P2P investments security has become a number 1 concern globally. Be it related to life, assets or money, it’s human nature that he doesn’t compromise on any kind of security. Similarly, at Monestro, loan security is dealt with high priority and sensitivity.

Our highly skilled team has secured the loans in 4 ways:

• Skin in the game
• Buy-back Obligation
• Voluntary Reserve
• Diversification

Skin in the game

All Loan Originators that place loans on the Monestro marketplace must keep a certain percentage of each loan on their balance sheet. Skin in the game refers to how much of their funds the Loan Originator retains in each loan. For example, if a Loan Originator with 10% Skin in the game issues €1000 loans to a borrower and then places this loan on the Monestro marketplace, only € 900 of this loan will be available for investor’s to invest in; the Loan Originator will keep €100 on their balance sheet. Skin in the game ensures that the Loan Originator’s interests are closely aligned with the investor’s interests – both sides have a stake in the loan.

Buy back obligation

Buyback obligation policy is designed to protect investors from borrower’s defaults. All our lending companies abide by this rule.  This policy is applicable when a Loan Originator fails to make payment for more than 60 days, the Loan Originator will repurchase the investment for the principal’s nominal value and accrued interest. It is valid until the loan originator is in the business. Most of the loans continue to accrue interest during the late period, depending on the Loan Originator. An investor does not have to apply for a buyback option, it automatically comes into action once the loan originator defaults more than 60 days.

Normally, loans with a Buyback obligation have lower interest rates than the loans without it, the difference is the approximate estimated annualized bad debt rate. The loan Originators charge borrowers a higher interest rate than that of what they charge to the investors at Monestro. As a result, marketing and administrative cost are covered by that amount also Loan Originator’s profit is also obtained. To compensate for this risk, the Loan Originator takes a higher share of the interest paid by the borrower. In other words, the Loan Originator manages the Buyback Obligation from the interest rate spread between the interest rate they charge to borrowers and the interest rate they pass to investors.

Meanwhile, to mitigate possible default risks – we focus on the Loan Originators who have Forward Flow Agreements. Instead of writing off the debt – defaulted loans, most likely would be sold to 3rd party firm that specializes in debt recovery. However, it is important to state that not all Loan Originators use such practice.

Voluntary Reserve

Since Monestro’s basic principle is to ensure secured investments, we have voluntarily maintained a fund to reimburse the investors by acquiring their claim in the event that a Loan Originator fails to comply with Buy-back Obligation and other conditions of the policy are met. Of course there are some conditions of this policy and are subjected to the availability of the funds. However, the reserve does not guarantee recovery of the investor’s investment in parts or in full.

Monestro makes constant contributions to this reserve. The amount of contributions is determined by us depending on the risk assessment. Typically, the monthly contribution to the Reserve is 0,35% – 0,55% of the outstanding principal amounts of all Claims. If any Loan Originator does not comply with its Buyback obligation, the Voluntary Reserve is used to acquire the Claims from the Investors and make other pay-outs to investors.

Diversifying your investment portfolio

In order to cushion the monetary shocks, we are offering diversification option. Investors at Monestro can choose from the options of several loan Originators, they are able to divide their investments, in smaller chunks, amongst different loan originators. In case an LO defaults, the entire investment is not vulnerable.

You can diversify according to the following options:

• Loan Originators
• Tenure or maturity
• Different geographical markets

To read in-depth information about diversification, click here

Conclusion:

As we dedicated to delivering safer investment peer to peer platform, we have ensured that the investments at Monestro are backed up, we can do that by following methods.

• Skin in the game
• Buy-back Obligation
• Voluntary Reserve
• Diversification

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