Today we’re launching the Mintos Risk Score, a new numerical risk evaluation model that will replace the Mintos Rating that we used since 2018.
The new Mintos Risk Score is a numerical measure that portrays the risk level of a particular investment opportunity on Mintos, and it serves as a supporting tool for investors’ decision-making. The most important difference in the value of the Mintos Risk Score compared to the earlier risk evaluation model (Mintos Rating) is that the Mintos Risk Score has a different methodology that includes more factors and shows more details, providing investors with a new level of transparency when investing on Mintos.
The Mintos Risk Score is an aggregate of four subscores that are also shown to investors. Subscores are assigned to four different aspects of a particular investment opportunity. They rate Loan portfolio performance, Loan servicer efficiency, Buyback strength, and Cooperation structure, and express them in numerical values. Based on our experience, we believe that these are the most important factors for investors when it comes to the evaluation of investment opportunities. According to the significance we see in each subscore, the weights of the subscores are Loan portfolio performance 40%, Loan servicer efficiency 25%, Buyback strength 25%, and Legal structure 10%.
The Mintos Risk Score and subscores are expressed on a numerical scale from 10 to 1, where 10 represents a low risk and 1 represents a high risk. The calculated numerical value is rounded to the nearest integer. For example, if the calculated numerical value is in the range of 6.5 to 7.4, the score is rounded to 7. Numerical values are split across three intervals: low risk (10-8), mid risk (7-5), and high risk (4-1). The score can also be shown as “Score Withdrawn”, with a value of 0, when one or more subscores are not available. Investors can find detailed descriptions of the risk ranges on the Mintos Risk Score page.
Transitioning to the Mintos Risk Score: current changes for the investment opportunities on Mintos
With the Mintos Risk Score, we have also introduced statuses that describe the activity of the lending companies on Mintos. Companies that are considered active are companies that have a “live” Mintos Risk Score.
With the new risk evaluation model, the way how risk values for the investment opportunities on Mintos are shown has changed, as the previous Mintos Ratings were replaced with a new methodology of the Mintos Risk Scores. Because these risk assessment models evaluate investment opportunities based on different methodologies, they are not transferable and comparable.
In the table below, we are sharing the previous Mintos Ratings and new Mintos Risk Score and subscores for investment opportunities on our marketplace.
Cases with a significant change in the risk position
Compared to previous ratings, scores have notably changed for loans from three companies on the Mintos marketplace.
Mogo Albania (7), Mogo Armenia (6), Mogo Bulgaria (7), Mogo Belarus (7), Mogo Estonia (7), Mogo Georgia (8), Mogo Moldova – Sebo (6), Mogo Kazakhstan (6), Mogo Lithuania (8), Mogo Latvia (8), Mogo Moldova (7), Mogo Romania (8)
Mogo has predominantly secured and long-term product mix and a track record in the European debt capital markets. While the loan portfolio performance is stable and Mogo as a loan servicer performs their operations efficiently, the Buyback strength has been evaluated to be in a mid risk range. This is a result of the company’s current financial standing: higher than industry average leverage ratio and marginal profitability and highly securitized funding. This also reflects the company’s sensitivity to currency and credit risks, as well as its increasing exposure to the volatile markets.
Mozipo Group Lithuania (7), Mozipo Group Romania (7)
Improvement in the risk performance of loans issued by Mozipo Group’s is mostly related to improvement of the loan portfolio quality. Mozipo’s non-performing loans ratio has remained low during the pandemic-caused crisis, especially in Lithuania.
Sun Finance Denmark (7), Sun Finance Kazakhstan (7), Sun Finance Latvia (7), Sun Finance Mexico (6), Sun Finance Poland (7), Sun Finance Vietnam (5)
Sun Finance has very advanced internal processes, and this is reflected in the Loan portfolio quality and Loan servicer subscores. Centralized decision making and high-level involvement of the headquarters play a big role in solid performance of internal controls and processes. Many of the group’s entities are top players in their markets, with strong capitalization ratios and profitability, adding value to the overall strong financial results and the group’s stability.
