Lending Settings - possible auto relend improvement?

To support the above, I will quote LW website. Everyone gets maximum diversification automatically, regardless of number of loan parts:

If at any time, in the opinion of the Trustee, the Lending Works Shield does not have sufficient funds to satisfy the claims arising from the loans outstanding (a deficit), and, the deficit is not, in the opinion of the Trustee in its sole and absolute discretion, capable of being rectified through the ordinary course of business, the Trustee in consultation with Lending Works may declare a “Pooling Event”. If a Pooling Event occurs, the value of the outstanding deficit will be split or 'pooled' among all existing lenders on a pro-rata basis. Given that lenders rely on the Fair Algorithm for the allocation of their funds, and do not make the choice themselves, we believe the Pooling Event to be the fairest way. The link in the Diversification section above explains in further detail.

Thanks Ace

What assumptions did you use to calculate the £0.03 loss of interest on min. £1 chunk size out of interest?

Regarding lending the minimum £10 - this is a valid concern, though we feel that making the site more useable and scalable for the 99.9% should be favoured over supporting the 0.1% of investors lending £10. Hopefully most would agree.

Hi Matthew,

My assumption was that, on average an investor will have half the minimum chunk size waiting to be invested. I.e. Small repayments of capital and interest are received each day until the total is greater than the minimum chunk size. At which point this sum is queued for investment (I've ignored any time that the sum above the minimum chunk size spends in the queue as this won't be affected by the minimum chunk size). So, at any time there will be somewhere between zero and the minimum chunk size that can't be invested. Hence, on average, there will be half the minimum chunk size that can't be invested. Therefore, over a period of a year an investor would loose 6% (on the 5 year product) of half the minimum chunk size.

So, if the minimum chunk size was £1 an investor would loose 6% of £0.50 = £0.03 purely due to the minimum chunk size.
Raising the minimum chunk size to £10, gives 6% of £5 = £0.30.

This is obviously a very rough and ready calculation that won't necessarily apply to each individual investor, but does give a good general idea of the effects of changing the minimum chunk size.

I should point out that this only applies to relatively small investments. The daily repayments on large investments would likely be larger than the minimum chunk size, so can be queued for investment immediately.

I am fully supportive of your proposal to increase the minimum chunk size, I was merely trying to point out what effect it would have.

I agree with df that investments of £10, where this will have a very large effect, are rather pointless. Perhaps you should consider raising the minimum platform investment amount at the same time as raising the minimum chunk size. If the minimum platform investment amount was set to ten times the minimum chunk size, then the worst case average effect of the minimum chunk size would be to reduce the 6% headline rate to 5.7%.

Thanks for this Ace, very helpful.

We had actually worked through an option similar to this, and it's still on the agenda, though we've separated increasing the minimum chunk size from the diversification point. While we're not against scaling up the minimum chunk size depending on amount of investment, I still feel that we need to set a floor at £10. If someone is only looking to invest £10, I'd question whether this is the right product for them, and I'm fairly sure a lack of diversification on £10 (and potential for cash drag) would not be a major concern.

On that note, we're proposing that the new minimum investment would be £100. I think this is still a sensible figure, comparable with other investment platforms, and will allow some upfront diversification i.e. 10 x £10 chunks. However, we will be recommending investing at least £1,000, provided your circumstances allow, to get the best experience from Lending Works i.e. speed of reinvestments etc. The £100 minimum should allow investors to get a feel for the platform and add/withdraw money before committing any more funds.

Hope this helps.

Could we get into the situation that there are so many small loans that the computational effort needed to handle it becomes excessive ?  By excessive I mean that the website could time out to a user transiently. Not the end of the world but could create a lot of support effort needed to answer user questions. I suspect that this has actually happened on a few other sites.

Hi Matthew

I am a new customer but have seen the old and the new pages. I have to say the add money is a lot easier to understand than when I first added money. The lending screen is better too- much clearer. I would be interested in DD's- I assume you accept Standing Orders.

Only concern is the length of time to match funds up to a week so far but understand the process so will wait patiently!!