The Provision Fund
Investments with RateSetter are protected by the Provision Fund. The Provision Fund has ensured that to date, every individual investor has received the returns they expected without losing a penny. This is a track record that we are proud of and are highly incentivised to maintain, but it is not a guarantee for the future.
In 2010 we established the Provision Fund to manage risk and offer greater predictability to investors. With £2,293,423,162 lent to date, we’re proud that the Provision Fund has ensured that not one of our 60,167 individual investors has lost a penny. We always like to be clear that the Provision Fund does not provide a guarantee and investments are not covered by the Financial Services Compensation Scheme.
Provision Fund Coverage Ratio
The Coverage Ratio is how we estimate the Provision Fund’s ability to ensure lenders get all their money back, plus interest earned. It is calculated by dividing the size of the Provision Fund by Expected Losses. A 100% Coverage Ratio indicates that the Provision Fund should be able to cover all expected claims. A Coverage Ratio greater than 100% means that all expected claims should be covered with money to spare.
RateSetter’s target range for the Coverage Ratio is between 125% and 150%.
Size of the Provision Fund
All borrowers pay a risk-weighted contribution into the Provision Fund. Some of this is paid upfront, some is spread over the lifetime of the loans. The contributions spread over the lifetime of the loans are called the "Contractual Future Income". The figure shown above has been appropriately reduced to reflect early repayments and defaults.
In an exceptional case where a loan was made to a company that subsequently went into financial difficulty, RateSetter has taken part of the loan onto its own balance sheet and has agreed to give the company further direct financial support so that it can continue to trade and repay its debts. We did this because the loan was outside RateSetter’s credit policy and we believe that it is appropriate, in this specific case, to stand in front of our lenders.
This is made up of £12,837,104 contributions plus £11,513,121 in Contractual Future Income.