P2P Lending in Bulgaria: A Rising Fintech Segment at a Glance  

In the past two years individuals have invested close to €45M through the two Bulgarian Peer-2-Peer (P2P) lending companies and this is more than the venture capital the whole startup ecosystem has received in the same period. Even though this is a small segment, it seems to be growing at a high pace. This specific and still almost not regulated type of crowdfunding is a playground dominated by fintech companies and is booming in the US, UK and part of Europe.

It’s rather new but also fast growing in Southeastern Europe and Bulgaria in particular. Last year the German fintech centric bank Varengold entered the Bulgarian market with the idea to invest in P2P marketplaces and the expectation that the sector in the region will boom in the next 2-3 years. Growth in volumes and popularity and long awaited regulation in Europe which might be a great boost – these are the forecasts for P2P lending market this year. Logically, Trending Topics decided to explore who are the players on local market, how they’ve evolved and what awaits them in the near future. 

Why is this interesting

Тhe model allows individuals, companies and funds to provide loans to borrowers. It’s 100% digital and anyone with some spare money could join as investor if ready to take the risk. On the other end of the rope, the model often provides better conditions or at least lower price for the borrowers. In other words, P2P lending could be seen from three perspectives – as an alternative to bank deposits, as an investment vehicle or as an alternative fundraising mechanism for individuals, SMEs and startups.  

“In Europe in 2017, a volume of around €3.8B was placed just with consumers through lending marketplaces. A total volume of €10.3B is expected in 2022 which corresponds to a threefold increase in volume over this period”, Sergey Pantaleev, General Manager of Varengold Bank Sofia Branch, told Trending Topics.

The local challengers

Unlike in the UK where the first P2P lender Zopa launched in 2005 and went public last year, this is a newer concept in Bulgaria, so are the companies. The first player – Iuvo, came around in 2016, and Klear appeared several months later. Since then the two platforms with slightly different models, have developed a lot. In the past two years the amount of money invested through the two Bulgarian platforms is close to €45M. It’s a drop in the ocean if we compare it only to the amount of deposits in Bulgarian banks – around €37B in the end of last year. However, the fact that with no more than €2.5M initial investments for the development of the platforms, they have managed to gain trust and traction of this size, is an evidence that this is model with great outlook. And not least, compared to the European market and the expectations for at least threefold growth, Iuvo and Klear don’t seem that insignificant.    

The rather international player Iuvo has seen  more than €40 invested through its platform, coming mostly from Germany, as Ivaylo Ivanov, CEO of Iuvo explained. The loans listed on Iuvo are diverse – from consumer loans, to mortgages and business credits. Ivanov’s first project some years ago was actually a platform for startup crowdfunding. It failed but the idea of providing alternative financing vehicle for businesses remained. “Business loans are the fastest growing category on the platform right now”, he explained. The company receives a commission on the obtained funding via the platform and its main responsibility is to evaluate the reliability of the originators. This is a smart way to manage the risks, as the originators are easier to evaluate than borrowers themselves are. “I expect Iuvo to continue growing threefold in the next year and according to the plan we should reach breakeven in two years. Returns on the P2P market as a whole however will drop a bit and stabilize in the near future”, Ivanov forecasted.    

Klear, on the other hand, being a registered financial institution in Bulgaria operates mostly on the local market. Since its launch in late 2016 €3.4M have been invested through the platform.  Its CEO Loic Le Pichoux comes from the consumer finance sector and to a certain extent this gives a bit different direction to Klear. The loans granted through the platform are predominantly consumer credits for renovations, cars and refinancing of other dues. Being a creditor itself, Klear faces the challenge of managing credit risk and choosing trustworthy borrowers. The company charges fixed fees for its services. Le Pichoux sees the P2P lending rather as a saving instrument for its clients, but not as a mainstream one. His expectation is optimistic as well. “There is for sure plenty of room for P2P lending to become a significant asset class. I expect Klear to continue its growth”, he said.

A major factor

The two Bulgarian platforms might not be the first or the biggest but they have the advantage of being developed on a market where a specific type of player is interested in bringing them on the next level. Varengold also has its plans for the year. “We could support any kind of P2P platforms that provide individuals and enterprises with funds. Our plans for 2019 are to extend business in Bulgaria, Southeastern- and Central Europe”, Pantaleev said. His thesis is that institutional investors like banks could accelerate the development of the market.  

The development of such models in Bulgaria is important for at least two reasons. On the one hand, with them being active on the market, it might be an opportunity for Bulgarian investors to diversify their assets portfolios. In the same time, as the projects are growing they might turn into an interesting option for financing also business activities. Last, but not least, these are another two well performing digital models from Bulgaria.  

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