Overview of P2P Lending in Singapore
Peer-to-peer (P2P) lending is the practice of lending and borrowing money without using an official financial institution as an intermediary. Direct match between lenders and borrowers is at the core of P2P lending. In that way, the traditional financial intermediaries such as banks are made redundant. P2P first appeared in the UK in 2005 with the advent of Zopa and has since become a global phenomenon, with Asia being one of the fastest developing areas.
Both individuals and businesses are attracted to P2P because it allows them to avoid traditional credit institutions. P2P is especially appealing to the so-called ‘’unbanked’’ businesses or individuals, that is, those without a credit score. As a lender, a bank is reluctant to grant credit to individuals or businesses without a credit score. Even if they offer credit, the interest rate is exceedingly high and the terms mostly unfavorable.
One of the reasons why high net worth individuals are turning away from banks is the wish to find a stable and secure way of protecting their assets. With Zero and Negative Interest Rate Policies, the idea of depositing cash in banks is losing favor to other asset protection tools. In Singapore, for example, precious metals like gold and silver have already gained popularity as reliable wealth protection assets due to the tax-free import and storage of Investment Precious Metals (IPMs), which include certain investment grade gold, silver and platinum.
The function of lending and borrowing is reinvented by innovative fintech companies who have devised alternative credit systems enabling borrowers to match with lenders directly, bypassing traditional financial intermediaries.
Singapore: Top Asian Center for P2P Lending
P2P lending has taken root in Singapore and is appreciated for its direct approach to lending and borrowing. As an already well-established wealth protection center and the regional hub for trading and safe storage of precious metals, Singapore is the place where technology and trust form a basis for an innovative line of financial services. Moreover, Singapore has been earmarked for the position of Asia’s leading P2P lending center due to the growing interest in P2P lending and Singapore’s reputation as a major financial and technological hub of Asia with a solid startup ecosystem.
Additionally, Singapore has a cash-intensive economy where a great deal of lending and borrowing is already done outside the established banking system. This is one of the reasons that make Singapore conducive to the development of alternative credit systems, most notably the development of online lending platforms.
P2P Lending Platforms and the Monetary Authority of Singapore (MAS)
As Singapore’s central bank, the Monetary Authority of Singapore (MAS) is responsible for ensuring the competitive edge and vibrancy of Singapore’s financial industry. MAS works closely with financial institutions to make sure Singapore continues to develop as a regional and international financial center.
As for alternative credit systems, including P2P platforms, MAS has given a set of requirements related to issuing promissory notes. Namely, lenders on P2P platforms have to lend at least $100,000 for the borrower to fall under the Promissory Note Exclusion. As stated by MAS, P2P platform operators should be explicit about this regulation so all users of the platform are fully aware of it.
Secured Online P2P Platform in Singapore
Silver Bullion has devised an online P2P platform where customers can use their bullion as collateral to safely borrow and lend on their own terms. Lender loans are secured by 200% worth of the borrower’s bullion (investment-grade gold, silver or platinum parcels), which is the most important difference between Silver Bullion’s secured P2P platform and unsecured platforms. If the value of the collateral falls to 110%, loans are closed and lenders receive their capital with interest from the sale of the collateral. The bullion used as collateral is safely stored in Silver Bullion’s state-of-the-art vault The Safe House.
The platform enables the borrowers and lenders to make contracts in a matter of minutes and the interest rates are determined directly online in a bidding process. As a result, the whole process is very transparent. If the Lending Offer and Borrowing Request match for the amount and the duration the contract is automatically made, the bullion is locked for the collateral and the money is transferred to the lender. Silver Bullion acts as an intermediary responsible for managing collateralization, fund transfers and enforcements of contracts. Additionally, the platform provides temporary liquidity for lenders whose counterparty is late on payments through its Sweeper Fund.
Launched in 2015, Silver Bullion’s bullion-secured online P2P platform has recorded zero default rates to date. In just under two years, over 1000 contracts worth over SG$ 20 million have been matched with lenders earning over SG$1 million in interest. Silver Bullion’s P2P lending platform has also been recognized by MAS by being listed as one of the 40 finalists in the MAS Fintech Awards in 2016.