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To make 20% per annum, we could lose our capital.

Wednesday, June 24, 2015

The low interest rate environment has been going on forever in Singapore and many savers are frustrated. 

Some of them could end up putting their money in ventures they know little or nothing about to get higher yields.

Remember, unlike a commercial bank which assumes responsibility for our savings deposited with them, the middle man in the example above has no such responsibility.

If a bank makes a bad loan decision, they have to bear the responsibility. 

The middle man in a crowd funding situation has no such responsibility. 

The risk is borne by the crowd (i.e. the lenders).

It would, therefore, be interesting to know if the middle man is putting a meaningful amount of money where his mouth is or is he just interested in the commission the deal could generate for him. 

So, if it should be a bad loan decision, he would feel the pain too just like a bank that made a bad loan decision would.

If the business is so lucrative and so promising, why can't the borrower get a loan from the local banks? 

To pay 20% per annum to lenders, surely, is a lot higher than what the local banks might charge in interest.

Of course, in a crowd funding situation, the crowd are lenders. 

They are not investors. 

They will not have a bigger share of earnings if the business venture should turn out to be very successful but, if the business should fail, they would definitely feel the loss.

When presented with a business proposal, always look at the risks involved. 

Don't think of only the possible monetary gains.

Related post:
Questions to ask when tempted by high yields.


Singapore Man of Leisure said...


That was quick!

Somebody just said win-win, and ever lucid you came out with:

High Yield Loans: Max win = 20%. Max loss = 100% of capital

If a loans officer do these kind of deals, will the banks give him a bonus or show him the door?

Where's the lien or CDS to hedge against potential default?

If its venture capital or private equity then its another matter. 90% can fail but if 10% can turn out like Alibaba, huat ah!

AK71 said...


Who? Who said simi "win-win"? How come I don't know?

Simi "lien"? Simi "CDS"? Too cheem. I blur. :(

I only used some common sense and applied questions I would usually ask whenever faced with an "investment opportunity". I very simple minded de. -.-"

Singapore Man of Leisure said...


AK, you got really read other blogs!

I was tag-teamed over there ;)

Paisei - 肚子空空; 瞒神弄鬼。

Nice calm and peaceful place.

Although a bit too "ang kong kong" for me...


AK71 said...


I really blur lor. -.-"

In any case, whoever tried to take on SMOL really dunno what they are getting themselves into. They won't end up with a black eye or a broken limb. SMOL is a gentleman. They could end up in a permanent catatonic state trying to make sense of all the cryptic remarks flung their way. ;p

AK71 said...

From a reader:

Hi AK,

Just chanced upon your blog recently and I am amazed by your financial status. Reading your blog made me realised that there are a lot of areas that I can improve on (e.g contribution to SA and SRS a/c). You are really an inspiration. Thanks you for the selfless sharing.

Can you share your views on P2P lending? The rates looks higher to compensate for the additional risk but I was hoping that it will not be another investment scam.


My reply:

Do you mean crowd funding? I probably blogged about this before. You might want to use the Search function in my blog for this. :)

Remember, when in doubt, stay out. ;)

AK71 said...

From a reader, ALO, on FB:

"Thank you AK! I think you should share this post as recently there is a craze on crowdfunding. I believe many retail investors pump their $ in since the rate of return is significantly higher than FD or similar instrument. I was tempted too when moolahsense emails on a company with subway outlet seeking funds from public. I always ask why cant they ask from the bank? Epicenter was another case study. I appreciate your prompt reply. Thank you."

AK71 said...

A construction firm that claimed it was launching a crowdfunding effort has apparently not paid some of the investors the promised returns.

At least three investors have reported putting in between $50,000 and $100,000 each in the investment scheme, purportedly to help Soilwood finance projects.

Soilwood had claimed that banks were offering insufficient credit.

The firm is not related to the listed firm Soilbuild Group.

Soilwood, which records a Mr Daniel Leong as its director, claimed that it employed 90 staff and had completed projects, including Wisma Atria, Temasek Polytechnic and Paya Lebar MRT station.

One investor, who wanted to be known only as Mr Chan, told The Straits Times he was approached by a friend who worked for Noble Consulting Group, the company that marketed the scheme to investors.

Mr Chan, an engineer, said he attended an investment presentation, given by Noble Consulting Group director Nancy Tan to a room of about 20 people at a hotel in March 2014.

Going by documents he showed The Straits Times, investors could put in a minimum sum of $25,000 for a term of 18 months to receive a return of 4 per cent quarterly. They would receive their principal sums after 18 months.

Investors would receive a 5 per cent return for a $50,000 investment and a 6 per cent return if at least $100,000 was invested.

An investor putting in $50,000 could receive $2,500 a quarter, totalling $10,000 a year.

"I was convinced because it was a friend who introduced me to the project. I saw that there were ongoing, real projects and the payout was attractive," said Mr Chan, who invested $100,000 in September 2014.

He added: "The company said it had cashflow problems, so I thought 18 months seemed like a reasonable amount of time for them to deal with the problem."

He received three payouts totalling $7,500 from December 2014, but did not receive his payout in September last year.

He reported the case to the police that month.

A police spokesman said it was inappropriate to comment as investigations are ongoing.

Noble Consulting Group's Ms Tan declined comment when contacted by The Straits Times.The company said in an e-mail reply two weeks ago that it has made a police report and has been advised not to speak to the media.

Crowdfunding has grown in popularity in recent years, mainly fuelled by traditional lending sources tightening their criteria for borrowers since the global financial crisis.


AK71 said...

Another crowdfunding scheme marketed by financial advisory firm Noble Consulting Group has failed to return promised payouts to investors.

At least four investors said they had invested more than $400,000 with Noble Consulting in loans to security services firm Glen Iris, fronted by Mr Richard Koh, former vice-president of the Security Association of Singapore. The scheme promised annual returns of up to 24 per cent to investors for lending the security firm fixed sums of money.

But four investors, who had invested between $25,000 and $250,000, said they failed to recover their principal or the promised returns after Glen Iris stopped payments in the middle of last year.


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