Elephant Club, the first hybrid fund peer lending platform in HK
Hong Kong may have strict regulations concerning internet lending but some fund managers have found ways around this while still complying with the law by combining the structure of a fund with a form of internet lending.
Veteran fund manager Charles Li Tak-kwong, co-founder and managing director of Elephant Club, said his company is a combination of a fund and a peer lending platform.
“We have to structure Elephant Club this way so as to follow all the local law requirements and to boost the confidence of investors. We believe this model will be the way forward for Hong Kong internet financing,” Li told the South China Morning Post at the launch of the Elephant Club recently.
Globally, lending through online platforms reached US$60 billion last year and is forecast to reach US$290 billion by 2020. In many overseas markets, such as the US, peer-to-peer lending allows lenders to loan money to borrowers via online services.
However, in the US and mainland China, such services have been hit by fraud and bad debt problems but Li believes the Hong Kong version could work well.
“These overseas models cannot be introduced in Hong Kong because it is illegal to do so here. Under Hong Kong law, anyone who lends money as a business needs a money lender’s licence from the Hong Kong police and without that no one can lend money via the internet,” he said.
“In addition, such lenders need to take on any risks of default from the borrowers while operators on the P2P platform have no such responsibility. This discourages people to act as lenders,” Li said.
Li said the Elephant Club has a money lender licence and it has appointed a Securities and Futures Commission-authorised fund manager to manage the fund. It began raising funds last week with Li targeting HK$200 million in the first round and up to HK$2 billion in the medium term.
Investors can put in a minimum HK$800,000 in the club for a period of 12 months to three years with a guaranteed interest rate from 7 per cent to 10 per cent.
“They will not suffer any loss in case of default by borrowers as the Elephant Club will absorb the loss. This is the major difference of our model from other peer-to-peer lending platforms. We believe investors will find it attractive as it is just like investing in a bond with a regular return,” Li said.
The money will then be available to borrowers who can apply online for funding up to HK$300,000 per case at an annual interest rate between 18 to 30 per cent.
Janan Tam Lok-fung, the credit and operation manager of Elephant Club, said the average personal loan default rate in Hong Kong over the past two decades was only 5 per cent.
“We believe that by using proper credit approval procedures, we won’t have to worry too much about the bad debt level in Hong Kong,” Tam said. “More and more people are turning to the internet to borrow money because it is more convenient and more private than going into a bank branch.”