Managing risk and the Provision Fund

Portrait of cheerful positive girl jumping in the air with raised fists looking at camera isolated on violet background. Life people energy concept

RateSetter’s investment model has ensured every one of our investors has received 100% of their principal and interest payments.


Provision Fund buffer*


Current estimate of bad debt**


Provision Fund coverage ratio


Principal and interest returned


We do the heavy lifting to protect your investment

We only lend to creditworthy borrowers

Every borrower must pass our comprehensive credit screening processes when applying for a personal loan, car loan or renewable energy loan. Our in-house credit team uses a combination of innovative technologies and traditional resources (such as credit bureau information) to assess each borrower’s credit risk.

We handle the credit analysis so you can be confident that your funds are being matched to creditworthy borrowers.

Your investment is backed by the Provision Fund

While we only match investor funds with loans to creditworthy borrowers, we appreciate that in some circumstances borrowers may be unable to repay their loans. That’s why we set up the Provision Fund, a pool of funds held in cash by a separate trustee, designed to protect investors in the event a borrower misses a payment or defaults.


The Provision Fund is designed to reduce the risks of peer-to-peer lending

The Provision Fund has ensured that no investor has ever lost a cent of principal or interest.*

All borrowers pay an amount into the Provision Fund

This amount is determined by the borrower’s risk profile, the loan amount and the loan term. A greater risk requires a higher contribution.

The Provision Fund can reimburse investors to protect against loss.

RateSetter may make a claim on behalf of the investor where a loss is incurred due to a borrower late payment or default.


When does the Provision Fund protect investors returns?

The Provision Fund will ordinarily protect investors from any loss when the interest coverage ratio is greater than 100%.


Provision Fund coverage ratio

The Provision Fund holds cash and also receives regular inflows from some existing borrower loans. In determining the Provision Fund coverage ratio, we measure the Provision Fund buffer against expected future losses on loans outstanding. When the coverage ratio is above 100%, we expect the Provision Fund to cover all borrower late payments and defaults.

Note: Data as at 15 June 2020. See below for definitions of key terms


How much protection does the Provision Fund offer?

The Provision Fund has an unblemished record for protecting investors against borrower late payments or defaults. We expect it to maintain this track record provided that future losses on outstanding loans remain below 5.9% of current loans outstanding.

The above illustration is indicative only and assumes no new lending. The net loss rate on all lending since inception does not reflect a fully seasoned loan book. Though we believe the Provision Fund provides meaningful protection for investors, it is important to remember it is not a guarantee nor an insurance product, and your capital is at risk. Read our Product Disclosure Statement for more information.


What are the risks associated with peer to peer investing?

As with every investment, investing in the RateSetter Lending Platform is not without risk.

No Provision Fund protection

We may make a claim to the Provision Fund to compensate you in the event of a borrower late payment or default. However, the Provision Fund is not an insurance product and we cannot guarantee or warrant that you will be compensated. RateSetter has discretion as to whether to make a claim and may determine to only make a partial claim or not to make any claim if, amongst other reasons, there are insufficient funds in the Provision Fund to cover all expected claims in relation to existing loans.

Where the Provision Fund buffer is greater than the value of expected losses, it is our expectation that the Provision Fund Claims committee will make a claim to the Provision Fund to compensate lenders for the full amount of any borrower late payment or default. If the Provision Fund Claims Committee determines that there may not be sufficient funds in the Provision Fund to cover all expected future losses (based on loans currently outstanding), then it may reduce the amount it seeks to claim from the Provision Fund to compensate for borrower late payment or default. For example, the Provision Fund Claims Committee may make a claim on the Provision Fund to compensate an investor for amounts of unpaid principal, but not interest, or may decide to delay any claim for interest until a later date.

If you are not compensated by the Provision Fund in the event of borrower late payment or default, you may benefit from debt collection or recovery processes that RateSetter may undertake, which may or may not recover any funds. In such circumstances, RateSetter may also assign your loan to a collections agency or the Provision Fund for consideration.

No deposit guarantee

Your investment is not a deposit and does not have the benefit of depositor protection laws as it would have if it were an amount deposited with an Australian ADI.

Borrower default impact on the availability of funds

In the event of a borrower late payment or default where you have not benefited from Provision Fund protection, you may only be able to withdraw your funds relating to that loan when any collections or recoveries have been made against that loan.

*The Provision Fund buffer is the sum of money held in the Provision Fund and the expected Provision Fund future inflows from outstanding loans due over the lifetime of loans, adjusted to reflect expected early repayments, payment holidays and bad debt. Whilst we’re extremely proud of the Provision Fund’s 100% track record, it is not a guarantee of future performance. Data as at 14 May 2020. Capital is at risk. Read the Product Disclosure Statement for more information.

**Our estimate of borrower defaults may change at any time without notice. Data as at 14 May 2020.

All figures stated represent the RateSetter Lending Platform only unless stated otherwise.

Warning: Past performance is not a reliable indicator of future performance. Different investments reflect substantially different risk profiles.