Provision Fund, Peer to peer lending, p2p lending

The Provision Fund

Lending peer-to-peer to earn a better return seems like a radical idea. Every new Lender considering peer-to-peer asks “What if people don’t pay back?” On this page, we explain how we protect our Lenders from the risk of bad debt and late payments.

On this page:
The Provision Fund
Provision Fund Key Data
Principles of the Provision Fund

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The Provision Fund is one of the ways we protect our Lenders from bad debt, and has ensured that every RateSetter has got exactly what they have been promised.

How it works...

"Every Lender, Every Penny"

RateSetter is unique in peer-to-peer lending as the only operator to have returned every penny of capital and interest to every single Lender.

We were the first company to introduce a Provision Fund, which shields Lenders from bad debt. We strive to make sure the level of bad debt is minimal anyway but, inevitably, there will occasionally be missed, late or defaulted payments and so RateSetter has the Provision Fund to protect our lenders. The Fund has satisfied every claim made of it so that no Lender has ever suffered any bad debt.

*It’s important to note the Provision Fund does not provide a guarantee. What we can say is that it is managed in the interests of our Lenders, and has ensured that every Lender has received everything they have expected from RateSetter.

That’s the RateSetter difference.

The Provision Fund Key Data

How much is in the Fund?	£1,012,121
How much is on loan?	£46,022,781

Anticipated Bad Debt

This is based on careful statistical analysis of over 7m data records.

Expected Bad Debt(%)	<1.4%
Expected Bad Debt(£)	£635,114

Coverage Ratio: 1.6x

Actual Bad Debt

This is our actual default data,
updated in real time.

1 Month Late	0.11%
2 Months Late	0.01%
Historic Default Rate	0.35%

Coverage Ratio: 6.2x

The Principles of the Provision Fund

The Provision Fund is a trust on behalf of the Lenders, held by RateSetter. This means, like all customer funds, it is ring-fenced from RateSetter’s day to day operations. The Provision Fund has a set of Principles which determines how it is treated.

Principles of the Provision Fund
This sets out the principles behind the management of the Provision Fund.

The Provision Fund is managed by RateSetter in the interest of all of RateSetter’s Lenders.
RateSetter’s single overriding principle is that the Provision Fund is managed with the intention that all Lenders receive all capital and interest repayments due to them.
In the case of a late payment or a default, the Provision Fund has a Standard Management process:

a. A claim is automatically submitted by RateSetter to the Provision Fund.
b. The Provision Fund will consider the claim and, in accordance with the second Principle, recompense the Lender.
c. In the case of a default, all monies recovered by the Debt Recovery process (after costs) will be transferred back to the Provision Fund.

In the unlikely event of a significant run of bad debt that threatens the capitalisation of the Provision Fund, the Fund will transfer to Active Management.
In this situation, RateSetter will provide Active Management of the Provision Fund with three principles governing the consideration of claims submitted to the Fund:

a. To provide the most equitable management of the Fund in the interests of all affected Lenders.
b. That payment of affected Lenders’ capital will take precedence over payment of interest.
c. That the Provision Fund will not return to Standard Management until all defaulted Lenders have received their capital.