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Don't put all your eggs in one loan originator

If you invest €1,000 with a single loan originator and it runs into financial difficulties, a large share of your portfolio could be affected. If you spread that same €1,000 across 20 loans from several loan originators, the impact of problems with any one originator may be much smaller. The maths is simple. The discipline to actually do it is what separates careful investors from careless ones.

What You'll Learn

  • Why diversification is your most accessible risk management tool
  • How to diversify effectively within Afranga's direct lending model
  • When diversification has limits and what to do about it

Diversification means avoiding one big dependency

Diversification means spreading investments across multiple loan originators instead of relying too heavily on a single one. It also means considering loan types and country exposure.

In crowdlending, this matters because excessive exposure to a single loan originator can have a significant impact if problems arise.

How it can help

If your portfolio is spread across multiple loan originators, the impact of issues affecting any one originator may be smaller. Diversification can also reduce dependence on one term length, sector, or country.

What it cannot do

Diversification does not guarantee profit. It cannot eliminate platform risk, broad economic stress, or a situation where many borrowers are affected at the same time.

It can reduce specific concentration risk, but it is not a shield against every form of loss.

Key Takeaways

  • Diversification reduces dependence on any single exposure.
  • Consider loan originator, loan types and country exposure when building your portfolio.
  • It cannot guarantee positive returns.

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Quick Quiz

Question 1

What is the primary purpose of diversification in crowdlending?

A.  To eliminate the risk of default entirely

B.  To reduce the impact of any single default on your overall portfolio

C.  To maximise your average interest rate

D.  To qualify for higher loan limits

 

Question 2

Can diversification guarantee profit?

A.  Yes

B.  No

 

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