PEER-TO-PEER aggregator and analyst Orca has jumped to the defence of Funding Circle, warning the platform’s fortunes shouldn’t be held up as a sign of the overall health of the sector.
Funding Circle halved its revenue growth forecasts earlier this month, citing reduced loan demand and the economic environment.
This came just weeks after the collapse of Lendy and the withdrawal of P2P investor BondMason from the market.
But despite uncertain times, Iain Niblock (pictured) chief executive of Orca, said P2P loans are still offering “decent returns of four to six per cent and are able to diversify to assets that are uncorrelated with the stock market.”
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He said Funding Circle’s revenues may be an issue for equity investors, but said those investing in loans on the platform should not worry.
“The main risks when investing in P2P are credit and platform risk,” he said.
“Funding Circle’s loanbook is still growing, even if it is at a slower rate. Investors can also take comfort that Funding Circle has tightened its loan criteria as a result of the economic uncertainty, which should mean less risky borrowers and fewer defaults.
“At a platform risk level, Funding Circle is well capitalised. It had £333m in the bank at the end of 2018 and has a proven ability to raise capital even if it is making a loss.
“Investors should, of course, be concerned about the stability of the platform and the ability for the platform to sustain itself. But profit is just one metric. Stability of a P2P platform is very important for investors. This comes from decent management and sensible loan origination.”
He said profit is not the only financial factor investors should consider as most P2P platforms are still focused on growth, with a large number backed by venture capital businesses.
Niblock added that an ability to raise external funding, combined with strong growth in loan origination, is an equally valid indicator of long-term stability and hopefully profitability.