Last month, Kuflink revealed that it had almost doubled the rate of its loan collections quarter on quarter, thanks to some behind-the-scenes changes that were made to the platform’s risk management process.
Just under £9m was collected during the first quarter of the year, rising to more than £16m by the end of the second quarter. And the pace of loan collections continues to rise. In August alone, more than £10m was collected from completed loans, and Hiran Patel (pictured), chief risk officer at Kuflink, believes that across the first three quarters of 2023 loan collections are expected to be in excess of £48m.
“This is a great result for our investors and a testament to our ability to manage risk in our loan book,” Patel said.
“We expect to have passed £48m in collections by the end of the third quarter, with collection volumes rising month on month.
“At Kuflink, we have always been completely transparent with our investors about our loan collection processes and we have kept our investor base informed of any and all risk management changes over the past year.
“We will continue to work closely with borrowers and to feed back all relevant information to investors going forward.”
Read more: Company focus: Kuflink
The rising rate of collections is especially impressive given that it is happening against a background of ongoing economic instability, with rising base rates and stubbornly high inflation heaping pressure on investment platforms and consumers alike. Many peer-to-peer lending platforms have opted to raise their target returns, typically paid for by raising borrower rates. Kuflink has been able to continue to offer inflation-beating returns of up to 9.83 per cent to investors, but the platform was determined to do this without increasing the risk of borrower defaults.
“Prudent risk management is at the heart of what we do at Kuflink, and we are always looking ahead to identify any potential challenges that might affect our borrowers’ ability to repay their loans,” explained Patel.
“The recent rise in loan collections is a testament to this approach. We are proud to say that our investors have still not lost any money, and we expect the volume of loan collections to continue to rise towards the end of the year.”
So how did Kuflink do this? It all started back in March, when the platform’s credit committee met for one of its regular risk management discussions. After every meeting of the Bank of England’s monetary policy committee, Kuflink’s senior management has a discussion about what the latest interest rates mean for the UK economy as a whole, and for the lending sector more specifically.
At the start of the year, management correctly predicted that ongoing hikes to the base rate would lead to a spike in the number of borrowers seeking refinancing or extensions to their term times. In anticipation of this, Kuflink implemented a new loan book management system. This involved setting up an eight-step system of oversight on all loans, as follows:
- STEP ONE: Each approved borrower will receive a welcome letter. This letter will confirm any conditions associated with the loan, such as the completion of a damp and timber report, or an asbestos report.
- STEP TWO: Communication with the borrower continues until these conditions are satisfied.
- STEP THREE: At the halfway point of the loan, Kuflink will contact the borrower again to remind them about the conditions of their loan, and
- to gauge whether any steps have been taken to arrange an exit or to repay the loan.`
- STEP FOUR: 12 weeks before the expiry date of the loan Kuflink will contact the borrower again. At this point they should have begun the process of repaying the capital via refinancing into a longer-term loan, or via the sale of that property or another property that they own. The platform will also engage with the borrower to find out what their exit strategy is for the loan.
- STEP FIVE: Eight weeks before the expiry date of the loan, Kuflink will again check in to ensure that the borrower is on track to refinance or repay the loan.
- STEP SIX: Six weeks before the expiry date of the loan, the platform will appoint its own solicitor (paid for via borrower fees) who will make contact with the borrower directly, introduce themselves, and provide clear instructions on how to redeem the loan.
- STEP SEVEN: Four weeks before the expiry date of the loan Kuflink will once more reach out to the borrower to ensure that their refinancing or repayment plans are progressing as planned.
- STEP EIGHT: Two weeks before the expiry date of the loan, Kuflink will make further contact with the borrower to see where they are in their exit strategy. This includes getting evidence of a refinancing process, such as a mortgage offer or evidence from solicitors confirming that a sale or refinancing plan is in progress.
“We are delighted with the success that we have seen through this new process so far,” added Patel.
“By engaging more closely with our borrowers we have been able to anticipate any issues with late repayments, and step in more quickly with potential solutions. This method is already paying off for both borrowers and investors, as we have been able to increase the rate of collections while maintaining our record of zero investor losses.
“We will continue to monitor macro-economic changes and we will adjust our risk management processes as needed.”
This hands-on approach to loan management is being adopted across the alternative finance community as lenders across the country attempt to reduce the risk of loan defaults in a rising interest rate environment. However, few have been able to implement such sweeping changes as quickly as Kuflink.
This ability to act decisively in response to wider economic issues is what sets P2P lenders such as Kuflink apart from the mainstream. While many banks are pulling back on their lending activities, or hiking rates to an unaffordable level, Kuflink continues to list new loans and onboard new borrowers. To date, the platform has returned more than £183m to investors, and loaned more than £281m to borrowers with no investor losses. By prioritising prudent risk management and acting quickly to bolster its systems, Kuflink’s stellar track record is only set to continue.