Cumplo.cl: Debt crowdfunding in Chile

Cumplo.cl is a crowdfunding platform that is looking to increase access to the debt market at affordable rates for individuals and SMEs, but regulatory issues have come in their way.

Cumplo is a platform, founded in 2012 by Nicolas Shea and Jean Boudeguer, which connects private lenders to individuals and small business borrowers. While P2P wasn’t new, it had a huge potential when applied to finance in Latin America, a region where debt is extremely expensive for borrowers (especially when the loan comes from a retailer rather than from a bank). By disintermediating the sector and establishing new forms of trust, Cumplo could bring personal loans to the next level – at affordable rates.

Cumplo

While the idea of giving better credit terms to people seemed necessary in the market, Cumplo suffered legal accusations almost right away. After a few months of operations regulators served it with court papers stating it was violating Chile’s banking law, which stipulates that only licensed banks may accept deposits. The firm explained that it believed it was not breaking the rules, since it did not take deposits per se; it only connected borrowers and lenders. The regulator then passed its case to criminal investigators, who have been probing its operations. Cumplo does not hold any funds and merely acts as a platform for those individuals and entities to meet. While the legality of Cumplo’s model in Chile is still undecided, the company has served as a proof of concept in many ways.

 

Currently, Cumplo is focused on making loans to SMEs that are 100 percent backed by government guarantees. It is also engaged in factoring activity, allowing investors to invest in credits backed by accounts receivable. Estimates suggest that Cumplo has processed over US$ 55 million in loans over the past three years. In the past 12 months Cumplo has had loan transactions of around US$ 38 million with net internal rate of return (IRR) for investors of more than 11%. These loans are at lower interest rates than the banks and do not have the same onerous fees and general conditions.

 

Cumplo charges average rates of 20% for consumer loans, 14% percent for business invoice loans, and 13% percent for business working capital. The result of these lower rates and use of a P2B model is that the default rate for Cumplo is less than 1% for business loans, compared to a default rate of approximately 7% in the overall Chilean banking sector. Cumplo has over 1,800 investors and 40,000 users, and averages 13 investors per loan. It has completed over 1400 transactions. In October 2014 alone it completed 87 transactions for a total of US$ 3.5 million in loans. Of that amount, US$ 2.5 million was in short-term loans based on invoices, and US$ 1 million was in government-backed loans for SMEs. As this data suggests, Cumplo is serving an important role in the market, which might explain why they have been awarded with seed capital from CORFO (Chilean economic development agency) and other investors to help support its growth in the country and also their further expansion to Colombia and Peru.

 

Chilean entrepreneurs remain confident the crowdfunding industry has the potential to grow, while regulators have an excellent opportunity to create a stable and transparent environment in which innovative financial institutions like Cumplo bring valuable financing options to SMEs.

 

Sources: Inter-American Development Bank, Santiagotimes.cl, cumplo.cl

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Student comments on Cumplo.cl: Debt crowdfunding in Chile

  1. Very interesting post Gonzalo! Access to credit in Chile is a huge pain point, especially when you come from a vulnerable background. Since your risk profile is very high, rates offered by banks or retailers are prohibitive. Cumplo acts as a middle man to manage risk and offer rates that give many small businesses the only chance to get the funds they need to build their companies.

  2. Very interesting article.. If the model creates so much value for borrowers and lenders, why do you think the regulators have acted so aggressive (to the point of passing this to a criminal investigation)? and what precedent would these actions set for future startups?

  3. Cumplo has definitely pioneered the crowdsource in Chile. My concern with the current numbers is that it might be hard to scale further than what it is. When you only have a couple of thousand clients you are able to focus on the very best, and thus your non performing loans are very little, so comparing that to the overall system it’s a little farfetched in my opinion. If there would be so much space to grow in Chile then it would make no sense to expand to other countries yet. I suspect their expansion is due to their inability to keep growing their initial market. What do you think about this idea?

  4. Great post Gonzalo. Since the era of Yunus and his nobel-prize winning microfinance Grameen Bank, people in the developing world have been trying to come up with ideas to bridge the gap between exorbitantly high interest rates and people needing financing. This is yet another way of doing so, the best part about crowdsourcing loans is what the finance world has been doing with loans for more than a decade: securitize, divvy up the tranches and sell to the highest bidder. I think the next step for Cumplo would be to divide the loans into “high-yield” vs. “highly-secured” that way people (like businesses) can take advantage of different interest rates for different levels of risk.

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