Lending companies with Score Withdrawn
Aasa Poland, ACEMA Czech Republic, DanaRupiah Indonesia, Debifo Lithuania, Extra Finance Romania, Finko Russia, Fireof Spain, ID Finance Mexico, JULO Indonesia, Moneda Bosnia and Herzegovina, Mogo Poland and Swiss Capital Kazakhstan are companies which had a rating assigned with the Mintos Rating model.
With the Mintos Risk Score, they are now shown as companies with a “Score Withdrawn”. The “Score Withdrawn” can be assigned for many reasons:
– the outstanding exposure to loans originated by a particular company to investors is 0,
– the company has no active loans on the Mintos Primary Market for a longer time (while it’s loans can still be traded on the Secondary Market),
– if delivery of the necessary information needed for the score update is pending.
A withdrawn score doesn’t mean that the company is suspended or defaulted on Mintos, or that it has problems in operations.
Lending companies with status change to “Defaulted”
There are three possible criteria for a lending company on Mintos to earn a status “Defaulted”:
– when the current estimated cash flows are not sufficient to cover buyback guarantee and/or lending company is not passing borrower repayments to Mintos,
– when the lending company has declared bankruptcy or a process of insolvency is underway (including enforced liquidation) or the company is under legal protection,
– in a case when restructuring solution has not been achieved within 180 days after the company has been suspended on the Mintos marketplace.
With the launch of the Mintos Risk Score, five previously suspended lending companies on Mintos are now becoming defaulted: Capital Service, Cashwagon (Vietnam, Philippines, Indonesia), Finko Ukraine, Getbucks Zambia and JSC ExpressCredit Holding.
More details about: the Cooperation structure subscore
The Cooperation structure subscore is a new addition to our risk assessment model. It evaluates the legal setup that defines the cooperation between the lending company, the investors, and Mintos as a representative of investors. The Cooperation structure subscore is especially important in a time of market distress, as it helps evaluate recovery prospects.
a.) Low-risk Cooperation structure subscore
Mintos is allowed to have direct control over the cash flows from the lending company’s borrowers. Should the lending company fail, there would be a ready solution for swift transfer of the claims against the borrowers to an alternative servicer and direct access to repayments from the lending company’s borrowers that would be held in an escrow account. Such arrangements can be costly and yield lower return for the investors.
b.) Mid-risk Cooperation structure subscore
Cooperation structure in the mid-risk range means that there might not be ready solutions in place to control cash flows from the borrowers, or to transfer the claims against the borrowers to an alternative servicer. Nevertheless, Mintos has additional means to recover investors’ claims, which could be a pledge over the longer term loan portfolio or a sufficiently strong group guarantee. This helps us to achieve better recovery and decrease uncertainty for investors.
c.) High-risk Cooperation structure subscore
When this subscore is in a high-risk range, it means that enforcement of rights under contracts might not result in recoveries for the investors in a swift manner, or that the recovery might be affected by lengthy legal proceedings. Recovery can be delayed because any of the following reasons or combination of two or more of them:
- Mintos does not have direct access to the cash flow from the borrowers and must rely on the lending company to transfer the funds to Mintos,
- there is no alternative servicer who would take over the servicing of the claims against the borrowers (different types of loans come with different handover possibilities),
- legal proceedings and arrival at an enforceable court order can take a lot of time.
Current Cooperation structure subscores on Mintos are in the mid-risk and high-risk ranges.
The Mintos Risk Score in the future
The Mintos Risk Score will be updated quarterly, based on the results of the monitoring of a variety of business aspects related to lending companies and their investment opportunities on Mintos. The material improvements or deterioration in any of the evaluated aspects can result in an immediate upgrade or downgrade of the related subscores, and might cause an upgrade or downgrade of the Mintos Risk Score.
Custom strategies will keep investing in loans based on previously set up preferences. Investors who want to adjust preferences of the investment strategies according to their risk appetite based on the Mintos Risk Score values should do that as soon as possible.
Note that the Diversified and High-yield Mintos strategies will include loans with Mintos Risk Scores from 10 to 2, and the Conservative strategy will include loans with Mintos Risk Scores from 10 to 7.
We welcome your comments and suggestions about the Mintos Risk Score. As always, we are listening to your feedback and doing our best to improve our services accordingly.