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All lenders with Mekar have their principal 100% guaranteed. The guarantee is provided by Mekar's lending partners. Hence, if a borrower fails to repay any part of their loan, then the Lending Partner that originates the loan will repay the amount you initially lent. All loans in Mekar are also insured, so in the event that the lending partner fails to repay the loan principal and the loan has been in arrears for more than 90 days, the credit insurance company will repay up to 80% of the outstanding loan principal.
Regarding the earnings or interest, yes you can lose your potential earnings. If you fund one loan you have a 1% chance that you will lose all your interest earnings. However, if you fund 100 Mekar loans, you have a higher chance of losing only 1% of your interest earnings. So you should spread your money to fund several loans.
You may lose your potential earnings if your borrower defaults on their loan or pays it off early. In the event that a borrower pays off their loan early, the lender for the loan receives the repayment of all outstanding principal along with the current month’s interest.
We recommend 3 things to reduce your risks:
Tip 1. Never use more than 10% of your savings to fund loans;
Tip 2. Always fund at least 3 loans or more, so that you minimize your losses if one loan does not work out well.
Tip 3: To diversify your risks, always fund loans from different lending partners, as every lending partner has its own risk profile/rating. To learn about lending partner’s risk level, click here.
Yes, every loan that you fund through Mekar is guaranteed by our Lending Partners. However, the guarantee only applies to the principal portion of the loan. Our partners do not guarantee the interest portion. All loans in Mekar are also insured. Credit insurance covers the payments of up to 80% of outstanding loan principal. Mekar does not charge our lenders an insurance premium.
So, if the borrower fails to repay any part of the loan, then the Lending Partner will repay the amount you initially lent, and none or part of the interest portion, in 14 working days after the loan has matured. In the event that the lending partner fails to repay the loan principal and the loan has been in arrears for more than 90 days, the insurer of the loan (the credit insurance company) will repay up to 80% of the outstanding loan principal.
Since January 2017 when we started this service, all loans and interest has been fully repaid. There have been no arrears.
Mekar itself cannot guarantee the loans since the Financial Markets Authority (OJK) prohibits P2P platforms from guaranteeing the loans.
Mekar works with Lending Partners to help identify, lend and collect on loans. Mekar therefore puts a lot of effort into selecting the best Lending Partners and their loans through a strict audit and check before offering their loans to you.
All of Mekar’s Lending Partners must:
- have a solid loan book. Less than 1% of its loans are more than 90 days late in repaying, these are called non-performing loans (NPLs);
- be large enough and focus on growing small businesses. It has have more than 1000 borrowers with productive or business loans;
- have large financial reserves to buffer against unforeseen situations. Its ratio of financial reserves to loans outstanding must be over 20% (this is also known as the Capital Adequacy Ratio (CAR). Its ratio of PPAP (Provision for Earning Assets Losses) must be at least 81%;
- be profitable. It must have been profitable for the last 36 months;
- be able to guarantee the lenders of Mekar. It must guarantee your loan principal (the loan amount).
And all borrowers must:
- have never been late in repaying their loan
- only use the loan to grow their business or other productive purposes.
Mekar regularly monitors the performance of loans that have been disbursed. There are two methods of monitoring:
Mekar’s Successful Repayment Rate is the percentage of loans within Mekar’s portfolio that have not been late in payment for 90 days or more. Here is how we calculate our Successful Repayment Rate:
Successful Repayment Rate = 100% - NPL90
NPL 90 = Outstanding amount of non-performing loans (greater than 90 days in arrears) x 100%
Total outstanding loan amount
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