German p2p lending service Smava.de launched two year ago. Since the launch of Smava 1350 loans were funded for a total loan volume of about 7.9 million Euro (approx. 10.7 million US$).

Lender’s viewpoint

So far lenders on Smava did well. There are approx. 2500 lenders active on Smava. Despite the credit crisis, 99% of the lenders earned a profit in 2008 (total 210,861 Euro), while the 1% who did incur a loss, lost only 60 Euro.

So far ROI in the range from 5-10% have been realistic. As of today 75 loans have defaulted, which is (in percent) more then was originally predicted. The Anleger-Pool mechanism spreads the losses of a default across all loans of a credit grade, which prevents total losses of investments. Therefore when 3 in 100 loans in credit grade X default, the lenders invested in the defaulted loans still receive 97% of the principal, while for lenders in the current loans returns are lowered by 3%.

Technically and on the process level Smava functions as promised.

Borrower’s viewpoint

Provided the borrower has a credit grade of at least ‘H’ (95% of the German population have credit grades between ‘A’ and ‘H’ so about 5% are excluded) and he has a sufficient income, chances for obtaining a loan through Smava are good. About 60 percent of the listings were funded. In February 2009 Smava raised the fees for borrowers from 1% to 2-2.5%.

Marketplace development

Smava shows continuous growth, with the volume of new loans per month approaching 1 million Euro (see chart)

(Source: smava loan stats, Wiseclerk.com, 03-26-09)

Despite extensive and positive press coverage Smava is still a niche market with less than 5000 active users. Looking at the distribution of lenders by amount invested, the top 50 Smava lenders funded about 1,690,000 Euro (or about 21% of total loan volume). Currently lenders are limited to a maximum of 100,000 Euro investment.

(Development of Smava average nominal interest rates for new loans; Source: smava loan statistic, Wiseclerk.com, 03-21-08)

I would estimate that the increased fees allow Smava to cover the variable costs. But to cover fixed operating expenses Smava needs to multiple its volume. First priority of Smava must be to accelerate growth.

German p2p lending service Smava.de launched one year ago. Since the launch of Smava 393 loans were funded for a total loan volume of about 1.7 million Euro (approx. 2.6 million US$).

Lender’s viewpoint

In a february survey 33% of lenders answered to be very satisfied with Smava and 63% were satisfied. 48% said their ROI met expectations while 19% said it exceeded expectations.

So far a 7% ROI is realistic. Only 3 loans have defaulted and 11 are (less then 30 days) late. In the past Smava cured the majority of late loans. The Anleger-Pool mechanism spreads the losses of a default across all loans of a credit grade. Therefore when 1 in 100 loans in credit grade X defaults, the lenders invested in the defaulted loan still receive 99% of the principal, while for lenders in the current loans returns are lowered by 1%.

Technically and on the process level Smava functions as promised.

Borrower’s viewpoint

Provided the borrower has a credit grade of at least ‘H’ (95% of the German population have credit grades between ‘A’ and ‘H’ so about 5% are excluded) and he has a sufficient income, chances for obtaining a loan through Smava are good. About two third of the listings were funded. The fee of 1% of the loan amount that Smava charges borrowers is low.

Marketplace development

Smava’s growth has picked up in the last month (see chart).

(Source: smava loan stats, Wiseclerk.com, 03-21-08)

So far Smava has not reached a broad appeal. While press release state 25,000 registered users, only 650 have invested money and roughly 450 wrote a loan listing. Looking at the distribution of lenders by amount invested, the top 50 Smava lenders funded about 700,000 Euro (or about 40% of total loan volume). Currently lenders are limited to a maximum of 25,000 Euro investment.

Attracting new borrowers has been the bottleneck for Smava’s growth so far. An increase of money supply by lenders with no matching demacnd increase led to slightly falling average interest rates in the last weeks (see chart). Before rates increased, especially for credit grade ‘F’ caused by sharpened risk awareness following several late payments.

(Source: smava loan statistic, Wiseclerk.com, 03-21-08)

Smava charges borrowers a fee of 1% of the loan amount. There are no fees for lenders. Total revenue of Smava in the first year therefore was 17,000 Euro (1% von 1.7 million Euro). Prosper, Lendingclub and Zopa have much bigger p2p lending volumes per year. Boober‘s loan volume in the Netherlands is about the same size as Smava’s but in a market with only one fifth the size (by inhabitants). First priority of Smava must be to accelerate growth.