Karma Global Analytics Report: Countries with Most Affordable and Most Expensive Money

Key point of Karma is called a “carry trade” in fintech community slang.
That means: we are seeking for a countries with 0% interest rates, where average investor treats 7% yield like a God’s present. And, from the other side, we are searching for the countries with huge up to 25–35% interest rates on business loans, where SMEs are growing fast and can provide big profits on emerging markets.

Here’s a picture from World Bank’s analytics report:

There is a 2.6 trillions USD lack of SMEs credits at the emerging markets all across the world. And, from the other side, there’s a huge almost 40 trillions of USD money heap locked up at the bank deposits of physical persons according to the Allianz Global Wealth Report 2017. As you can see, the market is very big. That’s why Karma Analytical & Research Centre became interested to dive deeper into the market, and here’s what we’ve found.

Data Collected

We’ve searched for these pieces of data for as much countries as possible:

• Local Central Bank interest rate: what is the local CB’s yield when it financing the local banks.
• Local currency inflation rate.
• Mortgage interest rate: this is our benchmark as the most conservative and low-interest loan type.
• Business loans interest rate.

We understand that there are thousands of special options for mortgage and for business loans: local government subsidies, specials for military officers, promo products etc. That’s why we were trying to find out the average between what was at the top of the Google search page.

Feel free to send us your comments here in Medium or via email at g@karma.red. We will be glad to update our research with crowdsourcing :)

Countries With The Cheapest Mortgage

Those countries have the luxury of the very cheap money. They often have low inflation and mortgage rate, sometimes even lower than inflation. They are mostly considered as wealthy, and their inflation-CB rate is near-zero or even negative, e.g. local monetary policy is stable and calm.

The deposit interest rates in those countries are often zero or slightly negative, so local investors trying to search some high-yield places to put the money in.

Countries With The Most Expensive Business Loans

We should make a little remark before posting a countries list. We are searching for the carry trade options, that’s why we need to find the countries where business loans interest rate minus local currency inflation rate is the highest in the world. Because the debt should be nominated in the borrowers’ local currency, and the lender wants to have yield in his native currency. That’s why we should extract the inflation out of the business loans rate.

Also there are some countries with unbalanced monetary policy, which should be excluded from our list. What do I mean “unbalanced”? For example, when local Central Banks’ rate minus local inflation rate index is far away from zero both positive or negative. Congo, Central African Republic, Venezuela, Libya, Sudan and many other African and Latin American countries have that index from 20% to 50% and even more. That means local economy is so volatile and shaking, so there’s no way to have secured obligations with duration more than 3–4 months long. And even with such short terms they are too risky for the conservative European or Japanese investors.

So, here are the most interesting countries to invest in SMEs pink sheet bonds:

In wealthy stable countries 7–8% obligation yield considered as very high.
So, we can see 10 wonderful countries to invest in SMEs loans, that can provide more than 10% interest rate even after extracting the local currency inflation.

We also should consider one important issue: most of those interesting counties have only nominal business loans interest rates published at the banks’ websites. In real life there is very low probability of getting the loan if you’re an SME and you don’t have huge real estate collateral (multiple times more than the loan itself). That’s why p2p-lending is already very widespread in most of those countries. And the real interest rates on p2p-market are 5–15% higher than local banks can provide. Because banks don’t give money, but p2p-communities are really helpful.

For example, Karma SMEs p2p-fund is working in Russia since 2014 and has 5M USD in loan portfolio with 25–35% interest rates in Russian Rubles with 1-year terms. And we have a long queue of the SMEs hunting for such loans and lots of foreign investors who’d like to have such a yield on their assets.

Conclusion: There Are Great Opportunities

If you live in Denmark, UK, Netherlands, Switzerland, Sweden, Norway, Slovakia, Hong Kong or Japan, you can invest in business in Italy, Saudi Arabia, India, Mexico, Indonesia, Russia, Estonia, Turkey, South Korea or Singapore. And you will have 10–20% interest rates on your investments even after excluding the local currency inflation.

African countries may seem very attractive because of high local interest rates, but there are huge government monetary policy risks. That’s why you can only invest on a very short terms like 3 months or less.

Soon we will dive more into the types of loans and collaterals. Stay tuned.

Cheers!