To cover topics of interest when it comes to funds in recovery, we asked investors to submit their questions via Slido. Now that we’ve collected these, we’ve put together information for this special article.
We took the questions with the most upvotes and grouped them into 3 themes that emerged as the most popular:
I – Questions about the status of Russian lending company funds
II – General questions about funds in recovery (and more) on Mintos
III – Lending company-specific questions about funds in recovery
Funds in recovery overview
First, no new defaulted cases occurred during Q3 2022; however, work is still ongoing for several of the defaulted cases that occurred before Q3.
The current cases in default can be divided into three groups:
- Those cases are in the process of being “worked out”. These have active agreements or schedules in place where funds are being transferred. This includes Monego, Finko AM, Capital Service, Express Credit, and Finko UA. These cases represent around €40 million (which equates to half) of the total exposure for defaulted lending companies.
For the cases in recovery, we have collected €1.42m out of the planned €1.53m (93%) (as shown in image below).
Monego Kosovo: The actual recovery has been more successful than initially expected, with the collections exceeding previous estimates and the portfolio amortizing slower than anticipated. As a result, the portfolio has some part left that could be collected, hence the estimate currently has been moved from 2022 to 2023.
- There are also a number of cases where litigation activities have progressed. This includes GetBucks BW, GetBucks ZM, Dziesiatka Finanse, and Wowwo. These cases represent €28 million (or 36%) of the total exposure for defaulted lending companies (€80m). For these cases, more info is expected in the current and next quarter. Please note that we always look to mutually agree on a solution with lending companies, as this usually leads to the best outcome. However, if a lending company is unwilling to reach a reasonable solution, we will go down the legal route.
Dziesatka Finanse: The court ruling has been one year in the making since all documents had been submitted. Therefore, the collection process has taken longer than expected. While the court has ruled in favor of Mintos, Dziesatka still has the right to appeal, hence it is too early to estimate the final end date for this case. As a result, the estimate has been moved from 2022 to 2023-2024.
- For those cases with no movement or very limited information (due to various reasons), such as Alexcredit (the war in Ukraine) and Cashwagon PH and VN (intransparent liquidation and criminal charges, respectively), there’s around €11 million (or 14%) of total exposure. AlexCredit: The company defaulted long before the war started in Ukraine, and its portfolio was given to a debt collection company to be recovered. Currently, these activities have practically come to a standstill. With all the uncertainty around Ukraine, we have very low expectations of recovering anything significant for this exposure.
Status of Russian lending company funds
What’s happening with the funds that are due with Russian institutions?
The Russian lending companies are facing significant limitations imposed by the local authorities when it comes to making transfers related to investors’ investments. Since the moment when payment flows were interrupted back in March 2022, we have been actively working to recover these funds. During this period we have:
- Analyzed alternative payment routes to recover funds. During this period, various limitations, laws, and their interpretations have been changing along the way. Moreover, the lending companies in Russia are regulated by the Central Bank of Russia and need to follow its guidance, as otherwise they risk losing their license. We have come to the conclusion that receiving any payments larger than RUB 10m per month would currently only be possible if special permission is granted. There are no clear rules how and when such permission would be given. At present, one of the lending companies, Revo, has received such a permission, and €2.72m has already been recovered in Q3.
- Set up accounts with a service provider that accepts RUB payments. This is not a trivial matter in the current environment. Accepting RUB payments is important, as limitations for transferring foreign currencies (such as EUR) from Russia are even stricter.
- Negotiated and signed agreements with the lending companies (some are still in progress) to be able to receive RUB 10m per month. The need for these agreements results from unclear requirements and their interpretation. In the current environment, even delivering any signed versions of such agreements, which are required for making payments, is not straightforward. As of 22 November, we have received payments from EcoFinance under this arrangement.
The lending companies are either holding repayments from borrowers for loans that investors on Mintos have invested in as cash, or using them to issue new loans, until they are able to transfer the money to Mintos. This depends on the lending company, and in many cases in our understanding would be a combination of both.
Is Mintos planning to buy out loans in russia? Can Mintos help us with “recovery” from Russia? Maybe buy them for a percentage of value, although we would loss a part of it (similar to a secondary market)
We’re doing everything possible to recover as much money as possible from investments by investors in Russia (please see summary above). Mintos buying loans is not an option we can consider – we neither have sufficient resources for that, nor would that correspond to the role of Mintos.
