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  1. #1
    Advanced Member BIRMANBOY's Avatar
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    Default Is p2p investing really investing?

    So here we are looking at "investing" funds into an entity that exists to lend to people who cannot get funding from a bank. Is this really something that could or should be termed an investment? Brand new vehicle and rapidly growing number of suppliers would seem to be a recipe for a little caution it would seem.
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    Quote Originally Posted by BIRMANBOY View Post
    So here we are looking at "investing" funds into an entity that exists to lend to people who cannot get funding from a bank. Is this really something that could or should be termed an investment? Brand new vehicle and rapidly growing number of suppliers would seem to be a recipe for a little caution it would seem.
    Borrowers who use p2p are not all in the the 'can't get funding from bank' boat. People who chose to use P2P may do so because the rates are better, approval is faster and criteria more flexible. Why is this?

    Banks are laden with legacy issues regarding how they can lend and the cost of lending. Risk, compliance, AML, CAPEX, OPEX and lending arrogance have made a rod for their backs.

    Harmoney is the closest you'll find to consumer finance and I agree with you, caution is needed, because these borrowers are near the bottom rung - the interest rates border on usury.

    LendMe has the most secure and ethical offer and although they're taking their time, they launched with secured lending. As a business, why wouldn't you want to borrow with an interest rate starting as low as 6.64%, unlike a bank, no hidden costs to inflate the true rate.

    Like any investment, proceed with caution, but the FMA has create a once in a generation change for a reason.

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    Quote Originally Posted by Colgar View Post
    ...
    Harmoney is the closest you'll find to consumer finance and I agree with you, caution is needed, because these borrowers are near the bottom rung - the interest rates border on usury.
    ...
    Back when inflation was high, the interest rates the Big Banks were charging on credit cards were high too, and depositors too were receiving high interest on their savings. Is usury dependent on the time and economic and fiscal conditions? Some regard the charging of any interest as usury, as always it depends on where your moral (and/or religious) code draws the line. There are plenty of investment opportunities on the NZX which would be (morally) objectionable to some people.

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    Quote Originally Posted by BIRMANBOY View Post
    So here we are looking at "investing" funds into an entity that exists to lend to people who cannot get funding from a bank.
    Sounds like a lot of listed small cap stocks, though some would say that is gambling.

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    Advanced Member BIRMANBOY's Avatar
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    Why muddy the waters by bringing in religion or morals...this is, as all investments should be primarily regarded, simply a question of how good is the return blended with how high is the risk. If someone has a predominant leaning to leading their life based on particular religious or certain moral standards then that's a different discussion. This discussion is geared to how "good" is it as an investment or even can it actually be truly considered as an investment. Seems to me to be way too early to call these investments in the traditional usage of the word. What about investing in Cash converters or pawn shops? They lend money to people who need funds as well...at least they have the benefit of having goods to be resold if the loan is not recovered. As interest rates drop generally and as /if banks start losing traction on their loan books it would be easy for them to match/compete with all the new PtoP start ups. This could lead to a big shakeup and shakeout among themselves to stay afloat. As someone said investment may be too kind a word..maybe a gamble is more appropriate.
    Quote Originally Posted by Bjauck View Post
    Back when inflation was high, the interest rates the Big Banks were charging on credit cards were high too, and depositors too were receiving high interest on their savings. Is usury dependent on the time and economic and fiscal conditions? Some regard the charging of any interest as usury, as always it depends on where your moral (and/or religious) code draws the line. There are plenty of investment opportunities on the NZX which would be (morally) objectionable to some people.
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    Quote Originally Posted by BIRMANBOY View Post
    As someone said investment may be too kind a word..maybe a gamble is more appropriate.
    That might have been me but I do think it is an investment. It is providing money in return for a risk weighted return. Gambling is providing money in hope of a chance(lotto)/performance(sports) based return.

    Having said that, if you don't diversify, then it become more of a chance based return over a risk based return. I am sure someone in trained in statistics/finance will disagree with me.

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    Advanced Member BIRMANBOY's Avatar
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    Its a continuum...at one end is secure investment at the other end is gambling. Where it sits on that long and winding road depends on the individuals personal perception of the facts combined with an educated (or otherwise) estimate of its future prospects. This particular type P2P is short on facts (no history) and long on hopeful assumption. To my mind this puts it further towards the gamble end of the continuum. Diversification is great but I'm not sure I want to go this far away from the investment end. The longer its been in existence and the more utilized it becomes then it could shift. However there is no growth to be had here. Its not like a good share that will grow in value the longer you hold it. I think the downside here is bigger and conceivably could involve bigger losses if the industry doesn't turn out or becomes saturated with too many entities fighting for a piece of the pie.
    Quote Originally Posted by Harvey Specter View Post
    That might have been me but I do think it is an investment. It is providing money in return for a risk weighted return. Gambling is providing money in hope of a chance(lotto)/performance(sports) based return.

