A UK-based peer-to-peer lending platform is targeting investors in the UAE, advertising interest of up to 8 per cent at a time of record-low central bank rates in many global markets.
ArchOver, which allows a “crowd” of investors to lend to UK-based small and medium-sized enterprises (SMEs), has already arranged more than £20 million (Dh95m) in loans since launching in 2014.
It says investors typically make between 6.25 per cent and 8 per cent interest on fixed-term one- and two-year loans, which are – crucially – secured against the borrower’s accounts receivable. It has to date had zero defaults.
With interest rates in key global markets at historic lows, and in some places even dipping into negative territory, the platform is courting Middle Eastern investors desperately seeking investment yield and has already conducted two small events in the UAE.
“In the short term, the opportunity from the Middle East is for people to lend money across platform and to get used to that as a way of working,” Angus Dent, the chief executive of ArchOver, told The National from his offices in the City of London. “When we have got people comfortable on that side of things, then there is an opportunity to take it into that territory – to find borrowers.”
Here, Mr Dent explains how the platform works – and why he disagrees with the grave warnings about peer-to-peer lending made by the former head of the UK’s financial regulator.
Q. What kind of sums are people lending via ArchOver?
The minimum pledge on our platform from a lender’s perspective is £1,000 per project. So it is an amount of money that is not insignificant but not going to break someone if it goes wrong. But it is an amount that most people will think about before they lend.
The average investment for an individual is just short of £5,000. The average for a family office or institution is somewhere about £50,000. Everybody is welcome to lend over the platform. And what they have to accept is that it is a democratising process, by which I mean that everybody lends on exactly the same terms. I don’t care whether you’re going to bring us £1m or £10m or only £1,000 – you’re going to get exactly the same terms.
Q. What is the average interest rate you are charging?
Our average is about 7.3 per cent – that’s the return that the lender would actually get. On top of that we add our per centage point … And in addition to that the borrower pays for the credit insurance – 0.15 per cent of the company’s turnover. The average for the borrower, all in, if you include the credit insurance and everything else, is about 10.5 per cent.
Q. So the borrowing rates with ArchOver are comparatively high?
Yes, it’s not cheap money. And we always say to a potential borrower: “If you can get a straightforward, fixed-term loan from a bank, go and get it.” Because the bank’s cost of capital is [very low]. If it’s a fixed-term loan from a bank, you get it for under 5 per cent. But can you get that loan?
Q. The platform is open to overseas investors. Have you seen many from the Arabian Gulf?
There are a handful, all expats. And the amounts lent so far are relatively small. Investors typically start with a small amount, put it in, get their first month’s interest [and realise this] does what it says on the tin. What we tend to see is that they put £1,000 in the first two or three times, then it goes to £5,000 or it goes to £10,000 – and sometimes even larger amounts.
Q. You have visited Abu Dhabi and Dubai recently. What was the purpose of those trips?
We were looking for lenders, either [individual or institutional, as] everybody’s a member of the crowd. People were interested, intrigued in the first instance. And to an extent disbelieving, which is exactly what we get in the UK too. You say to people, “you can get6, 7, even 8 per cent return in a way that is very secure”, and a lot of people start to look for the catch. Now perhaps there is a catch – but if there is, we quite genuinely haven’t seen it yet. And we don’t believe that there is one.
Q. Adair Turner, former chief of the UK’s dissolved Financial Services Authority, would probably disagree with that. He reportedly said in February that peer-to-peer loans could be the source of losses that would “make the worst bankers look like absolute lending geniuses”. What’s your reaction to that?
The mistake he made, and there’s no other word that fits it, is that he tried to say that we were all the same, both the equity and the debt players in the crowdfunding space generally. And we’re not all the same.
ArchOver always takes security. We always have the credit insurance. We always do credit analysis on our potential borrowers. We have a second rank of credit analysis that is done by the credit insurers. And we are one of the very few crowd lending companies that actually monitors what the borrower is doing after they’ve been lent the money.
I’d like to say we’re on top of the situation. And if you look into it, you will find that some of the others in our sector are not so on top of it. And it’s just not right to clump us all together. We’re doing different things, we’re operating in a different way … You shouldn’t say, with the proverbial big brush, “ah – they’re all the same”. Because they’re not.