Interview with Mogo Finance Group Chief Financial Officer Maris Kreics
“Everyone should play to their strengths. Mogo’s expertise is issuing loans to customers. We have developed advanced process for assessing clients’ creditworthiness, and we are able to evaluate collateral at a very high accuracy in a timely manner.”
The Mintos team has developed a peer-to-peer lending platform covering a wide range of investors around the world,” says Mogo Finance CFO Maris Kreics commenting Mogo’s collaboration with Mintos. Kreics also praises the high investor interest in the Company’s loans. To date, more than 5 million euros have been invested into Mogo loans. The most active investors are from Latvia, Germany and Great Britain.
Compared to other loan companies that have joined the Mintos platform, what, in your opinion, are the three main advantages of Mogo?
One of the main advantages of Mogo is the low risk, but high returns of our loans. To date, the average net annual returns for Mogo loans have been around 11%. Why low risk? First, the loans are guaranteed by vehicle collateral – the average Mogo loan is 60% (LTV) of the vehicle’s value. Second, we offer a buyback guarantee to our investors. Third, a large proportion of the loans Mogo places on the platform have previously had several payments. This means risk is far lower because clients have already demonstrated excellent repayment discipline.
In my opinion, the investment term for Mogo loans is also optimal. Money is constantly earning interest, so there is no need to re-invest it each month. Loans with similar returns, but with a term of one month, carry the risk of not having the immediate opportunity to be re-invested; as a result, these may remain in a virtual account for a time without earning any interest.
Mogo was established in 2012. How would you characterize Company’s performance during this time?
Over these years, Mogo has experienced a rapid growth. We have become a stable market leader in our services sector in Latvia, Lithuania, Estonia and Georgia.
Company’s growth is also supported by Mogo Group’s key performance indicators. At the end of last year, the gross loan portfolio reached 64 million euros. Mogo has more than 30 branches in the countries where the Company is operating. Similarly, we have co-operation agreements with more than 1,000 car dealers and brokers. Mogo Group currently employs more than 230 people, while the number of customers exceeds 29,000.
In your opinion, what has been the key to Mogo success? What are the future development plans of the Company?
I think Mogo accomplishments are based on a clear understanding of customer needs. It is the customer who is the most important component of our activity model. The loan, collateral and other conditions follow after we have evaluated each customer’s individual needs and opportunities.
With regard to Company’s development plans, we can see customers are more frequently demanding solutions that provide an even greater increase in mobile services. Because of this, we are investing a lot of time and energy to make our services truly convenient and accessible to customers. Of course, we are also evaluating opportunities to expand Company’s activity into other countries in Central and Eastern Europe.
How would you characterize the financial performance of Mogo?
Having been in operation for only slightly more than three years, Mogo Group has demonstrated impressive financial results. Over these years, we have issued loans in excess of 100 million euros. Provisionally, Mogo Group’s EBITDA for 2015 will reach approximately 5.3 million euros.
Unfortunately, I cannot analyze last year’s financial data further because our subsidiary in Latvia has issued bonds in the amount of 20 million euros, which requires us to provide this information to NASDAQ Riga stock exchange first.
To expand our activity, we have purposefully attracted funding from other financial sources. In May 2015, Mogo Group signed an agreement with one of the leading European mezzanine capital solution providers, Mezzanine Management, for a 23.3 million euro loan, part of which has already been used by the Company. We are pleased by the confidence Mezzanine Management has shown in us, particularly because the fund advised by Mezzanine Management is backed by reputable institutional investors, including the European Bank for Reconstruction and Development and the European Investment Fund. This is a proof that our work is headed in the right direction.
Why has Mogo Finance joined the Mintos platform? Why didn’t you create your own platform, as other loan companies do?
Everyone should play to their strengths. Mogo’s expertise is issuing loans to customers. We have developed advanced process for assessing clients’ creditworthiness, and we are able to evaluate collateral at a very high accuracy in a timely manner. We have obtained significant experience in loan management over these years, and we have made considerable investments to improve various internal processes, including the evaluation of collateral quality.
As such, we decided to delegate the attraction of investors, who fund our loans through the marketplace, to the professionals, who have a wide range of knowledge and an opportunity to reach a large number of investors around the world. Creating our own platform would have also been very time-consuming and expensive.
Currently Mogo loans issued in Lithuania and Estonia are available for investors on the platform. Do you plan to add loans issued in other countries to the platform?
Yes, we are currently evaluating the opportunity to add to the platform loans issued in Latvia and Georgia.
Who is your typical customer? How do you evaluate the payment capabilities of each customer?
The typical Mogo customer is an economically active person with a stable income, for whom comfort, mobility and time are important factors of a daily life. In my opinion, this is exactly why Mogo — with fast and convenient service — is the obvious first choice of our customers.
When evaluating the issue of loans, we use our expertise, the latest technology and all available market-specific data. Following a careful analysis, we come to a decision with regard to issuing a loan to a specific customer.
What is the loan repayment discipline? On average, what is the proportion of delayed loans?
Our data shows that about 7 – 9% of customers are late in their regular payment up to 15 days. The statistics, of course, differ for each country. When we initiate the first debt collection activities, the number of delayed payments after 15 days decreases to approximately 3 – 5%. We terminate contracts with delayed payments up to 35 days. We typically renew around 30% of terminated contracts. In case the contract is not renewed, collateral is repossessed and sold. This process lasts approximately 10 weeks, on average.
Why did you implement the buyback guarantee?
With regards to the buyback guarantee, I would like to mention that Mogo’s significant loan-issuing experience allows us to be reasonably precise when estimating the amount of defaults within a portfolio. Knowing this amount, we can assess the amount of the buyback guarantee and repurchase delayed loans to ensure that investors do not wait for a loan recovery.
In Mogo’s case, the rate of interest offered to investors follows the expected rate of default, adding back in the buyback guarantee; only the investment return differs, depending on the selected loan collateral value and term. This is especially important to those who invest in only a few loans, where each delayed loan has a significant influence on the total return of investments. With the buyback guarantee, we ensure that investors have less volatile returns and a more understandable product.
Do you plan on increasing the amount of loans placed on the platform?
Yes, we plan on gradually increasing the amount of loans placed on the platform, thus fueling the further growth and development of the Mogo Group.
I must say, we are altogether quite satisfied with current indicators – Mogo loans placed on the platform already have investments totaling more than 5 million euros. Our loans have been most actively financed by investors from Latvia, who have invested almost 1 million euros; they are followed by investors from Germany, where the total amount exceeds 760 thousand euros. In turn, the third largest investment in Mogo loans come from Great Britain, totaling just over 680 thousand euros.