For more than two years, we have been directly providing micro financing with amounts up to S$100,000 to businesses via our sister company, FS Capital Pte. Ltd. ("FSC"). Financing these businesses has helped us understand the SME financing landscape and the quality of demand, plus derive a data-driven credit algorithm to predict portfolio default rates over a period of time.
Now, we’re ready to offer our investors the opportunity to co-invest with us in these deals! The introduction of this new product also means you’ll get to see more opportunities on the platform, and be able to invest in a wider range of products.
HOW ARE THE INVESTMENTS EFFECTIVELY GUARANTEED?
Funding Societies will ensure that the monthly repayments of principal and interests are sent to investors' accounts regardless of whether the SME makes a repayment or not.
How do we do this? Each deal is assigned a counter-party, FSC, which effectively guarantees the deal. During the monthly repayments, FSC will repay investors regardless of the repayment status made by the SME.
As the key risks are borne by FSC, your returns may seem less than the usual deals on our platform - but hey, it’s effectively* guaranteed!
Please invest with the knowledge that while FSC guarantees the return of all of the principal sum invested in and the rate of return in the Guaranteed Returns Investment, there may be a chance where FSC will not be able to fulfil its obligations under this arrangement.
To mitigate the above risk, FSC maintains a cash reserve buffer to allow for repayments to be made on time.
WHY ARE WE DOING THIS?
Even as we scale up, we are constantly balancing SMEs’ financing needs and investors’ demand for more opportunities. By opening this opportunity to our investors, we achieve 3 objectives:
- Avail more investments for our investors
- Offer our investors a glimpse of these micro-financing deals
- Provide more growing SMEs with financing through crowdfunding
This is also in line with our vision to finance more SMEs across the spectrum and reduce the funding gap in Southeast Asia.
WHAT’S THE DIFFERENCE IN THE PROCESS?
Not much actually! The crowdfunding process is very similar to our usual crowdfunding campaigns. The only three things investors need to note are:
- Guaranteed Returns Investment is a new product and has its own Auto Invest, so a fresh Auto Invest bot needs to be set up!
- As each deal size is expected to be less than S$ 100,000, we anticipate that the crowdfunding will be entirely done by Auto Invest, and will not open for manual investments! In the event that there are not enough Auto Investments, the deals will still be open for manual crowdfunding at the stipulated times.
- The factsheet for Guaranteed Returns Investments will be more concise compared to the regular investments on our platform. This is due to the fact that the credit assessment is done with a different set of criteria compared to the usual deals on our platform.
How does FS Capital manage the cash flow to ensure that they can make repayments even if there is late repayment or default on the SMEs’ end?
FS Capital (“FSC”) manages risk as a whole with margin for defaults to effectively manage the performance. In the event of higher than anticipated number of defaults, FSC has a cash buffer kept aside in escrow which will be activated to repay investors.
Does FS Capital put up any collateral to secure the guarantees for these deals?
There is no collateral pledged by FS Capital for these deals.
What if FS Capital is unable to repay the principal and interest or if the repayments are late?
In the unlikely event that FS Capital is unable to repay the principal and interest after 90 days past due date, the deals will be considered as default and FS Capital would be in default.
Am I entitled to any late repayment fees if FS Capital repays me late?
While we're not expecting FS Capital to make late repayments, investors are still entitled to late repayment fees if repayment happens after the 7-day grace period.
Is there any fallback if FS Capital fails to make the repayments?
Similar to our current process of collections, Funding Societies will also follow the same procedure in pursuing repayments from FS Capital.
Will I still get notifications before the deal starts crowdfunding?
For Guaranteed Returns Investment which are fully funded via Auto Invest, we’ll only be sending email notifications to investors who have been auto-allocated during pre-crowdfunding period (at least 3 hours prior) to allow investors sufficient time to review their auto-allocated investments.
Otherwise, our pre-crowdfunding communications remain unchanged :)
What happens to my Auto Invest queue once I set this up?
It follows the current Auto Invest algorithm.
I’d just like to explore this as an option and don’t want to setup my Auto Invest. Can I still invest?
As we are expecting high demand for this guaranteed form of investment, the deals may be 100% crowdfunded via Auto Invest. In the event that the deals are not fully crowdfunded, manual investment is still available.
There is an option for investors to opt out of the auto-allocated investment if they’re not interested.
Are there any Investor fees charged for this product?
Yes, our standard fee of 18% of interest earned is charged. For example, if the interest rate is 8%, your earnings after the fee is 6.56%.
Can you share the financial information for FS Capital?
At this point in time, we are unable to share the information with you. However, in the event of unexpectedly high defaults, FSC has a cash buffer kept aside in escrow account which will be activated for timely repayments to investors.
How does Funding Societies choose the deals that are Effectively Guaranteed?
In the past 2 years, we have been fine-tuning our proprietary alternative credit scoring system to open up access to financing to more businesses. This mainly includes micro-businesses that are younger in age that might have a good business model and and healthy cashflow. However, there is generally more uncertainty surrounding micro-businesses due to their size, so we feel more comfortable offering it to our investors in the structure of the Guaranteed Returns Investment product, whereby FSC is the primary bearer of the risk. We manage risk as a whole with margins for default and hence are able to effectively guarantee the returns.
Is there early repayment fee?
The details are published on the fact sheet and may differ for each investment. We recommend you review the fact sheets to obtain this information.
The rate of return for this investment normally falls within 2%-8% p.a., but the actual rate of return will depend on the individual offerings in question. This article provides general information on the type of investment, and you are encouraged to seek independent financial and legal advice before investing.