A look at current affairs in March 2020

19.03.2020

mintosblog

Throughout history, pandemics like COVID-19 have inevitably made shifts in the global markets. While uncertainty is present, there are a few things we can all do to ease the stress factors that are obstructing daily routines. Firstly, we should stay safe, but also remain objective and calm in order to make solid decisions. 

The global protective shield of businesses and workers

After experiencing an eleven year-long bull market, no country or individual is eager to see their state or its biggest businesses “on their knees”. From the reactions of the international community’s officials in the last few days, we see that decision-makers are working proactively to introduce measures that will cushion the effects of the COVID-19. These institutional responses to protect working citizens and their disrupted workflows are of crucial importance. How effective they will be, depends on a quite complex mix of circumstances. 

In the USA, companies will be supported by low-interest loans federally guaranteed by the Small Business Administration, China’s Central Bank released around $80 billion of monetary relief towards its commercial banks to ensure the stability of the financial system. Germany has said it’s ready to spend whatever is necessary to protect its powerful economy. The European Commission has announced a €37 billion “Corona Investment Fund” to help the sectors most affected by the pandemic. 

Markets always recover, and some people always earn money

Looking at the big picture over a longer period of time, slumps in the market are typically seen as short-term dives, amid longer periods of growth and prosperity. At Mintos, we are led by one fact that is repeatedly proven through history: the markets always recover. 

Alternative lending companies – confident, but taking precautions 

We work with many strong alternative lending companies, hailing from 5 continents. Some of these companies were born before or during the 2008 crisis, and they possess experience in operations management during turbulent times. 

Lending companies on Mintos are adjusting to the situation as they consider a variety of actions to ensure sustainable cashflow. For some, this means work with governments or restructuring of the customer onboarding pipelines. Catching up on technology is also an option for many companies that so far haven’t had online payments as a service for their clients.

Many lending companies on Mintos have been through numerous rounds of regulation updates that have made the industry’s environment tighter and more stringent. While overcoming these with confidence, their client bases continued growing and strengthening their operations. As a matter of fact, some of these companies have seen a 25% increase in sales during the financial crisis in 2008.

Some companies are optimistic about the future developments of their business and currently haven’t experienced any break in the flow of new clients or in borrowers’ payments. Depending on geography and local market turbulences, some companies have seen a fall in demand for loans already in previous months. What many do expect for the times to come is a big increase in demand. This increase will be met with reevaluated and tighter regulations. Before any of this happens, companies should have objective expectations regarding the number of borrowers’ defaults. This will present new challenges for the alternative lending sector.

Lending companies are revisiting their processes

Lending companies on Mintos plan to tighten their criteria for credit eligibility in the upcoming period. This means a revision of the lending rules and of the credit scoring policies currently in place. To maintain and ensure sustainable borrowers’ payments, some companies state that they will do an in-depth revision, and if needed, will rework their debt collection processes. 

Overall, lending companies plan for a more personal approach to their clients and an introduction of measures that will ensure borrowers’ payments. These measures can mean short-term payment extensions in the case of positively re-evaluated clients’ credit scores, and a more proactive approach when it comes to debt collection. 

For statements for investors and clients from lending companies on Mintos, follow updates on a dedicated article on the Mintos blog. 

Mintos standpoint 

As market dynamics dictate, Mintos expects to see the interest rates increase, which means that the prices will be lower. 

With our strong experience in a flexible and dynamic environment, Mintos today works with its full capacities and will continue monitoring and adjusting the marketplace as per the demands of current market affairs. 

We are in close contact with the lending companies on Mintos, and are following the performance of borrowers’ behaviour. In accordance with these lending companies, we share our standpoint that it’s advisable to cut costs and reduce the origination. We are aware of current dynamics that show lower demand from investors, while the increase of the borrowers’ default seems like a realistic expectation. At the same time, we keep close communication with our investors.

Besides staying on top of information and fully focused on our operations, we also keep in mind some historical learnings:  

a) Diversification over asset classes, types of loans and over different geographies is one of the best options for existing investors in the times of turbulence
b) Investors should stay informed, follow what is happening and adjust their investment strategies accordingly
c) The market is rewarding in the long run, and some of the best earnings are made with well-timed investments and passive income 

Crowdlending: better and stronger 

With the experience of pioneering P2P platforms from the US that went through the 2008 crisis, our relatively-new industry of investments in loans is put through a test of durability and responsiveness on a truly global scale. From society’s perspective, what Mintos does is allocation of resources over the world, and this might get a completely new meaning after current turbulences come to an end. We will see in practice if this what we’re doing is worthy of the name “crowdlending”.

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