering in money.

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For Mintos, however, short term loans are in short supply. The first money I transferred in got invested within a few days, but since then it’s been problematic to see any short term loans. I attempted to lengthen the loan terms to 12 months, but that didn’t help much. This means that so far I haven’t added in any additional finances.

Automatic investing

Due to the simplicity of Twino’s product the autobidder is also phenomenally easy to use. I have to admit, they have made a good choice here – since your loans are buyback guaranteed than making automatic investing difficult in any way would be nonsensical. The money gets invested essentially the moment it’s transferred, so I hardly even log on, just glance at the daily reports in my mail.

For Mintos the autobidder to be honest is a bit painful to use. It’s both visually a bit clunky and some of the settings are problematic in terms of making sense. I get that this is an issue when you have multiple loan originators, but the bigger the market grows for them, the quicker they should work on making the autobidder smoother and more understandable at a glance.

Reliability

This is the question that everyone would like an answer to – who is more reliable of the two. I have no clue how exactly to check for this, but I suppose we should dig out the financial reports for both for Investeerimisraadio.

In terms of volume Mintos has clearly funded more lians (12M+), while Twino is at 6M+, one lists consumer loans and the other real estate backed loans and car backed loans as well, so the total amounts are clearly bound to be different.

I’d say if your tactic is long term investing then there probably isn’t much of a functional difference in the returns, but a slight difference in the experience. However, if you’re wishing for a short term investment that would be quicker to exit, then Twino is slightly in the lead for me at the moment.