The Philippine stock market is currently suffering a bloodbath due to the general exodus of foreign funds from emerging markets reverting back to the US as the FED increases interest rates, and the continuous statements of newly-elected US President Donald Trump’s protectionist overtures, which if acted upon, could slow exports and reduce investments to developing markets.
In these times of market downturn, diversification is a key investment strategy. One way to diversify is to find alternative investment opportunities that are not totally related to equities but can also give competitive returns.
Nowadays, with the rise of digital technology, peer-to-peer platforms have enabled potential customers to be put into direct contact with potential providers of a service. Examples of this include Grab and Uber which connects drivers and riders, and FundKo, a peer-to-peer lending platform that connects verified borrowers and lenders.
Since the platform connects borrower and lenders, the Tagalog name “FundKo “can both mean ‘my fund’ on the part of the borrowers since they avail of loans, and ‘funding’ as a verb on the part of the lenders since they fund the loans of the borrowers.
Because FundKo provides a more efficient service than traditional lending channels, lenders who are looking for investment opportunities will find attractive returns while borrowers get reasonable rates.
Borrowers can avail of loans for their needs. The platform offers personal loans from as low as 10,000 to 500,000 and SME loans from as low as 100,000 to 2,000,000. Documentary requirements are needed for approval but because everything is online, borrowers do not need to go to their office physically to submit requirements providing a hassle-free application process.
To apply for a loan, borrowers need to register on the site. After confirmation of the borrower’s email address, an online application form is filled-up. Required documents should then be uploaded in the platform for credit assessment. Requirements for personal loans include 2 valid IDs with photos, 2 latest proofs of residence, 2-months latest payslip, 3-month latest bank statement, the latest certificate of employment, and a marriage contract (if married).
Borrowers will then undergo a credit assessment and within three days the borrower will know the status of his or her application. If approved, the loan will then be posted in the platform’s loan marketplace for lenders to fund.
FundKo presents an investment opportunity for investors to become lenders with a minimum investment amount of just 15,000. This is a perfect alternative investment to equities especially now that the stock market is on a downtrend.
As with all investment vehicles, it also involves risks hence lender’s investment is not guaranteed. There is always a risk of borrower default. To mitigate risks, FundKo employs a thorough screening process to filter quality borrowers which involves searching for a hit against a database of bad borrowers and verification process of all documents submitted by the borrower. Fundko’s rejection rate is currently at 85% which means that out of all loan applications, only 15% got approved.
In addition, the platform also employs a 20% maximum threshold diversification in the form of funding of loans for both borrowers and lenders. That is, lenders can invest a maximum of 20% of their portfolio in one loan and only 20% maximum of a loan can be funded by one lender. One loan can be funded by many lenders and lenders get to fund many borrowers.
To start investing, lenders can register on the site to become an investor. Once registered, the next step is to fund their accounts either through direct deposit to the company’s bank account, or through its online payment gateway partner, DragonPay.
Once funds have been verified, it will then be credited to the lender’s account. They can now go to the platform’s loan marketplace to choose which loans they want to fund or invest. Once they have selected loans and pledged amounts, they will need to verify the transaction via an SMS code that the platform will send to their registered mobile number as an extra security measure.
Lenders earn through the interest income of the loans they fund. As borrowers repay their loan monthly, funds will be credited to lender’s account. The lender can choose whether to withdraw it or re-invest it for more income through compounded interest.
Fundko’s mission is financial inclusion for both borrowers and lenders. Loan interest rates are very friendly for the borrower when compared to other traditional sources of credit such as pawnshops and credit cards, and online lending companies. Lenders can get better returns than traditional fixed income investments in banks, corporate and government bonds, while funding portions of multiple loans that help borrowers who are in need of financial assistance.