Mintos review

Mintos is the leading p2p marketplace in Europe. It is based in Latvia and since its creation in 2016 has funded over € 5 billions of loans and is getting close to 300 K investors. It currently displays 70 loan originators even if some of them do not propose loans at the moment or are suspended.

There are plenty of Mintos’ review out there. My goal is not to add another one, full of screenshots and copy/paste from the platform. I will simply provide you with a summary of my pros and cons and then focus on the most important aspects, in particular the criteria to look at for selecting loan originators and the “infamous Pending Payment” feature.

If you are not invested yet on Mintos you can use my link to give it a try. My internal rate of return (XIRR) since I started in April 2019 is above 14% as you can see in my monthly portfolio updates. You will see below that I insist a lot on risks as I believe awareness is important (and it’s definitely a “professional distortion” coming from my job as we call it in my native language 😅) but I still invest in the platform because I obviously believe I can financially benefit from it.

Pros and cons

PROSCONS
–       Many loan originators, enabling good diversification (what is really diversification about)
–       Loan types diversification possible
–       Buyback guarantee for most loans (not bullet proof)
–       High loan supply, no risk of cash drag
–       High liquidity level of the secondary market
–       Interest rates are high
–       Auto invest function pretty customisable
–       Possibility to invest in several currencies
–       Higher level of transparency vs other platforms: in particular more information on loan originators
–       Pending payments feature avoiding platform risks
–       Many loan originators are very recent and fragile. Some even have negative equity.
–       Handling of troubled loan originators could be better. Outcomes are very variables and communication could be improved. Communication limited to investors holding loans of the originator getting into trouble is also a bad practice.
–       Mintos rating is more reactive than predictive.
–       Mintos Invest & Access: bad tool promoted and likely to be used by less savvy investors (my opinion on I&A)
–       Links between loan originators and Mintos not very precisely disclosed
–       Long-lasting IT issues raising concerns on the data reliability
–       Pending payments may be used as a tool to delay repayments by some LOs (reducing returns)
– New fee of 0.85% for selling on the secondary market.

Main criteria to select loan originators (and loans)

The main criteria to select loan originators are:

  • Soundness of the loan originator
  • Nature of the loans: unsecured or with collateral, buyback guarantee
  • Maturity
  • Interest rate
  • Interest on late loans
  • Grace period
  • Country risk
  • Currency – FX risk
  • Pending payment behaviour

Soundness of the loan originator

The financial health of the loan originators evolves over time and even more rapidly in a time of crisis. This makes the selection of loan originators even more important. Looking at financial accounts is necessary. You cannot decide to invest in any loan originator simply based on Mintos rating!

The challenge here is that those lenders do not have much obligation in terms of disclosure and the quality of the financial accounts can vary and also only inform you about the past.

As a minium I would advise to not invest in lenders with negative equity and/or making losses in 2019. Last year was a very stable year which 2020 is not… In addition, it is better to avoid recently created lenders with small loan book, the picture can change way too quickly under the current circumstances.

Leverage is more difficult to apprehend for small lenders. Comparing it with larger banks or with any traditional business will not make so much sense. However, a loan originator that has more than a couple of years of existence and still increased materially its leverage in 2019 should ring the alarm and you may reconsider investing in it.

Online lenders should be privileged over lenders having physical branches network. In a context of lockdown it has proven to be a weakness and it makes also the ability to cut costs harder. Agility is key!

Nature of the loans

Mintos proposes both loans with and without buyback guarantee (BBG). I only invest in loan with BBG and I do not see really the benefit to invest in loans without. Investing in p2p is already risky enough and interest rates are high enough to not add an additional risk in my opinion.

Mintos propose mostly loans with buyback guarantee from the loan originators. It means that, if the end borrower fails to repay 60 days after normal maturity of the loans, the loan originator will reimburse the investor on its own funds. This guarantee is as strong as the lender is. Therefore selecting the right lenders are the most important choices to make on Mintos (see my previous criteria).

Some loans may have additional guarantee such as collateral and can provide investors with more comfort when thinking about potential failure in executing the BBG. This can be the case of car loans for instance. It does not mean the investor benefit directly from the pledge but that probability of repayment of the loan is higher and therefore your own claim is more secure.