    Having said that, if you don't diversify, then it become more of a chance based return over a risk based return. I am sure someone in trained in statistics/finance will disagree with me.
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    Quote Originally Posted by BIRMANBOY View Post
    However there is no growth to be had here. Its not like a good share that will grow in value the longer you hold it. I think the downside here is bigger and conceivably could involve bigger losses if the industry doesn't turn out or becomes saturated with too many entities fighting for a piece of the pie.
    How do yo compare it to the likes of investing in corporate bonds or finance companies - which are its true competition, not shares. I compare it to the finance companies, the difference from the finance companies of old is you are actually being compensated properly (or at least better) for the risk you are taking on.

    And if you end scenario does take place, just start withdrawing funds, rather than reinvesting. You might not pick exactly when competition gets to tough but most of you money will be in older loans so you shouldn't be overly impacted unless you have been increasing your investment recently.

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    Advanced Member BIRMANBOY's Avatar
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    Yes your analogy to finance co's is on the money...and we know where that led. Personally wouldn't put bonds into the same category however. I would be worried more with the cataclysmic type of event that may see all funds and loans frozen. Lenders may not have the luxury of exiting gradually. Major concern is this is brand new territory....who knows what may happen or could happen. I'm sure that there have been safeguards written in but nothing has been tested or put under pressure so outcomes are completely unpredictable the fact that the FMA has some oversight wouldn't allow any peace of mind in my opinion.
    Quote Originally Posted by Harvey Specter View Post
    How do yo compare it to the likes of investing in corporate bonds or finance companies - which are its true competition, not shares. I compare it to the finance companies, the difference from the finance companies of old is you are actually being compensated properly (or at least better) for the risk you are taking on.

    And if you end scenario does take place, just start withdrawing funds, rather than reinvesting. You might not pick exactly when competition gets to tough but most of you money will be in older loans so you shouldn't be overly impacted unless you have been increasing your investment recently.
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    every investment there is always a bit of a gamble... loto, hoseracing, stocks , property

    p2p - I do think it is an investment. It is providing money in return for a risk weighted return.

    Like other investments it also has the other factors like it is not very liquid, in that your money is pretty much tied up for the term.
    your initial investment/principal wont grow which is analogous to no capital gain
    you do get monthly, or periodic, repayments which is your cash flow.


    Overall I do like the idea of p2p as in principal it puts peeople with money together with people who want money and are willing to pay a charge on top.
    This in a way cuts out the middleman(the banks) which I like but unfortunately you still need a middleman(harmoney,squirrel...etc) to take their cut.

    From a borrowers point of view, I would only use the p2p if it was cheaper and more accessible than going to the banks. But then there will always be people(with the higher risk profile, people who can't go to banks) who would normally go to the 2nd or 3rd tier finance companies for their loans. I guess p2p is competing with these also.

    From a borrowees point of view they can put there money in for a certain return. And this return is clipped by the middle man. But it can be diversified enough to sprea the risk.

    It will be interesting to see the longterm of these p2p companies, but if the us and uk is anything to go by it seems like they might be here for a long time.

    Also interesting is the different operators all have different models.
    Lending Crowd
    Harmoney
    LendMe
    Squirrel Money.

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    Quote Originally Posted by AppleCrumble View Post
    every investment there is always a bit of a gamble... loto, hoseracing, stocks , property

    p2p - I do think it is an investment. It is providing money in return for a risk weighted return.

    Like other investments it also has the other factors like it is not very liquid, in that your money is pretty much tied up for the term.
    your initial investment/principal wont grow which is analogous to no capital gain
    you do get monthly, or periodic, repayments which is your cash flow.


    Overall I do like the idea of p2p as in principal it puts peeople with money together with people who want money and are willing to pay a charge on top.
    This in a way cuts out the middleman(the banks) which I like but unfortunately you still need a middleman(harmoney,squirrel...etc) to take their cut.

    From a borrowers point of view, I would only use the p2p if it was cheaper and more accessible than going to the banks. But then there will always be people(with the higher risk profile, people who can't go to banks) who would normally go to the 2nd or 3rd tier finance companies for their loans. I guess p2p is competing with these also.

    From a borrowees point of view they can put there money in for a certain return. And this return is clipped by the middle man. But it can be diversified enough to sprea the risk.

    It will be interesting to see the longterm of these p2p companies, but if the us and uk is anything to go by it seems like they might be here for a long time.

    Also interesting is the different operators all have different models.
    Lending Crowd
    Harmoney
    LendMe
    Squirrel Money.
    Don't you mean lenders point of view?

    Also, how would you describe each operators model in a sentence?