Do you expect full recovery of funds stuck in Russia & Belarus? And what about the rest of the funds in other countries? Thank you.
Russia
Unfortunately in the given circumstances with significant uncertainty lying ahead in relation to Russia, it’s impossible to confirm that 100% recovery of all funds can be achieved. The result can also vary by lending company. It would depend on the size of the portfolio funded and the company’s ability to get special permission for making larger payments (see above). Nevertheless, we currently believe that the majority of the funds should be recoverable. Considering there is still a high degree of uncertainty due to the political situation as well as Mintos not receiving full loan level data from the Russian lending companies, any repayments received so far and in the future are being distributed proportionally to all investors with relevant exposure.
Belarus
On Mintos investors only have one exposure to Belarus loans, i.e. those originated by Eleving Group. Given the group guarantee and overall Eleving performance, as well as the fact that loans are being collected and money disbursed from Belarus, at this moment we expect that funds will be repaid in full.
Anothers platforms successfully transferred amounts from Russians platforms, why you don’t
We can’t comment on other platforms’ activities, but so far we have not seen any successful cases where it was possible to receive a meaningful payment from a Russian lending company. To the contrary, the arrangements with Revo and also other lending companies that have started to pay RUB 10m indicates that we at Mintos have achieved the best possible outcome in the current circumstances.
If the war ended tomorrow. Would the Russian/Ukrainian lenders be able to pay back all the loans that they have originated? Or would they need time to recover?
Russia
The key underlying problem for receiving payments from Russian lending companies are currently the limitations imposed on Russian lending companies when it comes to making payments to investors on Mintos. Hence, even if the war ended tomorrow, it is not clear if these limitations would be lifted or amended, and consequently if all the investments could be repaid in due course. Even if the limitations were lifted, among other factors, the possibility to repay everything right away would depend on each lending company’s cash position and prevailing currency exchange rate.
Ukraine
In a similar manner, there is also a limitation on payments to other countries from Ukraine. However, more importantly, given that the war activities are happening in Ukraine and are impacting practically everyone, even if there were no limitations on payments and war ended tomorrow, it’s unlikely that the lending company would be able to repay back all the investments straight away. It would remain to be seen how the lending company (SOS Credit) could restart the operations in business as usual manner.
What about my outstanding fund of Kviku, Alexcredit, Revo Technology and EcoFinance from Russia and Ukraine? Do I have to write them off?
Please see above for an update on the Russian lending companies. We do not expect that investors will have to write off all their investments, quite to the contrary, we expect significant recoveries.
Ukraine
Alexcredit was a company that defaulted long before war started in Ukraine, and its portfolio was given to a debt collection company to be recovered. Currently these activities have practically come to a standstill. With all the uncertainty around Ukraine, we have very low expectations of recovering anything significant for this exposure.
Could the funds in recovery from Russia be reinvested to new loans, to re-enable interest accumulation?
It is not possible to make any new investments in loans issued by Russian lending companies, as this would pose sanction and reputational risks.
What is the status of recovery with RUB based loans from Russia? (invested in RUB)
For the companies that offered investments also in RUB (besides EUR), the process of recovery does not differ. Please see the comments above.
When will other Russian companies like Kviku start transferring at least the 10M RUB/month? Will they be able to transfer more like Revo?
Other Russian lending companies have started to make transfers, and the ones that have not yet are in progress. As described above, to receive these RUB 10m monthly payments, agreements need to be signed first, which takes additional time. For some companies this has taken longer than expected. Also, making larger payments requires special permission from the Central Bank of Russia, which are negotiated now by some of the lending companies (see above). We will inform you once there are any updates.
General questions about funds in recovery (and more) on Mintos
What Mintos is doing to prevent that more companies go to funds in recovery? How are you going to protect better the investors?
First it should be noted that lending company defaults and respective funds going into recovery is a normal part of the business and cannot be fully eliminated. When additional investment opportunities are provided by lending companies, our aim at Mintos is to a) limit the number of these situations, and b) have recovery options when such situations occur, so that at the portfolio level Mintos still provides good returns for investors. You can read more about our due diligence process and how we deal with lending company issues on our blog.
