How higher investment thresholds can protect peer-to-peer investors
Peer-to-peer lending platforms can protect vulnerable investors by setting higher minimum investment thresholds, says Gurbinder Ghuman (pictured), head of investor relations at Kuflink.
The property lender increased its minimum investment threshold from £100 to £1,000 last month in an effort to enhance its investor process.
Ghuman says that the decision was made over a number of months, as multiple interest rate rises heaped pressure on borrowers up and down the country. These rate hikes have increased the risk of defaults for lenders, which in turn increases the risk for investors in P2P and other types of loans.
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Kuflink has tightened its borrowing criteria in recent months in an effort to manage this risk, but the company is now turning its attention towards its investors. Kuflink intends to regularly circulate investor surveys to learn more about its investor expectations and investing behaviours.
“We want to ensure our investors understand the risk of a delay in repayment, if a loan term has to be renegotiated,” says Ghuman.
“We don’t want to be in a position where our investors would struggle if there was a delay in a loan repayment. “Especially these days when inflation is high. So we decided to up the minimum to £1,000 to ensure that only suitable investors join the Kuflink platform.”
Ghuman notes that the recently introduced Financial Conduct Authority (FCA) rules inspired the platform to take a closer look at its user base and take a more proactive approach to investor protection.
“The FCA rules are always at the forefront of our mind,” he says. “But it’s also what is going on with the rising cost of living. We have a secondary market that has at times been quite busy and we’re trying to help as many clients as possible take control of their money.
“Not all borrowers will pay back on time. The reality is that rising interest rates have changed the dynamics of the market and some of our borrowers have had to completely change their investment strategy and request loan extensions or refinancing.”
The £1,000 minimum threshold applies only to new investors. Existing investors can continue to reinvest smaller sums, although Kuflink is considering introducing a £500 minimum for reinvestment.
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“At the moment the system allows you to invest/reinvest smaller amounts in select-invest as long as it equates to 1p of interest for the month,” Ghuman explains. “You can imagine the amount of work that it takes across the business when you have someone who invests less than £5 at a time.”
Ghuman says that the response to the increased investment minimum has been mostly positive, as the vast majority of the platform’s investors understand that the regulatory landscape is changing and new market risks are emerging.
Ultimately the higher investment values will help Kuflink to deliver a more efficient, compliant and protected business no matter what the economy does next.