Maturity

The maturity criteria is very specific to each investor. You must pay attention that it fits your investment horizon. Do you need your money back in the near future or not? On a platform like Mintos you may not worried too much about this since the secondary market is pretty liquid but you cannot exclude that under stress condition your money may be locked for longer than expected. Also we have seen with the covid-19 crisis that you may need high discount if you wish to exit. Mintos introduced extension feature on the platform which can also extent materially the maturity.

Interest rate

I think this one is never overlooked by investors. Crowdlending is obviously high risks and you need to ensure that the returns are commensurate to the risks you are taking.

It must depends of the soundness of the loan originators, the nature of the loans (unsecured or asset backed), the country, the maturity (the longer the more risky), the currency when applicable, etc.

Interests on late loans

Contrary to most platforms, the loans originators on Mintos have different conditions when it comes to delayed loans. Some do not pay any interests to investors and some do. Some apply penalties fees as well.

Assuming loans with buyback after 60 days, it means potentially 2 months without any return when the borrowers fail to repay. On short term loans this can have an important impact. Therefore a solution is to exclude those loan originators. If you want to include some to have a sufficient numbers of loan originators you should have a look to the late loans statistics and specify a minimum duration in your auto invest strategy in order to avoid too short term loans.

Grace period

Grace period is a number of days contractually defined stipulating that the end-borrower do not have to pay anything to the loan originator for being late if it repays within this period of time. This flexibility enables to deal with weekends, public holidays, bank transfert, etc. It is priced anyway in the interests and fees paid by the borrower to the loan originators.

However, as investor we do not like that. Since the loan originator does not get any interests so do we. Therefore we should aim at chosing those with a reasonable grace period. This feature also has a higher impact on short term loans. Important point to have in mind is that if the borrower repays after the grace period or if the BBG kicks in, investors get interests also for the grace period.

Country risk

This is a tough one. There are so many countries on Mintos and no one can really be an expert at the situation of all of them. I honestly overlooked this criteria in the past, acknowledging that investing in such asset class meant obviously high risks and exposures to countries not very reliable, stable or even business oriented.

However, there are clearly some countries better to avoid. I am not talking about currency here since I touch upon FX risks in the next category.

A country that do not fit my criteria now is Kosovo. In December 2019, the Central Bank of Kosovo has withdrawn the same day the licence of Iute Kosovo and Monego. The way this decision has been taken is quite shady and makes me think lending money to lenders in this country should be avoided.

Most of the countries are not very regulated when it comes to small lenders and sometimes regulation is very much needed but also sometimes it can hurt the lenders and destabilize their business model. This is typically the risk of implementing a cap in interest rates. Several countries have been doing so lately such as Poland (temporarily) and Finland. Poland is a country with several loan originators that have experienced issues even before this new regulation for some (Aforti on Mintos, KFP – now called CbC – on Iuvo platform). Capital Service on Mintos seems to be a collateral victim of this new regulation or at the very least it did not help them…

Currency – FX risks

There are two cases here:

1- You invest in a different currency than your source of income:

If you invest in a currency that is different from your source of income you have to take into account the cost of conversion and the fluctuation with your main currency during the period you will be invested. Investing in a foreign currency can be a way to diversify further but it can come at a cost. Make sure that the premium in interest rates is sufficient in your opinion to cover those risks/ costs.

2- The loan originator lends in a different currency to end borrowers than it refinances itself on Mintos

This is typically the case of several loan originators in Russia, Ukraine, Kazakhstan, etc. which borrow in Euro on Mintos. Some propose loans in both their national currency and Euros on the platform.

If your currency is Euro you may think that you do not support the FX risks since you are lending your money and will get repayment both in your currency. However you have to keep in mind that those loan originators carry an extra risk with this practice, especially in any context where the currencies fluctuate more like during the covid-19 crisis (and any crisis in the past). Many loan originators do not hedge their exposures against Euro as it as a cost.. and the information is not always available. It depends on the quality of the financial accounts provided on Mintos.

If you take an example of a short term russian lender with half the loan portfolio refinanced on Mintos in Euro the impact has been huge the last few months. Between mid-February and end-March the Ruble depreciated by over 25% … If the loans are of 1 month maturity it means the entire loan book had to be refinanced (and repaid) during this time frame and the impact could be evaluated roughly to ” loan book x 0.5 x 0.25″, i.e. 12.5% of the loan book. The case is extreme but it is an incredibly high impact and some Russian loan originators on Mintos are short term!

