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Bondora Makes it Easy to Compare Borrowers Across Europe
Bondora, the European personal loans P2P lending company, has devised a system to make it easier for lenders in the UK or elsewhere to compare the risks of lending across Europe, including in countries with far higher interest rates.
To do this it will soon being showing standardised borrower grades across national boundaries.
Pärtel Tomberg, chief executive and co-founder of Bondora, told 4thWay:
“We are launching a major update to our service this week that, along with the follow-up releases in the coming weeks, will make cross-border investments much easier and less risky for all types of investors.
“We are launching our new credit-scoring system that allows investors to diversify between eight grades, making it easy for conservative investors to invest in prime whilst [high-interest] investors can choose near and sub-prime segments. It also unifies scoring across all of our four markets: Spain, Finland, Slovakia and Estonia.
“Investors will not need to think about other parameters any more and can simply focus on finding the risk/return profile that fits their strategy.”
Bondora is also updating how it will initially set interest rates for each loan before lenders and borrowers set their own rates in a marketplace, where rates will be influenced by loan supply and lender demand.
The initial interest rates will be influenced by:
- The probability of the loan going bad.
- The amount of the loan estimated to be outstanding after it goes bad.
- The expected losses on the loan if it goes bad.
- The term of the loan.
- Country-specific differences on borrower quality and ability to recover bad debts.
- National economic and systemic risks.
- Prices of similar investment products.
The expected and target interest rates will be set using a standard measure of risk called CAPM. This measure uses the volatility in lending returns (or losses) as a proxy for risk. With this measure, loans are considered more risky regardless of whether volatility leads to higher or lower returns.
Bondora will add an interest-rate premium of five percentage points to the CAPM figure for each loan.
Pärtel concluded: “This is something that no other P2P lender and no other bank, to our knowledge, has done. We are effectively converting separate European countries into a single market with this innovation.”
Watch out for our Candid Opinion blog tomorrow which will analyse what Bondora told us in more detail.
Lenders in the UK can lend through Bondora to individual borrowers in Spain, Finland, Slovakia and Estonia. More than 7,000 investors from 36 countries have funded €24 million in loans and received over €3 million in interest payments. Bondora lenders have had average returns after fees and bad debts of above 20%. Bondora is based in Estonia, a technologically well-educated country of 1.2 million people where 99% of banking is conducted online. It is regulated by the UK’s Financial Conduct Authority.
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