Historically, since Mintos started its operations 7 years ago, there have been two global events that were hard to predict, the Covid-19 pandemic and the Russian war in Ukraine. Besides these events, there have been a limited number of defaults spread throughout these years.
Even with these defaults and the impact of Covid, which saw more companies defaulting in 2020, the portfolio level returns after defaults have been very competitive.
This does not mean that we stop at what’s been implemented. When looking at historical cases where lending companies have gone into default, there hasn’t been a case where we failed our initial due diligence, as evidenced by the fact that none of the lending companies connected over the last few years went into default shortly after starting offering loans on Mintos. We believe that we’ve also improved the speed at which we suspend further investments when there’s an increased likelihood that a lending company will default or that payments from a company will be disrupted.
We see the biggest opportunity for improvements in recovering funds from defaulted lending companies. With the launch of Notes as regulated financial instruments, we’ve moved to a structure where the underlying loans are pledged as collateral. Based on our experience with recoveries so far, such structures have a higher recovery potential. The regulated setup of Notes also means that we can more easily file legal claims against lending companies should the need arise. Additionally, in some countries we have additional measures in place that further increase security for investors, notably the trust setup for Mexican lending companies. We believe that these improvements will further improve the amount of funds that can be recovered should any new funds go into recovery.
What has happened to buyback obligation and why it’s not in use right now, when the loans have been in recovery quite a while?
For the vast majority of cases, the buyback obligation works well, and investors receive back their funds for non-performing loans. It’s only when the issue spreads to the entire lending company that the buyback obligation cannot be exercised as planned. For example, Wowwo fulfilled its buyback obligation and loans that were 60 days past due from borrowers were bought back from investors. However, the situation changed when Wowwo stopped all payments towards investors on Mintos and is not honoring its obligation.
Read more about the buyback obligation.
Some lending companies are making payments, but I am not receiving payments in the correspondent funds in recovery. Why is that?
We distribute funds to investors as per the waterfall clause in the Mintos Terms and Conditions. Loans are repaid in historical order from the oldest to the newest. First, loans with underlying borrower repayments are covered, then loans that the lending company repurchased are covered, then loans that are 60+ days late are covered.
Recovered payments distribution flow
Will you adjust cooperation structures to prevent cases like Wowwo where LO just decides to stop forwarding repayments? Seems cooperation structures are to weak
As noted above, with the launch of Notes as regulated financial instruments, we’ve moved to a structure where the underlying loans are pledged as collateral. Based on our experience with recoveries so far, such structures have a higher recovery potential. The regulated setup of Notes also means that we can more easily file legal claims against lending companies should the need arise. Additionally, in some countries we have additional measures in place that further increase security for investors, notably the trust setup for Mexican lending companies. We believe that these improvements will further improve the amount of funds that can be recovered should any new funds go into recovery.
Are there any plans to make a better insight overview in the app of assets loss against profits made. And history of accumulated loss.
Please let us know which information you’d like to see in your account, and we’ll consider it for development.
With regards to the Wowwo case: Do you plan to enforce a policy that forces lending companies to hedge their currency exposure?
Hedging is included in the assessment of the Mintos Risk Score for the lending companies, but it’s only a part of the assessment. We’ve been more insistent on the lending companies hedging their currency exposure since 2020. However, some currencies can’t be effectively hedged, as there’s virtually no derivatives (forwards, futures, options) market for them. It should be noted that FX risk is another risk among credit, macro, political, legal, and many other risks. If a particular risk cannot be hedged, we mitigate it by requesting more security in other areas, such as having more stringent Equity/Assets covenants and so on
How long shall we wait for recovery. When is the time for capital allowance with your loss confirmation for local tax departments?
We can’t provide a general answer, as tax law depends on your country and whether you’re investing as a private person or legal entity. Please consult your tax advisor for any question about your local requirements.
Lending company-specific questions about funds in recovery
What is the expected recovery from AlexCredit? How does Mintos control the safeguard of AlexCredit assets until court decision is enforced?
Alexcredit was a company that defaulted long before the war started in Ukraine, and its portfolio was given to a debt collection company to be recovered. Currently these activities have practically come to a standstill. With all the uncertainty around Ukraine, we have very low expectations of recovering anything significant for this exposure.
