Monexo Makes Banking Efficient

17 March, 2015

Hong Kong prides itself on being a global financial centre. Yet it has always been a follower in financial development rather than a leader and has been slow to respond to an exciting development its supporters say has the potential to revolutionise the way financial borrowers and lenders are brought together.

Peer to peer lending (P2P) is growing rapidly in the US and Britain. WeLend, which started in 2013 with backing from Li Ka-shing, was hoping to conduct P2P lending but has morphed into an online money lender and appears to be focusing more on mainland China.

Last month a new startup went live called Monexo which is doing P2P lending. Its CEO and founder is 46 year old Mukesh Bubna who previously spent 18 years with Citibank in Asia in senior positions overseeing credit cards and consumer loans. Having spent so long in traditional banking he sees clearly how much the banks are making out of consumers, particularly in Hong Kong. He asks: "Why is credit card interest at 34 per cent here?"

It's because the banks are inefficient and there is no proper competition, he believes. Bubna adds that the existence of 1,300 licensed money lenders is a clear indication that the banks are not serving Hong Kong efficiently. His mission is to make banking in Hong Kong more efficient.

Monexo was incubated by Cyberport, which is funded by the Hong Kong government. In addition Bubna has had financial backing from other angel investors and bankers, "people who understand how globally this industry has changed and that Hong Kong also needs to change", he said.

Monexo is based on the British P2P model which from 2005-2014 was formally unregulated. One element that was introduced by UK regulators last year was a trust house to hold the funds being transacted. This has been adopted by Monexo and it has gone into partnership with The Hong Kong Trust Company.

The trust company has insisted that Monexo does not deal with US citizens out of concerns over tangling with US regulators over the Foreign Account Tax Compliance Act (FACTA).

Borrowers and lenders have to hold Hong Kong identity cards, show proof of residence in Hong Kong and have a Hong Kong bank account. In addition, borrowers will have to own investment properties in Hong Kong and be prepared to show their credit history.

Lending is for a minimum of six months, while the smallest amount a lender can lend at one time is HK$250,000, though this does not have to be to the same borrower. The loan for this product is based on the rental income from the property.

The borrowers are rated by Monexo and their profile, but not their name, is published on the site along with how much interest they will have to pay, which ranges from 7 per cent to 20 per cent. Monexo takes two per cent in commission from the borrower on a declining balance basis, and 1 per cent from the lender. Lenders see the profiles and the different rates on offer and decide how much to lend to each borrower. Bubna is planning to roll out a second product later this year based on business receivables.

Another important partner for Monexo is Robertsons, a firm of solicitors which has established that Monexo is compliant with the various local regulators.

Bubna is well aware that it will take time for his business to gain traction. Ultimately he wants to roll it out into the Asia region and is already looking at the regulations for P2P in Singapore.

For the moment he takes some comfort from a recent Goldman Sachs report which concluded that P2P lending would capture some 15 per cent of bank profits in the US over the next 10 years.

Author: Howard Winn - SCMP