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The most recent AMA (Ask Mintos Anything) with the Mintos CEO Martins Sulte was live-streamed on 28 August 2020. We’re sharing the summary of key takeaways from the most upvoted topics addressed during the 70-minutes long conversation in which Martins replied to around 40 questions from investors.
Investors asked about: current Mintos tasks
Mintos team is working on issue cases and related recoveries. As usual, work on the product is in constant progress: Mintos has recently launched new investment strategies (Diversified, Conservative and High-yield). Mintos mobile app is being continually upgraded, and in the upcoming period, the current Mintos Rating and its methodology will see a profound makeover, too.
Soon, Mintos will become a regulated marketplace, and the company is working on getting the necessary permissions: Investment Firm license and Electronic Money Institution license.
When it comes to investors, the most important current topic is recoveries.
“We had decent progress with recoveries. We have already recovered approximately 35% of the exposure from suspended and defaulted loan originators (around EUR 33 million), and this work will continue,” said Sulte. He added that while Mintos sees good progress with some loan originators, with others the progress is much slower. For a number of cases, all or almost all exposure is recovered. Martins mentioned Lendo, IuteCredit Kosovo, and MetroKredit from Russia who also has covered practically all of its exposure. He added that the exposure from Peachy will be recovered soon.
Investors asked about: AlexCredit
AlexCredit is currently originating very small amounts in Ukraine where the situation with the COVID-19 pandemic is quite serious. Nevertheless, Mintos has made progress with AlexCredit.
“In this case, our approach was to take over the servicing of loans. We have already identified the partner and we’re in the very last stage in taking over the servicing of AlexCredit portfolio related to Mintos,” said Sulte. He added that such a setup will yield most recoveries for AlexCredit loans, although servicing might be challenging in the current environment. He said that Mintos will do its best to recover as much as possible from this loan originator.
Investors asked about: Capital Service
Mintos rejected the Capital Service proposal regarding the repayment schedule for Mintos investors. The proposal was completely unacceptable for Mintos as a representative of investors, “and something Mintos could not agree with”.
“Anyway, Capital Service asked us to ask investors about their opinion regarding the proposal, so we did. 93.4% of investors confirmed that the offer is not acceptable, so we shared this finding with Capital Service, too,” said Sulte. He said that Mintos recently met with Capital Service in Riga to continue the work on the restructuring plan. As Mintos sees it, this plan should be a viable pass out from the current situation; it would protect investors’ interests while yielding the best possible recoveries. “Capital Service needs to restructure its cost base, they also need a much better collection, which might not be an easy task during the pandemic. We made the Mintos terms sheet which we believe is a much better proposal – it would keep Capital Service operational while protecting the interests of our investors,” said Sulte.
(By the time this article is published, affected investors were informed about results of the Survey via email.)
Investors asked about: pending payments and recoveries
The main idea about pending payments is to show two types of statuses: one (finished) is with respect to the borrower, and the other (pending) is with respect to the loan originator.
In regards to the first status – the loan can be finished, without Mintos receiving money for that loan from the originator. Loans like that can not be shown as “current” – borrowers are not paying any interest anymore – so the loan is shown as finished. “We have to portray the status of the underlying loan, to show whether the borrower is repaying interest, is repayment late or not, and respectively, this goes into finished or current loan status related to the borrower,” Sulte said.
The other status is related to the process from the loan originator to Mintos. If the loan is finished, Mintos receives information through the API and learns that borrower’s repayment is collected by the loan originator, and the loan originator transfers it to Mintos. “In issue cases when there are problems with regular transfers of borrower repayment from loan originator to Mintos, this money becomes a subject of recovery,” Sulte said.
Investors asked about: approach to issue cases and working in the interest of investors
“We are working in the interest of investors at all times. But, our work is also to run a balanced marketplace, and we can’t take sides. We understand that investors want to see insolvencies and lawsuits, but we have to remain rational,” Sulte said when asked if Mintos “keeps sides” in particular issue cases. Martins said that based on Mintos’s experience, it’s rarely the case that making companies insolvent results in good recoveries. “It’s much better to cooperate, work on restructuring, keeping the company as a going entity. Lawsuits can drag for a long period of time, and eventually, there wouldn’t be many assets left,” Sulte said about the cooperative approach of Mintos. He added that a more aggressive attitude would mean losing a possibility of cooperation and eventually of an entity that can service the loans, do the collections and transfer the repayments to investors on Mintos.
“For many loan originators, the most important asset they have is the outstanding portfolio from their borrowers,” said Sulte, adding that those portfolios need to be serviced, companies need to be able to collect as much as possible, charge their fees in order to pay for the buybacks, etc.
Investors asked about: Akulaku
Akulaku pays to Mintos as per the agreed restructured plan. The company is continuing to issue loans in smaller amounts.
Investors asked about: Monego
Monego liquidator is collecting payments from the company’s borrowers in Kosovo, and Mintos is expecting the transfer of borrowers’ repayments to Mintos and Mintos investors. “There has been a tax audit, something that limited the liquidator a bit, but we also believe that the liquidator was not doing the best job possible. Because of this, we changed the law firm”, said Sulte. He added that not all money has been collected from borrowers, and that the situation with the COVID-19 pandemic in the Balkans is not making the collection any easier. A significant part of Monego exposure is collected, and Mintos is working to get those payments.