- Country: Ukraine
- Suspension: 28 March 2020
- Principal exposure at suspension: €4.42 million
- Recovered principal so far: €0.16 million
- Current principal exposure: €4.26 million
- Disclosure: Full
- Expected recovery: 0-25%
- Timeline: TBD
- Expected recovery Q4 22: 0
What’s happening with the recovery of Capital Service (Poland) and Finko funds. What about buyback guarantee?
First, all of these cases have been restructured, as the companies were not able to make the payments as per the agreements with investors. This includes not being able to honor the buyback obligation.
Capital Service
Capital Service is making the payments according to the agreed plan. In the meantime its financial situation is slightly improving, which gives better possibility to refinance the expected bullet repayments in Jan 2024.
- Country: Poland
- Suspension: 6 April 2020
- Principal exposure at suspension: €19.05 million
- Recovered principal so far: €2.88 million
- Current principal exposure: €16.89 million
- Disclosure: Full
- Expected recovery: 75-100%
- Timeline: 2026 – 2028
- Expected recovery Q4 22: €0.37 million
Finko Ukraine
Finko Ukraine’s repayment schedule consists of two streams. The first was from the Finko UA’s operational income from borrowers’ repayments and debt collection, which is now disrupted due to the war in Ukraine and remains highly uncertain. The second stream is from claim rights that were secured as an additional source for repayments as result of our negotiations. We expect that the full exposure of Finko Ukraine will be recovered.
- Country: Ukraine
- Suspension: 21 August 2020
- Principal exposure at suspension: €16.78 million
- Recovered principal so far: €10.08 million
- Current principal exposure: €6.96 million
- Disclosure: Full
- Expected recovery: 75-100%
- Timeline: 2025
- Expected recovery Q4 22: €0.25 million
Finko Armenia (Varks)
The companies performing recoveries are contacting borrowers where possible and either collecting payments or agreeing schedules on how payments can be done. As a result, funds are being recovered. We are providing monthly funds in recovery updates for this process. Please note that given there are no penalties or interest that can be charged to the borrowers, it limits the possibility of recovering debts that are long past due. The recovery process will continue as long as the recovery costs are less than the money recovered.
- Country: Armenia
- Suspension: 25 March 2020
- Principal exposure at suspension: €27.35 million
- Recovered principal so far: €14.93 million
- Current principal exposure: €12.42 million
- Disclosure: Full
- Expected recovery: 50-75%
- Timeline: 2026
- Expected recovery Q4 22: €0.36 million
Any actions taken for Capital Service to provide borrower payment info, to cover investor claim acc. to agreement/advertised feature of the direct structure?
Back in 2020 the main aim when finding a solution with Capital Service was to start receiving payments from Capital Service, as well as to understand how the company can get back to business as usual in order to recover all funds of investors. Therefore, though asked, getting individual borrower payment info was not an important precondition to successful restructuring. Consequently, there are currently no activities that aim to get additional info on borrower repayments, but it is key that the company improves its operations, which would increase its possibility to refinance the expected bullet repayment in Jan 2024.
There is some development on GetBucks?
The court ruled that GetBucks Botswana owes money to investors on Mintos. The courts also decided that liquidation was not in the best interest of all creditors. The court appointed a judicial manager to the company at the end of October. The manager is now working on preparing a proposal, which we expect to receive by the end of December.
- Country: Botswana
- Suspension: 30 April 2020
- Principal exposure at suspension: €7.35 million
- Recovered principal so far: €2.63 million
- Current principal exposure: €5.14 million
- Disclosure: Limited
- Expected recovery: 25-50%
- Timeline: 2026
- Expected recovery Q4 22: 0
What is going on with ID Finance? It seems to be a scam; they owe too much money and no progress has been made so far.
ID Finance and Mintos reached an agreement about restructuring the current pending payments. This approach offers the best chance of fully recovering the outstanding amounts. The outstanding pending payments have to be covered by 31 Dec 2022 at the latest. The parties have agreed that if ID Finance finishes its ongoing funding initiatives faster, the pending payments will be covered as soon as the funds are received.
