The peer-to-peer lending market is rapidly gaining traction in Indonesia. The high-yield asset class continues to offer investors attractive returns. One example, funders in the microlending platform managed by Mekar are getting an average of 10% a year, but the number can go up to 16% using the platform’s special feature, Reinvest, which basically works like a revolving-loan fund.
Yes, this relatively new investment venture does sound like a promising way to grow your money. Still, as with any other investment, investing in peer-to-peer lending carries a certain degree of risk. Before you jump on the P2P lending bandwagon, it is highly recommended that you first get to know the platform that offers the service and learn about the risks associated with this type of investment.
If you are a long time funder in Mekar, you would have known by now that Mekar’s peer-to-peer lending investment services carry significantly less risks than in any other platform out there. This might even be your reason to start investing through Mekar in the first place. For many funders in Mekar, the virtually zero-risk investment opportunities that Mekar offers are simply something they can’t afford to miss.
In Mekar you will find:
- The Non-Performing Loan (NPL) rate is as low as 0.58% (Mekar uses its lending partners’ combined NPL rates –more on lending partners later);
- Every initial investement is 100% guaranteed, meaning that in a rare case that a borrower defaults on a loan you’ve invested on, you will still get your money back.
Indeed, Mekar has gone to great lengths to make sure its funders only have to deal with minimum risks when investing through the platform. But how exactly does Mekar do all this? Read on to learn how your favorite lending platform keeps your investment safe and secure.
Significantly lower risk in Mekar, thanks to rigorous vetting requirements
Every P2P platform has its own way to reduce risks for investors. The most common approach is to have a rating system in place for borrowers based on their credit history. Keep in mind that in many platforms, you might find yourself lending to borrowers who have a history of bad credit, in which case said borrowers are usually assigned a higher risk rating, meaning there is a lower chance of repayment.
Mekar, on the other hand, no longer feels the need to have a rating system for borrowers for one simple reason: every borrower on this platform is vetted so that only those who have never been late in making a repayment can get a loan funded through Mekar. Furthermore, all the loans in Mekar are productive loans. As Mekar’s COO Pandu Kristy says, “We do not consider applications for consumption loans because we do not want to support consumerism. Instead, we want to support productivity.” Hence, all the money that is disbursed as loans through Mekar is used to buy raw materials or machines for production; basically to expand the borrowers’ small businesses and make more money.
All of this means that all the borrowers in Mekar have a very low risk of default.
Mekar works closely with their lending partners in its efforts to vet borrowers. “Lending partner(s)” is a term you will come across quite often when you invest in small business loans through Mekar. Lending partners are financial institutions with whom Mekar works to locate micro and small businesses in many places throughout Indonesia that are in need of funding. The lending partners are also the ones that do the vetting of borrowers for Mekar.
Not just borrowers, lending partners must go through Mekar’s vetting too
Mekar has two lending partners, Koperasi Mitra Dhuafa (Komida) and Abdi Kerta Raharja (AKR), both are savings and loans cooperatives.
Komida is a cooperative that adopts the Grameen Bank concept propounded by Nobel prize laureate Muhammad Yunus of Bangladesh. Established in Aceh in the wake of the 2004 Great Indian Ocean tsunami that devastated the province, Komida now has operations in 11 provinces in Indonesia and lends exclusively to women.
Meanwhile, AKR is an award-winning cooperative with a strong presence in the Banten province, and has recently expanded their reach to the West Java province. Like Komida, AKR also adopts the Grameen Bank concept of group lending. AKR and its micro credit scheme has benefited its members, the “unbankable” members of the society.
The two cooperatives were named Mekar’s lending partners after each of them went through an extensive and rigourous vetting process. Mekar requires all lending partners to:
- Have an NPL rate of less than 1%;
- Have disbursed at least 1,000 productive or business loans;
- Maintain a minimum Capital Adequacy Ratio (CAR) of 20% and Loan Loss Provision (also known as PPAP) ratio of at least 81%;
- Have been profitable for the past two years and is expecting to make a profit during the current year;
- Guarantee the loan principal (your initial investment).
Mekar developed this long list of stringent requirements to ensure that it has the right lending partners that will help the platform provide what you, as an investor, have always been looking for: profitable investment options with extremely low risks.
No more worrying about losing your money, invest in small business loans through Mekar and sleep better at night.