The Russian invasion of Ukraine entered its third week. It brought devastation to human life and Ukrainian urban and economic infrastructure, with millions fleeing their homes in Ukraine. The resulting economic warfare is further weakening Russia and foreign investments in the country. The global impacts of the war are realistically still uncertain.
At Mintos, as professionals and individuals, we follow daily developments of the war and monitor the effects of the sanctions for Russia closely. Around 15% of the Mintos outstanding investment portfolio is currently locked in the country where we previously had cooperation with 7 lending companies. For investors, this currently means that borrowers’ repayments made for loans in Russia are a subject of blocked financial transactions. For Mintos as a business, this means that we have skin in the game with 15% of the revenue from working with these lending companies. Historically, we had a very successful business relationship with lending companies from the Russian market, with zero cases of defaults over the course of 7 years.
We actively work primarily to find sanctions-compliant alternative channels for the transfer of borrowers’ repayments to Mintos investors. As the larger part of our business is operating as usual, we are working on servicing our investors and on our platform’s offering in a regulated environment. In the AMA (Ask Mintos Anything) session for investors that was live-streamed on 7 March 2022, Mintos Co-founder and CFO/COO Martins Valters gave a detailed overview of how sanctions are impacting money transfer flows to and from Russia and what this means for Mintos and investors on the platform.
Long-term uncertainty met with real-time activity on Mintos
“Investments in stocks in Russia are stuck, international business operations are paused or stopped, even planes owned by European leasing companies’ can’t be retrieved as Russia became an isolated island in the international policy and financial market currents. The Central Bank of Russia has taken a series of actions, including banning transfers to accounts abroad and closing the Moscow Stock Market since the first day of the war, to delay informing about losses that definitely did occur.
This also has an impact on borrowers and lending companies, who are hostages of the situation created by the country’s leadership. While we do see a strong willingness from the Russian lending companies to pay their dues to Mintos and investors – this is just not possible at the moment. Euro and other foreign currencies can’t be transferred from Russia, and European banks can’t service the rouble as they abstain both from a possible breach of sanctions regulations, and from the currently undefined value of the rouble,” says Martins Valters.
“Without understanding what is the potential value span of the rouble, and with Russian businesses being blocked from access to their foreign currency assets, we can’t address the debt restructuring, no matter how willing lending companies are to fulfill their obligations. That’s why we’re working daily to find alternative channels for transferring borrowers’ repayments. Looking further ahead, the most hopeful development is that common sense will prevail, diplomacy will succeed over arms, and we will soon see direct implications on the financial markets in the long term. Until this is reality, we will continue to work on solutions for transferring repayments, and on the larger part of our business that is intact, and which actually shows signs of growing attractiveness for investors in the asset class of loans,” Martins adds.
Loans from the rest of the world currently unaffected
While Russian assets have essentially become frozen, investors’ outstanding investments in the rest of the world that constitute 85% of total investments on Mintos are currently not directly influenced by this war. As horrific as the war in Ukraine is, the war itself has no direct impact on borrowers’ repayments in Spain, Mexico, Indonesia, and other countries across the world that are not involved in the current warfare. When it comes to possible spillover, volatility of share and bond prices may hurt those involved in a range of affected investments, but it has no influence on borrowers’ ability or willingness to repay their debts across global markets. Once fed into prices of goods and services, spikes in commodity prices likely won’t have a substantial impact on borrowers’ loan performance. The volatility in the markets has, however, led to higher interest rates for corporate fixed income instruments. We see a similar trend for loans on Mintos.
Return of the mid-teen interest rates
“Interest rates for loans on Mintos have increased substantially, from 8.6% on average in January to 10.6% in March. The bulk of loans available from investments come from established lending companies and groups that have their operations around the world, like Creditstar, ID Finance and IDF Eurasia, Eleving group, and Sun Finance. These companies have their borrowers on 4 continents and in various geographies: from Mexico to South Africa and Kenya, in Indonesia and Vietnam, and in Estonia, Finland, Lithuania, Latvia, Poland, Spain, and other countries in Europe,” said Janis Pranevics, Mintos Head of Partnerships.
Also, some lending companies have started offering EUR investments at interest rates above 13% for the first time in months. In the past two weeks, we saw €10 million of loans with rates ranging from 13% and up to 16% being listed on the platform.
In light of recent events, we encourage investors to properly evaluate their own risk appetite before investing, to follow the global economy, and make their own assessment of the size of their investment portfolio and how to distribute it to minimize risks the best, while gaining global momentum for earning with solid interest rates.