Shedding Light on a Unique Monexo Feature – The Reverse Bid Loan

16 December, 2015

What is the RBL?



Once a borrower has applied for a loan on Monexo’s peer to peer lending platform, they will be screened and subsequently approved or rejected. If approved, Monexo assigns the borrower an appropriate interest rate based on the results of screening.

It is the borrower’s choice to accept or reject the given interest rate, tenor, and loan amount before Monexo lists the loan in its marketplace. But Monexo also provides a third unique option to the borrower: the reverse bid feature.

This allows the borrower to request a lower interest rate than the one he has been assigned. Lenders will see the loan in the marketplace, and are free to bid at an interest rate of their choosing between the assigned rate by Monexo and the borrower’s requested rateModule Art Panels. The borrower will then receive a new weighted average interest rate based on all the different lenders bids, and can choose whether he will accept that new rate.

Take an example:



Mr. A is approved to borrow HKD 100,000 on the Monexo marketplace at an interest rate of 19.45% per annum. He is unhappy with the rate, and instead opts for the reverse bid feature, asking lenders to fund his loan at a rate of 14%.

Lenders will see both the rates and are free to bid how much they want to lend and at what interest rate in the range 14% to 19.45%.

Now, Mr. B is happy to lend 50,000 HKD to Mr. A at his requested rate and makes a bid of 14%. However, Mr. C will not accept lower returns and instead places a bid to lend HKD 50,000 at 19.45%, the assigned Monexo rate.

The weighted average interest rate for the borrower would then be 16.73% per annum.

The Monexo system knows that Mr. B funded the loan at 14% and Mr. C funded it at 19.45%. While the borrower is charged 16.73%, the monthly repayment of principal and interest will be split between the lenders based on the interest rate that they bid. So Mr. B will earn at the rate he was willing to fund the loan, and the same goes for Mr. C.

Why did we build the reverse bid feature?



Because the borrower benefits - If a loan applicant believes that his interest rate is too high and does not reflect his default risk, he has the opportunity to request from lenders a lower interest rate.

Because the lender benefits - Lenders might be willing to fund a loan at a lower rate if they believe the borrower’s credit is better than his assigned interest rates reflect, and each will earn the return that they are happy and willing to receive.

Therefore, Monexo functions as a true marketplace and offers a flexibility that can’t be found elsewhere, as we let the mechanisms of supply and demand determine a lender's engagement with the loan and at what interest rate. This process is fair and efficient for both the borrower and the lenders.

What to watch out for as a borrower



One caveat to note is that lenders may agree that the assigned Monexo interest rate is reflective of the borrower’s default risk. Therefore, as a borrower requesting a reverse bid loan, one should tread carefully when asking for an interest rate that is too low - the loan may not be fully funded by lenders.

Thank you for reading. Hopefully you found this post useful and check back in soon to learn more about the unique aspects of the Monexo platform!