Kubo.financiero, the leading peer-to-peer (p2p) lending platform received the first authorization ever in Mexico to operate a p2p platform last week. The authorization was granted by the CNBV — the Mexican SEC — which spent more than a year reviewing Kubo operations, procedures and systems.
Disclaimer: Alta Ventures is an investor in kubo.financiero since last year and currently I am a Board member of kubo.
The concept of a peer-to-peer lending platform is to have an online marketplace that matches borrowers directly with investors/lenders. The platform originates the loans, typically running sophisticated credit analysis algorithms and then investors select the loans they want to fund in full or fractionally. Most platforms focus on unsecured consumer and SME loans. The platform does the servicing (paperwork, collection, etc. on the loans) but the loan default risk goes to the investors. (I wrote an article in Spanish about p2p companies with a longer explanation last year when we initially invested in kubo).
The platform eliminates the role of the banks that normally would be the lenders. The benefit for borrowers is lower rates while investors/lenders obtain better returns on their investments. The platform keeps a fee or a portion of the margin of the loans.
In recent years, the platforms have attracted the interest of sophisticated institutional investors like hedge funds and asset managers, because they offer better yields than other alternatives of similar risk profile. Due to this, the name of the industry is evolving to marketplace lending from p2p.
The industry has grown very rapidly. In the US, the marketplace lending companies originated $12 billion dollars of loans in 2014, which represents around 1.1% of all consumer loans and 2.1% of SME loans. However, this volume has been doubling every year and Morgan Stanley expects will reach 8% of all consumer loans and 16% of all SME loans by 2020. China, the UK and Australia are experiencing similar growth rates.
In Mexico, the Comisión Nacional Bancaria y de Valores, the equivalent in Mexico to the US’ SEC, decided that any p2p company operating in Mexico has to be a regulated entity approved by them. This is similar to what other countries are doing and the purpose is to minimize the risk of fraud and investor losses.
Kubo.financiero, led by Vicente Fenoll — a well-recognized serial entrepreneur with significant previous experience in micro-finance, is the first p2p company obtaining the required authorization in Mexico. Other p2p companies in the country are currently operating outside regulation. In fact, kubo believes it is the first p2p company authorized in Latin American, as other countries like Chile and Colombia also regulate the sector.
In our fund, we saw this as an important competitive advantage of kubo and is one of the reasons we decided to invest in the company. We believe regulating the sector will incentivize the growth of the industry because it significantly reduces risk and uncertainty to investors/lenders in a country where trust in internet transactions is still very low.
Kubo.financiero has been operating providing micro-loans for several months, offering lower rates than the alternatives and emphasizing responsible personal finances. We expect kubo will soon start accepting lenders and providing attractive returns in its platform after obtaining this authorization. If interested you can add your name to kubo’s waiting list in its website.