4. How is it possible for investors to receive an average annual income of 10%, given that the loans are granted at an interest rate of 7.9% annually?

This is possible through diversification. An investor finances different borrowers who receive money at an interest rate starting at 7.9%, up to over 30% annually, depending on his rating. Thus, an average interest rate on all loan portfolios would be about 18-20%. After subtracting the service charge and the default rate, the investor will earn an income of 10% per year or more.

More details?

Each investor can finance through Fagura a part of one or more loans. The amount for financing one loan can not exceed 100 EUR.

Limiting the investment into a single loan is set in order for an investor to avoid an exaggerated risk in relation to a single borrower. That happens because granting a loan necessarily implies a risk of default. If an investor would place all available money, or too much money in a single loan, then the default of this loan would reduce to zero or significantly reduce its investment / earnings.

As a result, each investor will finance several loans amounting to no more than 100 EUR. Loans are granted to different people, with different characteristics and, therefore, with different rating.

Depending on the rating, the interest rate at which the loans will be granted will also be different - a borrower with an A rating will receive a loan at an interest rate of 7.9% annually, a borrower with a C rating - at a rate of interest, for example, of 29% annually.

Each investor will be free to choose individually which loans he / she wants to finance - those with lower risk, but also at a lower interest rate (A rating), or rating C (or D, E, F or G), which are more profitable but have a higher default risk.

The total number of loans funded by an investor represents his/her investment portfolio. The portfolio's interest rate will be calculated as the weighted average of the interest rates on all funded loans.

In order to adequately manage the risk of loan default, we recommend diversifying the portfolio by financing loans with different ratings. In this way, the investor will ensure an average annual income of at least 10% per annum, and the best-rated borrowers will obtain loans at an interest rate of 7.9% annually.

We emphasize that when calculating the average annual interest, the investor must also consider the default rate for each individual loan category by lowering the expected interest rate with the default rate for that specific category of borrowers.