PROVISION FUND POLICY
The Provision Fund is a safeguard fund, provided for Investors in the instance of late payments or defaults by borrowers. Our fund adds a layer of security, to step in and make payments on behalf of delinquent borrowers. This is not meant to be a guarantee, but provides a layer of protection. As with any investment, there are still risks and you should consider your options carefully.
This policy sets out how we run and oversee the fund in relation to loans funded through the ChangeFund platform.
Where does the money come from?
Participation in our fund is mandatory in order to invest. The fund fee will be deducted from the investor repayments. A list of the current fees charged to Borrowers is available on the Website. The Trustee (as trustee for the Investors) will pay the fund fee to ChangeFund as a deduction from the repayments received. ChangeFund has no beneficial interest in the capital or income of the Provision Fund and it cannot use Provision Fund monies for its own purposes.
How does it work?
- We deduct a proportion (1% annually) from the interest payments received from the borrower to cover the loan repayments of principal and interest owed to the Investor
- Repayments covering an Investor’s principal amount will take precedence over payment of interest to other Investors on the lending platform
- The Trustee (ChangeFund Limited) will hold the Provision Fund on trust as bare trustee for the Investors. The Trustee’s interest in the Provision Fund is limited to bare legal title only with the Investors enjoying full beneficial ownership of the Provision Fund to the extent applicable in this policy
- Any interest earned on monies held in the Provision Fund will be retained in the Provision Fund for the benefit of the Investors.
ChangeFund’s objective is to ensure that the Provision Fund is sufficiently funded to be able to
protect Investors on an ongoing basis such that you do not suffer financial loss. However, the
Provision Fund is not a guarantee nor an insurance product. In the event your funds are matched
to the loan of a borrower who is late in making payment or defaults on their loan, you may not be
fully or partially compensated by the Provision Fund for a number of reasons, including:
- ChangeFund may elect to not make a claim to the Provision Fund
- ChangeFund may elect to make only a partial claim to the Provision Fund
- The Provision Fund may not have sufficient funds to provide you with any compensation
Making a claim to the Provision Fund
ChangeFund’s aim is to ensure that the Provision Fund is sufficiently funded to be able to protect Investors on an ongoing basis such that you do not suffer financial loss. Similar funds in the peer-to-peer industry have proven track records in that the safeguard fund has provided to-date exceptional levels of protection.
In accordance with ChangeFund’s Provision Fund Policy, a decision on whether a claim should be
made to the Provision Fund for a specific borrower late payment or default, and the amount of
any such claim, is undertaken by the Credit & Risk Committee (the Committee). Members of the Committee are currently the directors of ChangeFund.
The Committee, on a daily basis, determines the claims that are to be made to the Provision Fund by ChangeFund on behalf of Investors. A potential claim is ordinarily first considered on the business day that ChangeFund becomes aware of a borrower late payment. In determining the claims to be made to the Provision Fund, the Committee will consider, amongst other things:
- The amount of money in the Provision Fund
- The expected future claims to the Provision Fund from existing loans, as assessed by ChangeFund
- Whether making a claim would be fair between Investors
- The likelihood of the borrower rectifying the late payment or default in a short timeframe
- The amount of the loss that may be suffered by the Investor
- The expected proceeds from assigning the relevant loan to a third party
- Whether the Investor has elected not to have ChangeFund make any Provision Fund claims in respect of the borrower late payment or default
In considering whether a claim is made to the Provision Fund for the full amount of a borrower
late payment or default, the Committee will always consider whether the amount of money in the Provision Fund is more than the amount of expected future losses on current loans outstanding. The amount of money in the Provision Fund, and also the value of borrower defaults we expect from outstanding loans, is regularly updated on the website.
The Provision Fund is audited annually by external auditors.
Management of Potential Conflicts of Interest
ChangeFund has identified those circumstances in which it considers that it may face a conflict of
interest and has adopted policies designed to mitigate or avoid those conflicts.
In the event of a borrower late payment or default, ChangeFund may make a claim on the Provision
Fund on behalf of Investors. ChangeFund considers that there may be a conflict of interest where its employees, officers or associates, or the employees, officers or their associates of ChangeFund Limited, have lent money using the ChangeFund Lending Platform and have suffered a default, and where they are required to make a decision as to whether a claim will be made on the Provision Fund in relation to that default. ChangeFund manages that conflict by:
- Ensuring that the same policies and procedures apply in relation to a claim to the Provision
Fund in relation to a loan in which an employee, officer or their associates have invested, as to any other default in relation to loans made by other Investors; and
- Ensuring that where an employee or officer has knowledge that they have an interest in a
loan that is the subject of a Provision Fund claim, the relevant employee or officer does not
participate in a decision as to whether or not a claim will be made on the Provision Fund.
How much money is held in the Provision Fund?
We intend to grow the Provision Fund over time. We look to ensuring sufficient reserves with regular reviews of Provision Fund value against loan book performance. We are starting with a rate of 1% of the loan book value.
What happens if the Provision Fund runs out?
If there are higher than expected defaults and/or arrears rates, which sees the depletion of the Provision Fund, we will put into operation the diversion of up to 100% of all future interest repayments to the Provision Fund until it’s back up to standard operating levels to meet future expected losses.
What happens to the funds if ChangeFund closes its doors?
If we decide to cease trading as a company, we have an exit plan. Protecting our client’s investment and the continuation of the recovery of funds borrowed through this period, is our first priority. We will achieve this by either selling the company or going through a solvent liquidation process. The receivables book with either be sold or managed by a third party servicer to oversee the completion of all existing loans.
Please click here to download our Provision Fund Policy.
Please feel free to contact us on [email protected] for further information.