Last month I have talked about management of defaults in Fundaztic. Now, I am going to talk about defaulted notes in Funding Societies. As on 15 January 2019, the default rate is 0.95% (Link). However, I have no direct experience regarding default on this platform yet.
Classification of default
Funding Societies classifies default according to the types of note. For business term financing note, a default occurs when a repayment is 90 days past the due date. An invoice financing note is considered as default when it is delayed 60 days past the due date.
Recourse
First, Funding Societies would contact the borrower and propose alternative resolution options. These options include:
- Lengthen the repayment schedule
- Reduce the interest rate
- Settle the outstanding amount at a discount
- Freeze repayments for an agreed period and reinstate at a later point
The offered option needs to have the approval of affected investors.
If the borrower is out of reach or repeatedly breaks their promise-to-pay, the platform will employ the help of a debt collection agency. At this stage, the affected investors will receive a notification email. The dashboard of affected investors will also be updated to notify the outsourcing arrangement.
Final remedy
If collection efforts fail, the final recourse will be legal action. The decision would be based on a majority vote of affected investors (based on each investor’s exposure amount). Funding Societies will facilitate this process on behalf of the investors. Those who vote to undertake legal action need to bear the costs of the litigation process in a pro-rated basis (i.e. depending on the exposure amount).
Risk mitigation
To minimize the risk of default, the platform also recommends a strategy of diversification, same as Fundaztic. In short, spread the investment amount across as many notes as you can. You can refer to my selection criteria here.
Conclusion
This information is taken from intercom.help Funding Societies Malaysia (Link). I could not find detailed information about default management in its own website. As I do not have first-hand experience on this process (which I rather would not have), I cannot guarantee its accuracy. If you have any information regarding this process, do share with us in the comments section below.
Referral link
Below is the referral link to Funding Societies. By clicking on this link, I may gain referral rewards from your registration with the platform. If you think I have done a good service in explaining the topic, please click on the link below if you have interest to register. Otherwise, you can always search Funding Societies Malaysia with Google and register yourself.
Funding Societies Malaysia: Link here – If you register and invest through this link, both of us will get RM 30*.
*Terms and conditions apply.