To compensate investors for rolling over their investments, the interest rate for pending payments has been increased to 1.4 times the original interest rate of the loan (on average 17.6%), which is significantly above the current market rate (average 13.8%).
Why you hiding Recovery payments from ID Finance in pending payments? How to you justify that you still give loans to ID Finance?
We are not hiding any information, but disclosing all the details. Having said that, we are in progress to adjust how and where the info is disclosed to make it more streamlined. ID Finance exposure in substance has been partially restructured. The company pays any new pending payments, hence we feel comfortable that investors can still invest. In addition, all this information is public and investors can choose their own investment criteria.
What is the status of IDF Eurasia? According to your restructured plan 11M should have been paid by 31.10.22 but on 28.10.22 only 1.6M was paid.
IDF Eurasia and Mintos reached an agreement about restructuring the current pending payments. This approach offers the best chance of fully recovering the outstanding amounts.
In October, the company transferred €4m out of the agreed €5m. While the bonds sale continues, IDF Eurasia has committed to transferring a minimum of €1m per week. Any proceeds from the bonds sale will be used to accelerate the payments.
What is the expected recovery from Finko? How does Mintos control the safeguard of Finko’s assets until court decision is enforced?
Finko Ukraine: 100%. Finko Armenia: 50-75%. There is no court decision expected.
Varks (Finko AM). Why Finko group guarantee is not triggered? Conflict of interest because Mintos and Finko have the same owners?
Finko Group consisted of a number of lending companies. If a lending company has a group guarantee, this usually means that other entities in the group are able to support particular entities when in need. For example, when Varks’ license was revoked and payment flows were interrupted, other entities would step in according to the group guarantee and help to make the payments. However, in the case of the Finko group, the other group entities were also severely impacted by Covid-19 and were not able to help. Finko group had to close some of the entities that just started operations (and were not listed on Mintos), while other entities listed on Mintos, were already in rundown due to closing of operations (Finko in Russia) or eventually defaulted (Finko UA).
The fact that there is overlap of equity investors (which doesn’t mean that the shareholding structure is identical Mintos), if anything, has helped the recoveries. It would be much easier to let Varks, or for the sake of argument Finko UA, go into insolvency with an appointed administrator, in which case there would be very small recoveries, if any. Currently, the companies are in self-liquidation, and even though there is nothing to recover for the equity investors, it allows us to recover the maximum amount for the creditors, i.e. investors on Mintos.
What is the expected recovery from Wowoo? How does Mintos control the safeguard of Wowoo’s assets until court decision is enforced?
Given the information available in the public domain on the financial standing of Wowwo, we do not have reasonable doubts about prospects of full recovery from Wowwo. Having said that, enforcing any arbitral award or court judgment abroad, when one would be obtained, can be a lengthy and complex process, with many uncertainties at this stage of the process. Realistic prospects of recovery would be known when the enforcement would commence, which has not happened yet. In terms of safeguarding Wowoo’s assets until a court decision is enforced, that is currently not a feasible route of action.
What is anticipated to happen with funds due from Cashwagon VN?
So far the liquidator has not managed to recover any additional funds from Cashwagon VN entity. The only remaining valuable asset of the company is cash which has been frozen in the company’s bank account as part of a local criminal investigation. As far as we know, the amount is around €2m in local currency. The liquidator is still performing certain actions to unfreeze the funds, however, there is no estimate whether the funds will be unfrozen or what the timeline for finalizing the recovery process will be. If the funds are unfrozen, as priority the cash would be used to settle tax debts of the company, and any remaining amount would be distributed to the creditors. The tax debt amount is unknown to us, hence at present it is impossible for us to estimate the amount which could be directed towards settlement of claims from Mintos’ investors.
- Country: Vietnam
- Suspension: 6 June 2020
- Principal exposure at suspension: €6.36 million
- Recovered principal so far: €1.40 million
- Current principal exposure: €5.23 million
- Disclosure: Full
- Expected recovery: 0-25%
- Timeline: TBD
- Expected recovery Q4 22: 0
There are funds in recovery for which there no updates for more than a year!! When are we getting those funds back? I am talking about Finko, Cashwagon, Monego.
You can find all updates on Funds in recovery updates in your Mintos account.
Thank you all for sharing your questions and helping us address what is most important to you when it comes to funds in recovery on Mintos.
