P2P Default, What is the Solution?

P2P lending has become one of the most popular funding alternatives in recent times. In the ever-evolving world of finance, P2P lending offers convenience and accessibility for Fund Recipients who need funds without having to go through the complicated process of traditional financial institutions. However, as with any type of funding, the risk of Default remains. How can we overcome this risk? Here is a step-by-step guide to dealing with and mitigating default risk in P2P Lending.

Understand the Risk of Funding in P2P Lending

a. Late Payment Risk

In P2P lending, the first risk that needs to be understood is late payment. Understand that the possibility of late payment always exists and you must be prepared to deal with it. As a Fund Recipient, late Refunds will lower your reputation in the eyes of Funders and organizers, so your project will be considered in the future.

b. Risk of Default

Default is the biggest risk faced by Lenders in P2P Lending. This risk must be taken seriously.

Factors that Cause Late Payments to Failure to Pay

Several factors affect the possibility of default. Some of them are; business process constraints, income level, and credit history, these things are still within human control. There are also conditions beyond human control such as; national and global economic conditions, to Force Majeure. Understand these factors so that you can make wiser investment decisions.

Things to Do When Defaulting on Payments

Build Effective Communication with the Platform

It is important to maintain open and effective communication with P2P platforms. Always check the progress of the project you are funding and find out if there are solutions that can be offered, such as extending the term or increasing the percentage of Yield that can be a beneficial solution for both parties.

Evaluate your Financial Condition

Evaluating your financial condition is a step you can take if the Fund Recipient is indicated to have defaulted. Check the Profit Ratio of your investment in P2P as a whole.

For example, you have funded 10 different projects with a nominal value of Rp. 10,000,000 for each project, and you have received a return of 10 million Rupiah. At some point, you face a Default and lose 1 Million Rupiah. If you accumulate the total profit and loss you received, you are still profitable.

How to Mitigate P2P Default Risk

Portfolio Diversification: Don't Put All Your Eggs in One Basket

Portfolio diversification is key to mitigating default risk. Spread your investment across different P2P loans with different risk profiles. This way, if any loan defaults, your losses are manageable.

Review the Recipient Profile Carefully

Before investing, do a thorough review of the recipient's profile. Check their credit history, income, and employment history. Evaluate the risks carefully before deciding to invest in a particular loan.

Risk Analysis: Evaluate the Eligibility of the Fund Recipient

Use the tools and risk analyses available on P2P lending platforms to help you gauge the eligibility of your beneficiaries. Information such as credit score and risk assessment can be a valuable guide in making investment decisions.

Conduct In-depth Market Research

Always conduct in-depth market research before putting your funds into a particular P2P lending platform. Learn about the platform's reputation, refund policy, and the prospects of the beneficiary partners. Choose a platform that has a good reputation and provides adequate protection for investors.

ETHIS Prioritises Transparency to All Parties

As a Platform, ETHIS conducts the Collection Process to Fund Recipients by OJK regulations to the maximum extent possible. In addition, ETHIS prioritizes transparency, where Funders will receive their funding progress regularly. In performance, everything related to the smooth running of the organizer's funding will be updated through TKB90 information. And the good news is, until now ETHIS' TKB90 has remained consistent at 97%, which shows that ETHIS applies a rigorous and in-depth Partner selection process.

Funding in the P2P lending world is inseparable from the risk of default. However, with a good understanding of these risks and the right measures in place, you can overcome these challenges and mitigate the risk of default in P2P funding. By investing smartly, communicating well, and conducting proper research, you can safeguard your portfolio while providing useful solutions to Fund Recipients who are experiencing financial difficulties.