The Crowd And The Bond Alternative
This post was written for www.hnworth.com, a site targeting high net worth individuals in Singapore.
Have fun reading !
Every few months, the banker would give me a call regarding my little company which I had set up for this site and asked if I wanted a loan. And every few months, I would say I am interested just to keep their hopes up until it comes to the question of profitability and since I have not been able to show any profits, they would politely try to worm their way out of their offer with the suggestion that they “keep in touch”.
Yes, it is that difficult to get a loan for a small start up in Singapore and even harder if you are not in tech-space which has several new initiatives such as startupbootcamps spearheaded by the various government agencies.
What happens if you want to open a prata shop ? (And I happen to think prata is a decent career option these days, have you seen prata prices lately ?)
I am not sure if people remember the centuries old concept of a tontine where a bunch of housewives or friends would contribute to a monthly pool and the monies awarded to the highest bidder, on loan etc. Or at least that is the very vague impression I had of it before it was outlawed by the government given the high incidence of defaults and frauds that was not legally enforceable.
Such a scheme is what modern times would deem an illegal collective investment scheme where prata shop start-ups could have got their funds quick and easy then.
Enter the new age of Bitcoins, payday lenders, lending clubs and people monetising themselves online with professional footballers are IPO-ing themselves for 4 mio for installments of 10% of earnings for 10 years and college grads can IPO themselves for USD 70k for installment payments of 6.94% of their earnings over 10 years.
The Lending Club IPO (LC US) last year is perfect testimony. An online financial community that brings together credit worthy borrowers and independent investors for their mutual benefits, serving retail investors and borrowers in the United States. Since then, they have tied up with Alibaba and Citibank.
All perfectly legal and well honed to fit into the financial system that it has caught many regulators off guard as it gains momentum in the shadow banking** avalanche that has caught the world, not that it has not been happening all this while, for I know many friends involved in the private loan business for securities, commodity financing and more.
** to be precise, shadow banking refers to anything that is outside the ambit of regulatory oversight which puts many a hedge, pension or mutual fund activity within its borders
You see, investors are constitutionally free to deploy their monies where they want within the bounds of legality as loan sharks turn proper money lenders with proper loan documents these days.
What is the difference between giving personal loan and buying a bond ? Or what is the difference between a venture capital investment and crowd funding a new cafe ?