Macro-economic risk underlines value of good quality collateral
Collateral is a vital part of any peer-to-peer lending platform’s business model. But for Lande, recent macro-economic events have truly underlined how valuable good collateral can really be.
When Russia invaded Ukraine in February 2022, many European lenders scrambled to reduce their exposure to these markets, with varying degrees of success. With an investor base in Germany, Spain, France and Italy, and borrowers based in Latvia and Lithuania, Lande’s business was not directly affected by the war. But its collateral was.
Lande has traditionally accepted land, machinery and grain stock as collateral. A worldwide shortage of grain has actually meant that many Lande borrowers have seen the value of their collateral rise. Some have even opted to refinance their loans to take advantage of this opportunity.
But borrower collateral has been negatively impacted as well. Lande’s agricultural borrowers have been particularly affected by the availability of fertiliser, which is largely produced in Ukraine and Belarus.
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“The chemicals used have become harder to get and the price has grown ten times because Ukraine and Belarus are the main suppliers of fertiliser,” says Ričards Maļecs, account manager at Lande. “This is mostly impacting the smaller farmers.”
“However, they had already predicted this, so we were able to step in and help them before any problems occurred.
“We have helped them by extending the loan terms, and giving them more time to pay. If they have any issue we will connect with them and try to find a solution that works for everyone.”
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Soon after the Russian invasion, Lande decided to enhance its collateral requirements to make its loans even more secure. The platform’s diligent credit process has ensured that they have developed a strategy to quickly recover defaulted loans from borrowers who avoid communication and payments, while delivering average returns of up to 13 per cent to investors.
“We put larger restrictions in place for our loans,” he explains.
“Short term loans will now be limited to different amounts and we have also requested more collateral from our borrowers, and higher quality collateral.”
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Lande’s most popular collateral includes machinery, grain and land, but it recently added livestock and EU subsidies.
All of the platform’s loans are guaranteed against collateral. This has helped the platform to grow a loyal following across Europe, where returns can surpass 14 per cent, particularly when investors make use of various cashback deals and referral rates.
For Malecs, the current priority is protecting investor assets by ensuring that only the highest quality collateral is used to guarantee their financing.
“The only risk to the platform is that grain exports stop or the price of grain drops critically,” he says. “And that isn’t going to happen any time soon.
“Agricultural loans are stable and growing field. And they will always be a necessity for people because these farmers are growing the food that we eat.
“When agricultural loans are guaranteed with good collateral, that results in higher returns and happier investors.”