European peer-to-peer lender Bondora has entered the Canadian marketplace offering investors an opportunity for higher-yield returns on the European loan market.
Bondora, an Estonia-based online lender, entered the Canadian market at the end of September and allows accredited investors the opportunity to invest directly in personal unsecured loans across three European markets: Finland, Estonia and Spain. (An accredited investor has to have a minimum individual income of $250,000.)
"We are able to provide investors with a diversified spread of different loan exposures in different jurisdictions, multiple geographies and various risk classes of loans," said Partel Tomberg, chief executive officer and co-founder of Bondora. "The borrowing markets we operate in have highly inefficient banking systems and limited alternative financing options for borrowers – thus ensuring premium returns to investors."
Since the company's launch in 2009, Bondora has processed over €400-million ($587.1-million) of loan applications and consistently delivered double-digit returns to investors – averaging 18 per cent, says Mr. Tomberg.
"Over time, we anticipate investment returns to somewhat decrease as we expand the platform to include new markets where the banking consumer-loan rates might be lower than in the current countries we presently working in," he said. "But it will also further reduce the volatility and risk for investors."
Currently, Mr. Tomberg is preparing to expand the lending platform to eight more euro zone countries – with plans to be present in all that region's countries by 2017.
Peer-to-peer lending is still in its infancy in Canada compared with the U.S. and European markets. Last June, one of the provincial regulators, the Ontario Securities Commission, stated that newly emerging companies in the industry appear to have different structures from one another and some may be subject to regulation, depending on how loans are provided and whether the loan products constitute a "security" under Ontario legislation.
As well, the OSC suggested some providers may be subject to regulation and could even be required to register as investment dealers.
Bondora has yet to meet with Canadian regulators but plans to discuss options before expanding to the whole Canadian retail market.
"If we aren't able to work directly with retail investors, we will look to see if we can work together with a securities provider – or a fund manager – who can help incorporate these loans into a more traditional portfolio that is sold to the retail investors," Mr. Tomberg said. "We believe that this type of investment is superior to many other fixed income investments – of course, it can carry higher risks because it is unsecured personal loans but on a diversified portfolio basis it will provide an overall solid return to investors."
In early 2015, Bondora received $5-million (U.S.) in financing from Valinor Management, a U.S.-based private investment firm. Valinor is one of the early backers – and largest shareholders – in Lending Club, the largest peer lender in the United States.
On a global scale, Bondora has more than 9,000 investors – mainly from the European market – and is now adding Canada, the United States, Mexico, Brazil, India, Hong Kong, Switzerland, India, Singapore, South Korea, Japan, India and Australia.
Individual loans range from €500 to €10,000, with the average loan request being approximately €3,000. Borrowers pay a fixed monthly fee of 2.6 per cent per annum, which is added on top of the interest paid to investors.
On the online platform, there is no maximum amount that investors can contribute and Mr. Tomberg says that in the European market, they are allocating an average of 5 per cent to 8 per cent of their portfolio to the offering.
But clients should be cautious of the amount they allocate for this type of investment in their portfolio, says Gregor McDonald, a financial planner with Vision Financial Planning in St. Catharines, Ont.
"If a client came forward with this opportunity, I would definitely accentuate the risk of losing all their money and invest only what they can realistically afford to lose," Mr. McDonald said. "The client's financial plan should be revisited to see what impact a 100-per-cent loss would have and keep the investment amount to a reasonable measure – which would be a minimal amount of the portfolio."
The global player will be entering a market that already has a handful of competitors operating including Grouplend, Borrowell and Lending Loop.
Grouplend CEO Kevin Sandhu launched his platform in 2014 and says while it is exciting to see more options for Canadian investors to participate in online credit as an attractive asset class, investors may be more inclined to invest funds to directly help Canadian borrowers before crossing international borders.
"Investing outside of Canada not only presents unique risks, but also takes away some of the social impact of investing," Mr. Sandhu said. "Investing abroad, particularly in emerging markets, can be a great way to diversify an investor's portfolio and gain more exposure to this exciting asset class, but we find many of our investors are as excited by the opportunity to help their fellow Canadians save money as they are in the prospect of compelling investment returns."