P2P Lender Ratings & Risk Scores
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Risk Score Scale
Financial Risk - Scoring Methodology
The financial risk score makes up 33% of the overall risk rating and ranges from Very High to Very Low based on the financial strength of the lender. The baseline score is assigned on a 1 to 7 scale, where 1 indicates Very High financial risk and 7 reflects Very Low financial risk.
The core baseline is determined by the lender's equity-to-assets ratio and debt-to-equity ratio from the most recent financial year.
Additional points can be earned for proven operational stability and stronger investor protection mechanisms. Lenders receive one extra point if they have been operating for more than two years, one point for having audited financial statements, and two points for offering a Group Guarantee.
The total point score is then normalized to fit the unified 1-to-10 scale used in the global risk rating.
Country Risk - Scoring Methodology
The country risk score accounts for 33% of the overall risk rating and evaluates the stability and reliability of the lender’s operating environment. The baseline score is assigned on a 1 to 7 scale, where 1 represents Very High country risk and 7 indicates Very Low country risk.
The baseline value is derived from a set of publicly available country-specific indicators, including Rule of Law, Currency Risk, Inflation Rate, Corruption Index, Sovereign Credit Rating, Financial Regulation quality, Non-Performing Loan ratios in the banking sector, Access to Credit, and overall Internet Penetration.
These variables collectively reflect the economic, financial, and institutional resilience of the country.
The final country risk score is then normalized to fit the unified 1-to-10 scale used in the global risk rating.
Platform Risk - Scoring Methodology
The platform risk score contributes 33% to the overall risk rating and reflects the operational integrity, transparency, and historical performance of the investment platform.
The baseline score is derived from the platform’s overall portfolio performance, measured as the percentage of investor funds that have been successfully repaid or are currently performing. Platforms with a 100% performance record receive the highest baseline score of 10, while platforms with performance below 50% receive a score of 0.
Additional points are awarded for structural safeguards. Platforms receive one point if they are regulated and one point if financial reports are publicly available, demonstrating transparency and compliance. Platforms that are operating for at least 3 years receive 1 additional point.
Red flags reduce the score depending on their severity. A minor red flag deducts one point, while a substantial red flag deducts two points, reflecting elevated operational or governance concerns.
Table of contents
FAQ
Shall I invest in a loan originator with negative ratios?
Investing in loan originators with negative financial ratios signals higher risk levels, particularly for lenders who are not protected by a proven group guarantee.
Why might group-level financial statements be misleading for P2P investors?
Group-level reports combine the results of all entities within a financial group. This can mask the poor performance or weak balance sheet of a specific loan originator in which you are investing. If the group does not provide financials for the actual subsidiary issuing the loans, you may be basing decisions on an overly optimistic view that doesn’t reflect the real risks in that portfolio.
How can audited financial statements reduce the risk of relying on inaccurate lender data?
Audited reports, especially from reputable auditors, provide independent verification that the numbers are accurate and comply with accounting standards. This reduces the risk of manipulation, omissions, or accounting errors, giving you greater confidence in your investment analysis.
How should investors interpret an unusually high Return on Equity (ROE) for a P2P lender?
While a high ROE can indicate efficiency, it can also be misleading if it results from a very small equity base. In such cases, even minor losses could cause ROE to swing sharply negative. Investors should check whether the high ROE is supported by sustainable profitability or inflated by low equity.
What are the potential risks of funding early-stage lenders with weak financials, even if they offer high interest rates?
Early-stage lenders often have limited operating history, low or negative equity, and higher default rates. High interest rates may reflect this risk, but they don’t guarantee adequate compensation for potential losses. Without strong backing, such as a proven group guarantee, you risk losing capital if the lender fails before reaching profitability.
How can country risk override strong lender financial ratios in P2P investing?
Even if a lender is financially healthy, operating in a country with high political instability, volatile currency, or unpredictable regulation can quickly damage repayment rates and operational continuity. Sudden legal changes or economic shocks can force even strong lenders into distress.
