Monexo recently launched its peer-to-peer (P2P) lending platform in Hong Kong. Co-founder, Mukesh Bubna, enters the space with 20 years experience in consumer banking throughout Asia, including 18 years at Citibank in Asia where he spent 10 years in product and marketing. Prior to that he was CFO, and going back even further built up Citibank’s entire back-end operations and technology, reported e27’s Michael de Waal-Montgomery in an exclusive interview with Bubna.
“Peer-to-peer lending has all developed since 2007. It’s an industry that I would say is seven years old now, but in the last two years it’s had an exponential leap in three big markets: China, UK and US. They have amazing growth, almost doubling every six months,” Bubna told e27.
“As banks have become more conservative in lending generally, small businesses and entrepreneurs — a group already sidelined — have been further marginalised. Yet SMEs are responsible for employing the majority workers in most markets and have been vital to its growth,” observed de Waal-Montgomery. “In 2015, lenders are still only seeing returns of 0.001 per cent on capital in bank savings accounts. That’s far lower than inflation, which in Hong Kong stands at 3.5 per cent. It all ends up in equity or bonds.”
P2P lending platforms enable lenders to bypass the banks for a better return on their capital, while also benefiting borrowers who are now able to do so at far lower costs. Hong Kong has about US$70 billion worth of unsecured loans between banks and moneylenders, and it’s a quickly growing market, according to de Waal-Montgomery.
“There are 1,300 moneylenders in Hong Kong, which I would love to disrupt over a period of time. They charge as much as 20-25 per cent for a second mortgage. Can you imagine a secure loan being at that rate? Or even a personal loan coming at that high rate?” Bubna commented. “Then, finally, the banks [in Hong Kong] charge 34 per cent still on a credit card, when compared to any other economy which is as developed — or even neighbouring countries like Malaysia and Singapore — their credit card interest rates are like 18-24 per cent. So Hong Kong has not moved with time in a lot of respects on interest rates,” he added.
Co-foundered by Sonal Bengani, who previously held various leadership roles at Tata Consultancy Services (TCS), the largest tech company in India and a third Co-founder, M. Sundar, who brings over 30 years of professional experience as a Chartered Accountant, Monexo screens borrowers and classifies them from M1-M8. M1 borrowers get the lowest interest rates (7 per cent per annum) due to low chance of default, whereas M8 pay higher interest (20 per cent per annum) due to higher default chance. This allows lenders to get a better yield — hopefully at around 10-12 per cent — by creating a mixed portfolio of low and high risk loans. No license is currently required for P2P platforms in Hong Kong. Monexo expects the percentage of loans defaulting on its platform will be in the low-single digits.
“We don’t have any pre-payment charges, nor do we have any upfront fees right now… Specifically compared to moneylenders, this is hugely competitive…. I think there will be a few more [P2P] players, but not too many. Regulations are still emerging in Hong Kong. This is a very high talent industry. This is not something everyone’s cut [out] for. You have to have a financial background, you have to run the right risks. You also have to understand the technology of the 21st Century,” Bubna observed. “If you build this on technology of the 20th Century then you are dead. You have to be very efficient because the margins are very thin. A lot of people think Hong Kong is a very small market, and that’s why they might not enter.”
“We’re looking at a different cash flow, and that’s the first time ever in Hong Kong… A lot of the time these people are borrowing second mortgages at 20-25 per cent. I can’t help them with that 25 per cent rate on the full amount. But can I bring down their cost of debt for a small portion of amount at a much more reasonable rate? Yes I can,” Bubna said.
Bubna expects to do US$25-30 million ‘of business’ in the first year alone, but the venture won’t become profitable immediately. For more details, please click here.