GenieShield is a new initiative that is geared towards giving lenders better protection against delays and potential defaults in loan repayment. Though provision fund is common in the European markets, it has not been actively launched in Singapore – GenieShield could probably be the first provision fund in the Singapore market.
The funds will be kept in a segregated reserve fund that is managed by Crowd Genie’s escrow agent, a Singapore-registered Trust Company. This provides the assurance to our lenders that funds are ring-fenced and cannot be used for any other purpose. The size of the fund is expected to be large enough to ensure that up to a default rate of 10%, the invested capital of lenders is covered.
“GenieShield represents our commitment to bring meaningful innovations to the market, that protect the interests of lenders as well as borrowers. We believe being the first such fund will encourage wider participation in the crowdfunding space. Our aim is to make build Crowd Genie a platform of trust and best practices. The establishment of this fund represents our continued commitment to provide an additional tool for investors to manage their risks when participating on our platform”, says Akshay Mehra, CEO & Co-Founder of Crowd Genie.
With the primary objective of helping investors receive timely payments of their expected returns, funds from GenieShield will go towards reimbursing investors in the event of any delay or default in repayments by borrowers. Unlike insurance products, however, payments from GenieShield are subject to the availability of funds within the fund itself. In the unlikely event that the funds in GenieShield are depleted due to excessive defaults, reimbursements will be withheld until the fund gets filled again by the recovered debt or a monthly contribution from a new loan is made. For instance, in a scenario simulation, if a 12 month loan that pays 12% interest, and the borrower defaults on six out of twelve instalments, GenieShield would advance the outstanding principal to the lenders. So that the Lenders will still end up receving all their invested capital, and still earn a positive return of 3%. Without GenieShield, the Lender would have lost 47% of their invested capital.
The initiative is part of the multi-pronged approach adopted by Crowd Genie to protect the interests of its members. Some of the other initiatives include having a rigorous due diligence process when screening potential borrowers, direct investment by Crowd Genie’s Directors into any loans made on the platform, requiring all borrowing companies to have a vetted personal guarantor, diversification of investment options for investors as well as a structured debt recovery process.
100% of the financing of the fund will be done by Crowd Genie from the monthly fees earned by them. The contributions can be made in the following ways: a one-off payment, in monthly instalments spanning the lifetime of the loan, or a combination of both options. Additionally, GenieShield would have the provision to be refilled by recoveries from any borrowers for which GenieShield had made advances to lenders towards repayments.
*The launch of GenieShield was featured on https://www.crowdfundinsider.com/