Expert opinions, FINANCE

P2P lending market’s fivefold growth?

Vladislav Oleynikov – General Director of Town Money P2P lending platform

Recently, StartTrack crowdinvesting marketplace held a media conference on Russia’s crowdfunding market expansion in 2018. According to its CEO Konstantin Shabalin, this year Russia’s crowdfunding (including crowdlending and crowdinvesting) market can grow 5.5-fold and reach RUR 10 billion ($175 mio). At first sight, that is excellent news for all involved with the P2P market. Still, are these expectations well grounded and what may be the driving force to ensure the growth?

On the one hand, there are some large players entering the market and some of them are already taking part in the Central Bank’s task group on crowdfunding. The group includes the Savings Bank which is already elaborating P2P products, VTB and Gazprombank which, to my knowledge have not yet made a policy decision on entering the market. If the banks of such a scale just reach out to their major customers offering them P2P services, the market will grow substantially. Hence if the crowdfunding market in Russia is assumed to have reached by the 2017 yearend some RUR 3 to 3.5 billion, then topped with the RUR 3 billion turnover anticipated by StartTrack and the results produced by the major national banks, the figure of RUR 10 billion is easily reachable.

In my opinion though, the figures are somewhat overoptimistic. First of all, it is most likely none of the major banks will be in a position to offer P2P products until the yearend and hence will be unable to produce a substantial impact on the overall market. So far, following Alfa-Bank’s Potok.Digital mechanism of entering P2P market when scoring is based on the settlement account turnover, is the only viable way for large banks to expand their client base securing a growth of an anticipated scale.

The driving force for the marketplaces’ own expansion allowing a multifold increase in issuing P2P loans and selling shares in projects’ capitals is nevertheless questionable. The statistics of the previous years have indeed demonstrated a steep hike since the banks took preventive measures to avoid arrears accumulation and eventually suspended lending to small businesses. At the same time, it is no secret that the state of the national economy has not improved and that nowadays a substantial portion of entrepreneurs applies for a credit or a P2P loan, having already accumulated some sizeable debt load and aiming to rearrange their liabilities by means of new facilities.

Given more limited abilities of private investors in comparison to banks, in recovery of lent resources, marketplaces are stricter in screening borrowers and turn them down more often. Macroeconomic indicators do not prognosticate any improvement in the overall situation in a foreseeable future and therefore the marketplaces’ expansion plans will most likely have to be adjusted as well. Judging by the said 2017 result of RUR 3 to 3.5 billion, I expect the market to reach RUR 5 to 6 billion at best.

Besides, there is a reasonable question. If the five-fold crowdfunding market growth does happen, won’t it be followed by a collapse a year later? In case of an active expansion through extending new loan facilities (or investing in new companies’ capitals), overdue repayments will time-wise be well behind funds provision and will not immediately mature, therefore at the initial stage aggregate portfolio quality will even improve. Nevertheless, in a year such a portfolio may become a Cinderella’s pumpkin resulting in either an investments outflow from the crowdfunding market or, more likely, in some steps by the Central Bank which already keeps its close eye on the situation and is quite capable of damping the market the way it now does in respect of microlenders. Such steps should not be allowed to happen at the very green market of P2P investments and lending.

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