Micro finance investing

daheff

Hi

Has anybody ever been involved in micro finance investing (micro loans etc)?

How does it work? Any things a potential investor should be wary of?

thanks
Daheff

Cute Hoor

Are you thinking of something like Linked Finance daheff, if so very simple and easy to use and reasonably secure (hopefully), but not regulated by the Central Bank as I understand it.

daheff

Cute Hoor wrote: »

Are you thinking of something like Linked Finance daheff, if so very simple and easy to use and reasonably secure (hopefully), but not regulated by the Central Bank as I understand it.

Yeah something like this.

I suppose I have to report the interest received as taxable income? But what if the loan isn't repaid...can I write off the loss of principal against other incomes?

Cute Hoor

Yea you will have to pay tax on any interest earned, and I would imagine that you can write off capital losses against interest received. They haven't had any defaulters so far, it's probably inevitable that it will eventually happen but so far so good.

lcwill

I think one of the issues with P2P lending in Ireland is that you CANNOT write off capital losses against tax.

Still if you average 10% interest on the loans you make and assume 95% repayment which is what most established P2P lending sites manage it is still better than savings accounts.

Always a risk you could be unlucky though, and the fact it is not regulated by Central Bank means you should never put money you can't afford to lose if the whole thing folds.

tadcan

I presume you would pay the tax after cashing out from the peer lending service and not if you reinvest the money.

Brussels Sprout

I loaned €100 to a company via Linked Finance at an interest rate of 11%.

I downloaded the csv file showing the breakdown of repayments over the next 36 months.

In that time they will pay me back €17.87 in interest (of which I have to pay LinkedFinace €1.96 as a fee)

The monthly repayments are similar to a mortgage in that they are fixed (€3.27 or €3.28) but their makeup changes (initially they are interest heavy (the first month is €2.36 capital vs €0.92 interest) whereas by the end it's almost all capital (the final month is €3.24 capital vs €0.03 interest)).

I cannot work out how they worked out the above repayment schedule from an 11% interest rate.

tadcan

Brussels Sprout wrote: »

I cannot work out how they worked out the above repayment schedule from an 11% interest rate.

The lender doesn't repay you directly the principle and 11% interest, they get charged the average rate of all the loan interest rates combined. The percentages that make up the loan could range from around 5-12% for example. If I had loaned €100 at 6% interest for the same loan, then I would get less interest per month, but a higher capital payment. So the repayment schedule is based on the aggregate amount of loan amounts and interest.

willwe

the weekend FT had a good article on this area specifically on crowd funding. The bottom line seems to be no more than 10% and not all financial info is released so carpe dieum.