Despite its proximity to China, where the coronavirus has originated, SE Asia has been less affected than many European countries. As at 31st of March, there were just a bit over 3000 reported cases in Indonesia, Vietnam, and the Philippines combined.
The government in Vietnam has taken bold steps, in order to minimize the cases of virus spread, and this has affected many individuals, as many of them had to take unpaid leave for the period of quarantine. That is why Cashwagon’s Vietnamese partner – Lendtech Co. Ltd., has shifted its focus on issuing extra short loans from 10 to 20 days. These kinds of loans will help locals to fill the budget “holes”. The demand for this product has been significant.
Of course, prior to offering such a product, the risk analysts have adjusted Cashwagon’s scoring model. There is an elevated risk that the borrowers might get in a difficult financial situation. However, risk screening has been toughened in order to incorporate the possible economic downturn.
On a side note, at the beginning of March 2020, Google and Microsoft announced moving their factories to Vietnam and Thailand. Due to the Coronavirus outbreak in China, such tech giants are moving their production of cell-phones, computers and other devices to these SE Asia countries. As a result, such activities are encouraging signs of quick economic recovery in the region.
The current financials
The financial statements of Cashwagon are available on Mintos and they are showing the healthy financial situation of Cashwagon. The group revenues grew last year 160%, reaching $ 84 million by the end of 2019. The trend continued, as the revenues for January and February 2020, grew 50% when comparing the same period, a year ago. Operating profit margin has reached 8% in February 2020, historically this ratio was on average 4%.
The current (March 2020) loan portfolio of Cashwagon Vietnamese entity Lendtech Co. Ltd.is around € 10.6 million, serving more than 354 000 clients. Some P2P investors are worried that the health crisis will reduce revenues of micro-financial companies, however, this is not supported by the facts. For example, in 2019 the average month-on-month client base increase in Vietnam for Cashwagon was 8%. The monthly growth rate in February/March hiked to 37%. There were 80 400 loans issued in March 2020, which is a 10% increase when compared with the same period a month ago. The average loan duration in March 2020 is 20 days, in line with the company’s strategy shift to shorter loans. The average loan amount is around € 95.
Higher interest rates
The average interest rate of loans offered by Cashwagon’s partners on Mintos historically was 13.5%. Because Cashwagon is witnessing a sharp rise in demand for its products, they are willing to pay a higher interest rate to Mintos investors, to secure the funding which will let them maintain the growth witnessed in March 2020. The business model of the financial company in Vietnam allows paying the interest rate to investors of up to 30% and still be profitable.
The strategic decision to offer higher yield is to secure the funding and to avoid the interruption of new loan issuance expansion. The operations of Cashwagon in Vietnam, Philippines and Indonesia see a greater demand for its products. In order to satisfy the demand, Cashwagon has adopted a variety of measures to protect itself and the P2P investors from possible losses.
The elevated interest rate is also a way to motivate investors to keep investing and earning during the turbulence on the market while boosting portfolio growth. The increase of the rate is completely affordable by the Cashwagon, as the end borrower pays up to 792% Effective APR in Vietnam. The interest rate the borrower pays in Vietnam is covering enough the 13% default-provision, OPEX of loan issuance in Vietnam, and the interest paid to Mintos investors.
Concluding remarks
During times like this, micro-financial companies with strong, adaptable business models come out stronger. The strategy of Cashwagon from the beginning was to serve online, using only modern solutions and practices, and it is making them stronger now. We believe investors should protect their portfolio from the losses during the possible downturn and choose the assets which are yielding a premium return and are not correlated with other investment tools.
