Continuing with my assessment of how P2P platforms have been performing during COVID-19, I am focusing this blog on Plenti (formally RateSetter). The focus of this review will be on the performance of the provision fund during this time.
In the case of Plenti, the platform has a provision fund that is designed to buffer investors against potential losses. I would have liked to have include analysis of the benefit of the provision fund to my own portfolio. Unfortunately, Plenti informed me they do not provide visibility to individual investors when they have been a beneficiary of the provision fund when I contacted them regarding the details, and they directed me to the general performance of the provision fund. I personally find this a little disappointing given, as the lender, I am obliged by Plenti’s practice model to take the risk of the loan without any details of who I am lending to, and yet am not guaranteed support out of the provision fund should the loans I’ve invested in turn bad. Having details of received payments from the provision fund would help me appreciate the reduced returns we receive as an investor as part of the interest the borrower pays is channeled into the provision fund.
To assess the provision fund I started by pulling the monthly blog updates on how the lending platform was going and their view on the risks. The data ranges from April 2020 to August 2020. The October blog does not mention the hardship payments, however, does contain September’s provision fund numbers.
Figure 1: Penti’s provision fund details April – September 2020
It is great to see the number of loans under hardship arrangements drop off and as such the expected provision fund losses reduce moving forward. At this stage, the improvement in forecast and the drop off in hardship loans means the people Plenti have lent money to (our money), have got somewhat back on their feet, and a great result for Plenti. Currently the provision fund ratio to expected losses sits at 157%, with Plenti boasting that no member has missed out on any interest courtesy of the provision fund. I do feel we are still in some challenging times and will be watching this closely over the months ahead.
The performance of Plenti year to date has shown the provision fund has served its purpose and continued to fully fund investors for any losses they may have occurred due to bad loans. Forecasts for the provision fund indicate that there is still plenty of buffer, however it is something that should be monitored as the continuing effects of COVID-19 on the economy are felt.
As always, I hope everyone is safe and well, as we adjust to the new normal of way work, life and travel.