P2P lending has had a slow start in Japan due to the already substantial number of lending options available to consumers. The banks have been serving the customers well, with an average lending rate less than 2% and loan to deposit ratio around 70%. But the fintech entrepreneurs have pivoted to find a niche in the market which was not being served well by the mega banks. The government has also been supportive in expanding the fintech industry by relaxing its regulations. One of the earliest players in the p2p industry was Maneo, which was responsible for bringing P2P industry to Japan.
First P2P Lender in Japan
Jeffrey Char and Tadatoshi Senoo established Maneo in 2008 as the first-ever P2P lender of Japan. Jeffry Char was the CEO of a venture capital company in Japan and Tadatoshi Senoo worked for 10 years at Bank of Tokyo-Mitsubishi UFJ Ltd. Their focus was on unsecured consumer lending. They could not scale the operations and in 2011 sold the company to Kenji Takimoto, a Director at UBI – a real estate investment company. Maneo has raised funds by selling 5% stake of Maneo Market (Maneo holding company) to GMO Click Holdings and further USD $3million was raised from investors such as venture capital arm of Sumitomo Mitsui Banking.
Kenji quickly identified the problem and shifted the company’s interest from consumer financing to collateralized SME and corporate financing. This resulted in a change in Maneo’s fortunes. Since the takeover it has managed loan originations worth over $500 million versus $4 million dollars before. Kenji leveraged his connections and essentially sourced the borrowers from UBI. Social lending is unique in Japan, but part of the reason it is successful in Japan is because the investor has to sign a Silent Partnership Agreement also known as TK agreement with Maneo when they want to invest in a loan fund. Another advantage of Silent Partnership Agreement is there is no restriction on the net worth of the investor who wants to invest or on the amount they want to invest. This allows Maneo access to Japan’s huge potential investor base.
Maneo acts as a bridge between the businesses looking for funds and investors who are looking for a high rate of return on their investment. It offers loans to corporate borrowers and investors invest in a loan usually backed by an asset, preferably real estate. Any investment in Maneo is treated as an equity investment, where the performance of the investment is directly correlated with the performance of the loan between Maneo and its borrowers. As long as the borrower is making regular interest payment, the investor gets a monthly return but in case there is a default, the investor has to bear the loss. Maneo acts as a mixture of a bank and asset manager.
Maneo’s majority of customers come from real estate industry because the banks had been extremely stringent in lending to the sector.
Other customers include:
- Solar energy companies looking for bridge financing.
- SME’s requiring working capital or bridge financing.
It offers loans at 12-15% per annum and does not charge any origination fees from borrowers or service fees from the investors. Return on investment usually ranges from 5-8% and length of the loan is usually between 6-12 months. The difference between interest paid by the borrowers and interest paid to investors is the spread for Maneo. Post-2011 takeover; Maneo has had no loss of principal or interest.
Maneo has been extremely dominant and has had a huge string of successes.
- Over 50% of the P2P market is controlled by Maneo, with an established investor and borrower base.
- By partnering with GMO Click Securities, brokerage with largest FX trading volume in the world (1120 trillion yen or USD 10.7 trillion) in February 2016, Maneo has made sure its products gets maximum exposure. GMO have started selling Maneo’s loan funds on its platform from October 2016.
- All loans are backed by collateral security (mostly real estate security) or corporate guarantee.
- LTV( Loan to value ) is usually below 70%
- As compared to other investing options available in the market which requires a large amount, one can invest as low as 10,000 yen ($95) in Maneo.
- Most of the financial institutions in Japan offers average interest rate ranging from 0.016 to 0.036 per annum whereas Maneo offers a very healthy rate of return ranging from 5%-8%.
Traction and size
Key performance numbers posted by Maneo shows how well the company is performing. It has 35,000 registered investors and out of those 4300 are active investors. Till date, Maneo has originated loans worth 53 billion yen (USD $ 505 million). For past couple of years, Maneo loan origination volume per month has been rising steadily at USD $10-$20 million. It has posted revenue figures of USD $13.5 million and operating income of USD $2.9 million for FY 2015-2016.
Its major competitors are Crowd Bank and SBI Social Lending Co. Ltd.
Started in July 2015, Maneo franchise business has been nothing but a revelation. It offers other companies its platform as a white label product. According to Japanese regulations, one needs to acquire a financial license to lend and sell. Companies leverage Maneo’s market license to raise funds both domestically and internationally. Initial cost for using the platform is 100 million yen (USD $950,000), 1% of asset under management is charged as royalty and maintenance fee, other expenses include server maintenance, the cost of running (employees, office space) which approximately amounts to 10 million yen ($95,000) per year. Along with the platform, Maneo lends its expertise in operating and maintaining the franchisee website, allowing the franchisee to create its own loan funds and soliciting and registration of investors. So far LC Lending, GAIA funding, Crowd Lease, Smart Lend and American funding have used its platform and more are expected to join this year. LC Lending has raised 3.8 billion yen (USD $ 36 million), GAIA funding has been raising USD $1 million every month since October 2015.
There is a demand for asset-backed investment products among conservative investors in Japan. Over USD $5 trillion in household savings is sitting in the banks at a really low rate of returns; there is a huge potential for safe and attractive fixed income products. As Maneo and the industry gather momentum and publicity in general, the risk adverse Japanese will surely start to feel more comfortable with the products and platforms. With the industry in a nascent stage, the company can become a bellwether for the entire marketplace lending industry in Japan.
Author: Heena Dhir and George Popescu