Investors asked about: Aforti
Aforti has made payments to Mintos and covered the debt to Mintos, previously accumulated as the marketplace was covering outstanding dues of Aforti to investors on Mintos before the pending payments functionality was introduced. This debt amounted to around EUR 1.2 million, and now it’s covered.
“Next payments from Aforti will go to investors, and I think some investors have already received some of these payments. We have been recovering Aforti exposure and will continue doing so, and investors will continue seeing recoveries from Aforti in the coming weeks and months,” said Sulte.
Investors asked about: bank statement requests, KYC requirements, money withdrawals
Martins Sulte said that the fact that Mintos requests to see investors’ bank statements is not a matter of whether the company has the right to do so – it is a requirement related to the anti-money laundering (AML) procedures. “We need to follow regulations, and especially now when we’re on our path to receiving licenses and permissions from the regulator. In Latvia, AML regulations are quite stringent, probably even more than in other countries of Mintos investors. AML is the reason why we need to request such detailed information,” said Sulte.
He added that it’s not in the interest of Mintos to make procedures more complicated for no reason, as this reflects in the investors’ activity on the platform. “We’re trying to make these requirements as user-friendly as possible, but we have to do it within the framework of what the law requires and allows,” he added.
Sulte also addressed a question about why investors who terminate relations with Mintos by not agreeing to User Agreement terms and conditions can’t withdraw money on their own, but Mintos does this for them. Sulte said that once the User Agreement is not accepted, Mintos doesn’t have any legal grounds to continue servicing a particular user on the platform. “In such cases, we can’t really provide any service to the investor. This means the investor’s account is going into wind down, leaving them with an ‘account-view mode’ only: they can’t invest, can’t sell on the Secondary Market, or do any other activity on Mintos because now nothing is regulated in that relationship. Hence, we are paying back the money that’s collected by us,” explained Sulte.
Investors asked: Finko’s sale of Sebo
Sulte said that although financials looked pretty good for Sebo during 2019, the pandemic in Moldova through 2020 has affected the company strongly and that Sebo could eventually end up in a wind-down. “For investors who have investments in loans issued by Sebo and Finko in general, this is a good outcome. Mogo has operations in this region, they know the market and they can work there in the long term. Besides, Sebo now also gets a Mogo group guarantee,” Sulte added.
Investors asked about: Legal expenses and investors
Martins also talked about the miscommunication of the update of terms and conditions in the latest User Agreement. Mintos underestimated the need to underline that the content in question was already part of the User Agreement, and it was only added in terms and conditions in a more explicit language.
“When it comes to legal expenses, to this date, we never charged or recharged these to investors and we don’t plan to do it in the future on a regular basis,” said Sulte.
The clauses (10.4 and 10.5) are added to describe situations when the cost for the legal measures needed to retrieve recoveries might be significant, and the need to share the costs with investors would arise. This would be done in cases when it’s evaluated that such an action would yield a high recovery rate, and when the costs to manage such a case would be too high for Mintos to cover on its own. Mintos does not plan to charge small legal expenses or inhouse legal expenses to investors. More details about this clause are described in our FAQ.
Sulte said that in any similar case such a decision wouldn’t be taken lightly and Mintos would communicate such a proposal to investors very clearly.
Investors asked about: Mintos due diligence
Martins said that when evaluating a loan originator, it’s not necessarily about whether it is strong or weak, but whether the loans offered are priced correctly with respect to the underlying risk. It’s understandable that loans priced at 13% or 14% come with more risks and that some of these risks will be materializing, hence some loans will be defaulting. In the same manner, prime loans priced at 3-5% would come with lower risk and one would not expect to see many defaults there.
“In our due diligence, we are making sure that the risk-return relation is reasonable. We evaluate management, loan performance, financials, market situation, etc. We’re making an assessment of the current situations and we do make some forecasts for the future, but we can’t predict what will happen in the long term – e.g. the current pandemic,” said Sulte.
“Loans do come with a buyback guarantee, and guarantee is a widely used legal term. We could also say that loans are sold with ‘recourse’, or loan originators are selling ‘credit default swap’ to investors. We chose to use the name guarantee, but it doesn’t mean that any guarantee is set in stone. The guarantee is only as good as the company who provides it,” Sulte added.
Mintos in the future
“In the coming years, we will continue working toward our vision which is to make loans as common as investing in stocks, bonds, real estate, or any other major asset class and accessible for retail investors across the globe,” said Sulte. Mintos plans to expand its offering with additional services like the already mentioned IBAN account and Mintos debit card. “We will be able to offer other investment opportunities besides loans. With an investment firm license, we can also provide active portfolio management,” said Sulte, anticipating a lot of branching out for Mintos compared to the current offering of the marketplace.
He also shared that a few weeks ago, Mintos started talking to new potential loan originators, saying that the first new one to join might do so in the near future. He said that Mintos is approaching this process step by step. Mintos needs to find a balance between investors’ demand and loan supply. Besides new loan originators on Mintos, the current ones are introducing new products to the marketplace, which also helps expand the diversification possibilities for Mintos investors.