In October, we held a webinar featuring the management of ID Finance, one of the largest loan originators on the Mintos marketplace. Many investors tuned in and many questions were asked. Given the time limitations, the participants did not manage to answer all of the questions live. We collected them and asked ID Finance representatives to answer in writing. And here are the answers.
Are you raising any capital from private investors? If so, how can one participate in the ID Finance growth story?
Yes, ID Finance raises capital from private investors globally and locally, according to local legislation. We have raised around $31 million from individual investors to date.
Will there be loans from countries other than Spain and Georgia on the platform?
Sure. We are now working on launching loans from ID Finance Kazakhstan on the Mintos platform.
Why do you only have two countries available on Mintos?
We just started our cooperation with Mintos marketplace in March 2017 and have already launched two countries. We will launch two more countries very soon.
What about Italy?
We do not currently work in Italy. Running a business in this country is not part of our plans. The company is focused on expansion into the LatAm region.
Do you think the USA is a good choice for starting up a lending business, since public debt there is very high already? It is also a high risk investment because of the large amount of stock credits and the hot market there.
Yes, we are sure that US launch is a great idea. This is a huge developed market, not only for consumer finance services, but also for capital. We plan to occupy a unique niche serving Hispanic populations in the southern states, which are currently underbanked and do not have a high loan burden. Our key competitive advantage, in comparison with US companies, is our knowledge of LatAm business and tracking credit history of its population due to our experience in Brazil and Mexico.
Are you afraid of the U.S. debt? Or the next “financial crisis?”
No, we are not afraid of it. We have successfully overcome economic turmoil in Russia in 2014-2015 and several local crises, thanks to highly efficient business processes. We keep abreast of financial and political agendas, and collect and analyze data on a daily basis, which allows us to respond to challenges very quickly.
Are the delinquency indicators (90+ days) in the presentation indicators of Russia or of all countries?
The NPLs level mentioned in presentation is the consolidated ID Finance data.
Is it easier and cheaper if ID Finance hedges their whole portfolio and offers loans in EUR to investors? Is the portfolio of ID Finance hedged against currency risk?
The current strategy of ID Finance is to raise funding in local currencies for local business units to avoid FX risk. We currently offer investors GEL in Georgia and EUR in Spain.
What is your Asia strategy? Are you planning to invest in the South Asian market, such as Indonesia, China, Japan and the Philippines?
ID Finance doesn’t have any operations in Asia. We are focused on Latin American and US regions for the next 2-3 years. We’ve done due diligence of Asian markets and realized that it won’t be easy to launch there. Most countries in the region have a lot of legal nuances and issues.
Do you plan to spread your business to other European countries? Which ones?
ID Finance is aimed on developing great products in current operations in Spain, Poland and Russia.
Is Solva already profitable? The slides only mentioned EBITDA, which doesn’t tell us anything.
Solva.ge is very close to breakeven point by profit after tax in recent months. In August 2017, Solva.ge had a positive profit after tax. Profits from core operations measured as EBITDA are strongly positive and increasing. This means that profit after tax will also increase following EBITDA.
What is EBITDA?
Earnings before interest, taxes, depreciation, amortization. In our case this is revenue minus reserves, operating and administrative expenses.
I am a Swiss investor. I just started to invest with Mintos and have also invested in Georgia. I am hesitant to invest more, as I am not sure about political stability in Georgia, especially with regard to Russia, which has proven to be aggressive. As far as I know, there is still an open conflict with Russia in Georgia. Can you provide an update on this situation?
We would not like to comment on political issues. However, as people who regularly visit both countries and constantly communicate with citizens of both countries, we have some private observations, of course. The connections between these countries are much deeper than what most media describe. A lot of Georgian citizens have business in Russia and vice versa. We advise those interested in exploring investment opportunities in Georgia to rely only on news from very reliable news sources.
In the slide showing internet and personal loan penetration, the top left slide shows credit penetration of some countries to be greater than 100%. Please elaborate on what is shown in the graph.
We use World Bank data for UK, Spain, Brazil, Czech Republic and Mexico. That number is domestic credit to the private sector by bank (% of GDP). Domestic credit to the private sector by banks refers to financial resources provided to the private sector by other depository corporations (deposit-taking corporations, except central banks), such as through loans, purchases of non-equity securities and trade credits and other accounts receivable, that establish a claim for repayment. For some countries these claims include credit to public enterprises. You can see more here.
What is the share of loans in your portfolio that come with a buyback guarantee?
