Updated: Jul 30, 2020
Disclaimer: The following content are meant for educational purpose. None of the content contained here constitutes a recommendation to make any investment. I am not responsible for any loss arising from any investment based on any information contained here. Readers are recommended to do your due diligence before investing with CapitalMatch. The company's risk disclosure can be found in this link. The content in this article is based on my personal experience and I am neither sponsored nor affiliated to CapitalMatch.
My Experience with CapitalMatch
Exactly a year ago, I invested in CapitalMatch when I was looking for methods to diversify my portfolio.
Yea right! That was more like an excuse. The real reason I invested was because I was tempted by the 15-25% Annual Percentage Rate (APR) which the company claims in its website https://www.capital-match.com/en/. As unbelievable as it sounds, I decided to take the leap of faith and registered an account to be a legal "money lender".
How does Peer to Peer (P2P) lending works?
This alternate method of financing has been popular recently and there are numerous P2P lending platforms such as CapitalMatch, MoolahSense, SeedIn, Funding Societies, Lending Club, Prosper etc in the market.
Peer-to-peer (P2P) lending allows companies to obtain loans directly from interested retail investors by cutting out the middle man (i.e. financial institution). It also utilises crowd lending methods whereby the loan given to the company is divided into micro-loans for each investor.
The simplified example below explains how crowd lending works.
A P2P lending platform receives a loan request of $100,000 from company X. The P2P lending platform publishes the loan and the company's information on its website. This $100,000 loan can be divided into $100 loans for 1,000 investors.
An investor can choose to
Select this loan manually, or
Set an auto-bot function to automatically lend a fixed amount of money (e.g. $100 cap limit for each company) every time a loan is published on the platform
At the end of the loan tenor, an investor receives the interest payments on his $100 loan after deducting commissions paid to the P2P lending platform. Such micro loans allows an investor to lend his money to numerous companies in small bite sizes instead of lending a lump sum to one company thereby diversifying his risks.
After comparing with another P2P lending company (Funding Societies), I realised that CapitalMatch offers shorter loan tenor of less than 3 months using invoice financing and they were more loans offered on CapitalMatch which means that my funds are consistently churning loans interests. The history of CapitalMatch can be found here.
I set an auto-bot funding limit of $1,500 for every loan published by a unique company. In other words, I limit my lending amount of $1,500 to any company. If any company defaults on loan repayment, they will be required to pay more interests in a later repayment. If they were to fold up and unable to pay off the loan, then I would have limited my capital loss to $1,500. That's the maximum risks I am comfortable to handle.
I invested about $22,000 in 2018 and another $13,000 in 2019. Below is the summary of my investments since I started.
The following is my account statements on 16 June 2019 (about 15 months after my first investment)
The total returns of the account is indicated under "Net interest" at $4,737.08. CapitalMatch took a commission of $1,022.78 which I am comfortable with since they are doing the legwork of a debt collector.
The total investments is $35,015 and the returns is $4,737.08. That makes an annual return of investment (ROI) of 13.53%. Do note that I have only invested $13,000 of the $35,015 in recent months, so the ROI is actually much higher (i.e. $4,737 out of $22,000 = 21%). 13-21% may not get you rich overnight, but if you factor in compound interests, the returns will be really attractive. Click here to see the compound interest returns.
In summary, with greater rewards come greater risks. The returns has been rewarding but has not proven itself to be able to weather through an economic recession. In addition, with the overextended bull market of more than 10 years, political instabilities, trade war and rising interest rates, we could see more and more companies defaulting on their repayments. Moreover, P2P lending had received negative reputation in China due to several P2P lending platform turning insolvent (read more about it here).
Therefore, this is a risky investment that isn't suited for the risk appetite of many. One way that you can alleviate risks is to limit the loan amount to each unique company at a fraction of your capital and use only non-emergency funds to invest in P2P lending.
Lastly, do note that in the event you wish to withdraw all your funds, you need to wait at least 3 months for all your invoice loans to be completed (i.e. illiquid).
May your investments ever been in your favour.
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