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    Quote Originally Posted by BIRMANBOY View Post
    Why muddy the waters by bringing in religion or morals...this is, as all investments should be primarily regarded, simply a question of how good is the return blended with how high is the risk.
    I agree. All investments carry a greater or lesser risk, which the investor will wear according to the investor's tolerance and awareness of the risks involved.

    I was responding to a previous post which brought up the term "bordering on usury" in relation to Harmoney. "Usury" is not a "neutral" word and its meaning involves judgment or conscience as to what is reasonable according to the ethical or moral standpoint of the person who uses it.

    Usury is, today, the practice of making unethical or immoral monetary loans that unfairly enrich the lender. Wikipaedia https://en.wikipedia.org/wiki/Usury

    an unconscionable or exorbitant rate or amount of interest Merriam-Webster

    The action or practice of lending money at unreasonably high rates of interest: ‘the medieval prohibition on usury Oxford Dictionary

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    Advanced Member BIRMANBOY's Avatar
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    Hah...and LOL etc...every investment...loto???. horseracing???? That may be stretching the definition of investment just a tad.
    Quote Originally Posted by AppleCrumble View Post
    every investment there is always a bit of a gamble... loto, hoseracing, stocks , property

    p2p - I do think it is an investment. It is providing money in return for a risk weighted return.

    Like other investments it also has the other factors like it is not very liquid, in that your money is pretty much tied up for the term.
    your initial investment/principal wont grow which is analogous to no capital gain
    you do get monthly, or periodic, repayments which is your cash flow.


    Overall I do like the idea of p2p as in principal it puts peeople with money together with people who want money and are willing to pay a charge on top.
    This in a way cuts out the middleman(the banks) which I like but unfortunately you still need a middleman(harmoney,squirrel...etc) to take their cut.

    From a borrowers point of view, I would only use the p2p if it was cheaper and more accessible than going to the banks. But then there will always be people(with the higher risk profile, people who can't go to banks) who would normally go to the 2nd or 3rd tier finance companies for their loans. I guess p2p is competing with these also.

    From a borrowees point of view they can put there money in for a certain return. And this return is clipped by the middle man. But it can be diversified enough to sprea the risk.

    It will be interesting to see the longterm of these p2p companies, but if the us and uk is anything to go by it seems like they might be here for a long time.

    Also interesting is the different operators all have different models.
    Lending Crowd
    Harmoney
    LendMe
    Squirrel Money.
    www.dividendyield.co.nz
    Conservative Investing and dividend producers...get rich slowly!
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  14. #14
    Advanced Member BIRMANBOY's Avatar
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    Yes I know what you mean. The posters use of the word usury was probably not meant as such but certainly does carry an emotive connotation and Shakespeare's depiction of Shylock as the (unfortunately) Jewish moneylender in The Merchant of Venice certainly put back the perception of Jews somewhat.... Realistically however credit card companies, finance co's, etc.etc.etc. will always be with us. There is always someone willing to exploit someone else's circumstances, whether it be for money, influence or power. That whole issue is so far reaching and fraught with so many potential opinions and emotions that is detracts from the main issue. Its hard enough judging investments worth on facts and figures. Problem here is as I said not a lot of facts and figures to really go on.
    Quote Originally Posted by Bjauck View Post
    I agree. All investments carry a greater or lesser risk, which the investor will wear according to the investor's tolerance and awareness of the risks involved.

    I was responding to a previous post which brought up the term "bordering on usury" in relation to Harmoney. "Usury" is not a "neutral" word and its meaning involves judgment or conscience as to what is reasonable according to the ethical or moral standpoint of the person who uses it.

    Usury is, today, the practice of making unethical or immoral monetary loans that unfairly enrich the lender. Wikipaedia https://en.wikipedia.org/wiki/Usury

    an unconscionable or exorbitant rate or amount of interest Merriam-Webster

    The action or practice of lending money at unreasonably high rates of interest: ‘the medieval prohibition on usury Oxford Dictionary
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    Quote Originally Posted by BIRMANBOY View Post
    Yes I know what you mean. The posters use of the word usury was probably not meant as such but certainly does carry an emotive connotation ...
    I think that "usury" is nearly always used in circumstances in which the writer is expressing ethical repugnance. The word has a negative connotation. If the writer intends a more benign connotation then "at a high interest rate" or similar would be used.

    Quote Originally Posted by BIRMANBOY View Post
    ... There is always someone willing to exploit someone else's circumstances, whether it be for money, influence or power....
    "Exploit" with its negative meaning requires a moral or ethical judgment. Such activity if proscribed by a nation's law is an illegal activity. Using the neutral connotation of "exploit" then that statement could apply to every investment. And if you add "or whether it be for self-satisfaction" it could be applied to every endeavour including organised charities and research institutions.

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