100% of ID Finance loans on Mintos marketplace have buyback guarantee.
What kind of risk reduction methods have you implemented to cover loan portfolio growth from USD 1.5 million to USD 9 million? What are your plans for the future?
We use diversification as a primary risk reduction tool. We diversify our geographic presence, products and funding sources. 1) Geographic diversification: We are present in the CIS, Europe and LatAm. 2) Product diversification: We introduce different products tailored to client needs varying in terms (up to one year with monthly payments), in volume (up to USD 2000) and in interest rate (as low as 56% annually). We have also introduced the sale of insurance products, which generate risk-free cash inflow with a run rate of up to $1 million in 2017. 3) Funding diversification: Our source base varies in currencies (USD, EUR, RUB, GEL), terms (up to one year) and sources (individual investors, credit funds, banks and p2p platforms). 4) To mitigate regulatory risks we are always in contact with regulators and other market players.
Regulation in Georgia: Who from the government is controlling your operation? In other words: How can I, as a foreign investor, be sure that your operation is as stable as you say?
Our direct regulator in the country is the National Bank of Georgia.
Do you see an interest rate cap risk in the market in Mexico or Brazil?
There is no cap as per regulations, but there is an invisible understanding among market players on rates that can be charged.
Do you plan to offer loans in Brazilian reals, as ID Finance has footprint in Brazil?
Sure, we will do so in the future. But before offering Brazilian loans, we plan to offer loans in PLN, as our Polish business continues to show double-digit growth every month.
Is ID Finance comprised of merged or acquired firms, or only organic growth?
Currently ID Finance has only organic growth.
Where is the core founding team from?
Alexander Dunaev and Boris Batine are the co-founders of ID Finance fintech company. Both were born in Russia and studied in UK. Batine graduated from Cambridge, Dunaev – from Imperial College London. Both worked for Deutsche Bank and Renaissance Capital, where they met each other.
Could please tell me how many credit applications are denied at Solva? Or can everyone get credit from you?
The current approval rate of Solva.ge is around 20%. It’s a rather high index for an online lending service.
What is the percentage rate of loans offered to borrowers in Georgia? What is the average interest rate you charge for loans in your core business area?
The current nominal annual interest rate we offer to borrowers is about 70%. You can find the data in ID Finance loan agreement samples on the Mintos website.
Since they are now quiet big, do they intend to release quarterly unaudited accounts?
You can find recent ID Finance operational results on our website https://idfinance.com/#investors
What impact does your algorithm solution have on clients? Is it just a higher interest rate, or does it sometimes also prevent a client from getting a loan?
There are three possible scoring outcomes: auto-reject, auto-approve and a third outcome that requires a more detailed client profile investigation. If the client is approved for a loan, then we may vary the sum of money granted, not the interest rate.
Are founders of ID Finance somehow related to Mintos?
Mintos and ID Finance are not related parties.
Speaking about the payment of loans in case of bankruptcy – who will arrange payments from borrowers? Should I contact the borrowers in Georgia or will it be organized by Mintos?
In such unlikely event, servicing of the loans assigned to investors on Mintos would be organized by Mintos, possibly, by recruiting a third party service.
If ID Finance goes bankrupt, will investors on Mintos have direct claim towards the borrower or only ID Finance?
Investors have direct claim towards borrowers for Spanish loans and direct claim towards ID Finance for Georgian loans.
Will investment loans from Russia also be available?
We are keen to launch loans in RUB via the platform, if Mintos introduces the possibility. We are raising funds from individual investors in Russia, so our FX risk in Russian subsidiaries is fully hedged. Russia has also seen an economic uptrend. The country is overcoming the burden of sanctions and increasing the competitiveness of its economy through high-tech sectors, effectively curbing rising costs and developing the real sector of the economy.
Can ID Finance provide insight into the Georgian market regarding the use of credit and its general economic status? How much has been learned, how much competition is there, and how much damage has been done?
In September 2017, for the first time since 2010, Moody’s agency upgraded the credit rating for Georgia from Ba3 to Ba2. Today, Georgia’s economy is stable and the association agreements and agreements on free and comprehensive trade with the European Union are diversified. Georgia has expanded its access to China’s markets. The prospect of signing a free trade agreement with China also looks real. The improved credit rating of the country is a positive signal for foreign partners, and will help attract international capital. You can find additional data about Georgian online lending and fintech prospects in the ID Finance presentation from the webinar.