Mukesh Bubna, founder and CEO of Monexo, commented:
“Peer-to-peer lending has all developed since 2007. It’s an industry that I would say is seven years old now, but in the last two years it’s had an exponential leap in three big markets: China, UK and US. They have amazing growth, almost doubling every six months.”
Bubna is clear that the UK government has set a strong precedent in terms of supporting the peer-to-peer industry. For example in 2013, the government lent £100 million through P2P websites. And it sees the value of this industry in a time when banks are still not lending to consumers and businesses that need credit.
The potential market for peer-to-peer lenders in Hong Kong is huge. It has about US$70 billion worth of unsecured loans between banks and moneylenders, and this is a market that is continuing to grow.
One of the problems is that the peer-to-peer market in Hong Kong is still very small and so has not attracted the attention of the regulators yet. This means that platforms are operating in a kind of limbo and have to be very careful not to over step the mark. However, Bubna said that they want to design the platform to be prepared for the regulations that will come in the future, not just the regulatory environment that is in operation now.
“If you build this on technology of the 20th Century then you are dead. You have to be very efficient because the margins are very thin. A lot of people think Hong Kong is a very small market, and that’s why they might not enter.”
The borrowers that Monexo is targeting are people with a rental income, which is unusual in the peer-to-peer space. This makes sense in Hong Kong as the rents there are particularly exorbitant and so people who have investment properties have a solid income from the rent. However, in order to maintain their businesses people often have to take out a second mortgage from a non-bank lender and these on average have an interest rate of about 20%.
Monexo has a screening process for borrowers and ranks them from M1-M8. M1 being the least risky borrowers and so get the lowest interest rates of 7% per annum, whereas M8 are the most risky and have interest rates of up to 20% per annum. This also gives lenders a way to create a diverse portfolio of loans and get an average yield of around 10-12%.
“We don’t have any pre-payment charges, nor do we have any upfront fees right now… Specifically compared to moneylenders, this is hugely competitive.”
The platform is looking to secure partnerships with real estate companies and wealth management companies to ensure that there is a constant flow of deals on the site.
“We’re looking at a different cash flow, and that’s the first time ever in Hong Kong… A lot of the time these people are borrowing second mortgages at 20-25 per cent. I can’t help them with that 25 per cent rate on the full amount. But can I bring down their cost of debt for a small portion of amount at a much more reasonable rate? Yes I can.”
Hong Kong may be seen as one of the global capitals of finance and most of the global banks have offices there, but there are also over 1,300 money lenders who operate there. And so many consumers and businesses are not being served by the banks and so have to go to non-bank lenders in order to get credit. This opens up a huge opportunity for peer-to-peer lenders who can undercut the high rates charged by the money lenders, which can go as high as 60%. We shall see how Monexo impacts this market in the coming months.