Pending payments

Since it has an impact on your profitability, you may want to exclude some loan originators based on the observed length of pending payments in your portfolio. In addition, long pending payments have proven to be an indicator of financial troubles.

Mintos is now releasing statistic on the pending payment situation every week on Fridays. I will talk more about this feature in the following part.

Pending payments: a necessary evil 😈

On 2nd December 2019, Mintos implemented a new feature called “Pending Payments”. It enables investors to see the amounts announced to be repaid from the loan originators to investors for each corresponding loan in the portfolio. The overall amount is visible on the “Overview” page, as part of the account balance, and the details for each loan in the “Portfolio” page by summing up “current” and “finished” loans.

The objective is to increase transparency and to avoid an Aforti-like scenario in the future. Mintos is settling on a net basis with each loan originator, meaning expected outflows (investors buying pieces of loans) – expected inflows (repayments sent by loan originators including interests). Based on this, Mintos credits the account of investors. However, Mintos was crediting the accounts before receiving each corresponding payments from the loan originators in order to avoid delays. In the case of Aforti, payments have been made to investors whereas Mintos did not receive all the corresponding funds. This situation could be risky for the platform (liquidity risk and depletion of own funds).

With this feature, Mintos does not credit the account of investors until the monies actually reach them. Investors have been worried that this feature is used by some loan originators to delays the repayments and to gain liquidity free days. In the context of the covid-19 crisis longer pending payments have led to suspension of some loan originators facing liquidity crisis. Whether it is done on purpose or under real financial constrains, this has de facto an impact on investors’ returns. This is of upmost relevance for short term loans whose returns may be strongly impacted.

E.g. if you buy a 7 days loan, the end-borrower has (and makes use of) a 3 days grace period and the repayments takes 4 more days to reach the investor account… it means your profitability is divided by 2! You have invested in a 14% interest rates loan and achieve a 7% return… ☹️

Despite this negative side effect I believe that pending payments is what I call a “necessary evil“. It impacts our returns but it makes the platform safer which in turns is also in our interest. The impact must be analysed by each investor though and may change our strategy:

  • What are the loan originators taking longer to send the repayments?
  • Should I disregard some loan originators because of this?
  • Should I completely stop investing in short term loans, or reduce the share of my short term loans in my portfolio?

Each investor must make its own mind about this. It also depends of your own strategy and investment maturity versus expected returns. If we reeaallyy want to find another positive aspect, Mintos is forcing its users to become thoughtful investors 😉.

The loan originators I invest in

Back in December 2019 I made a list of loan originators I was willing to invest in based on the below listed criteria and come up with 20 loan originators:

  • Loan originator must have positive equity and be profitable (with some cushion)
  • Loans with buyback guarantee
  • Loan maturity < or = 2 years
  • Ultimate minimum interest rate of 8% (rates were lower in December)
  • Mostly loan originators paying interest on delays, only very few exception for sound LOs with loans of at least 6 months maturity to limit the impact
  • Only loans denominated in EUR
  • I did not factor in yet pending payments observation

However, two of those have issues now, Varks for having lost its licence in Armenia and Capital Service for not being able to settle pending payments on Mintos due to obvious cash flow issues.

For this reason I am a bit reluctant to provide you with the list of loan originators I am invested in. I deeply consider that each investor must make his/her own mind about it. Investing money is serious business afterall! This is your money at risk.

So I will simply mention here some loan originators that often come back in investors’ discussion as being considered more sound*. I am invested in all of them but have some additional ones. This could be your starting point to look yourself at balance sheet, profit and loss accounts, etc. 😋 as all serious investors must do!

* Mogo, Credissimo, CreditStar, Delfin Group, Iute Credit, Placet Group, Wowwo, Watu Credit.

That is all for this “review” focusing on criteria to chose your loan originators and explaining what is pending payments about (and not just complaining about it).

As mentioned at the beginning, if you are not invested yet on Mintos you can use my link to give it a try. My internet rate of return (XIRR) since the beginning in April 2019 is above 14% as you can see in my monthly portfolio updates.

I hope this has been informative for you. Do not hesitate to post a comment if you wish so or if you have question.

Cheers!

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