Nibble has recently launched a new debt investment product called “Legal Strategy”. This product allows investors to invest in portfolios of overdue debt from banks and microfinance organizations (MFOs).
These debt portfolios are acquired at a massive 85% discount to their original value, which means that investors can benefit from the loans being recovered.
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The debt collection and recovery process is fully automated and you won’t have to do anything but decide if you want to allocate your funds and invest in overdue debt.
What is Nibble’s Legal Strategy?
Nibble’s Legal Strategy is a debt investment product designed to provide private investors with an opportunity to invest in portfolios of overdue debt at a large discount to the original value.
Nibble purchases overdue loans from banks and microfinance organizations (MFOs) at auctions with an 85% discount. The purchase and handling of the debt portfolio are carried out in collaboration with Boostr, a company that specializes in debt recovery.
The loans in the Legal Strategy are classified as B, CC, and C. This means that the loans are considered high risk with the potential of a high reward.
The yield of the Legal Strategy can reach up to 14.5% per annum while being covered with a minimum 8% deposit-back guarantee by Nibble.
The Legal Strategy has a minimum investment period ranging from 6 to 12 months, as the litigation and recovery process can take longer to complete.
All processes are streamlined and automated which allows you to earn passive income on your investments in the Legal Strategy.
|Classification of loans
|B – CC – C
|6 – 60 months
|Expected average interest rate
|Nibble guaranteed interest rate
How does Nibble’s Legal Strategy work?
The Legal Strategy works by investing in portfolios consisting of consumer loans that are classified as B, CC, and C. These loans are in the process of pre-trial and judicial recovery, which means they have outstanding debts and fines.
Due to these factors, the yield of the Legal Strategy can reach up to 14.5% per annum while being covered with a minimum 8% deposit back guarantee.
Here is an overview of the process:
How Nibble’s Legal Strategy works is explained step by step for you below:
1. Debt acquisition
Boostr, a company with expertise in debt collection, acquires overdue loans from banks and MFOs at auctions with a discount of 85%.
2. Extrajudicial debt collection
After purchasing the overdue loans, Boostr contacts the borrowers and attempts to negotiate the return of the debt through extrajudicial means. This approach helps save time and resources by avoiding lengthy legal procedures.
3. Legal debt collection
If extrajudicial negotiations are not successful, Boostr initiates an automated process to recover the debt by initiating legal proceedings against the debtor. They work to obtain a court decision for debt collection.
4. Debt recovery and distribution
Once a judicial order is issued, the debt, interest, and fines are collected from debtors through bailiff services and banks. The recovered funds are then distributed among the Legal Strategy investors on the Nibble platform every 90 days.
What are the risks of Nibble’s Legal Strategy?
While Nibble’s Legal Strategy has the potential for high returns, investors should be aware of the potential risks that come with debt investments. Some of these risks include:
- Legal risk: The success of the Legal Strategy depends on the effectiveness of the pre-trial and judicial recovery process. Legal proceedings can be lengthy and unpredictable, which could impact the overall returns for investors.
- Market risk: Economic conditions and changes in regulations may affect the performance of the Legal Strategy. Factors such as changes in interest rates, inflation, and unemployment levels can all impact the ability of borrowers to pay back their loans, leading to a potential decrease in returns.
- Platform risk: Nibble is offering a deposit-back guarantee covering a minimum of 8% annual interest. Since this guarantee is issued by the platform, you have a potential risk that the platform becomes unable to fulfill its obligation to you.
- Liquidity risk: The Legal Strategy comes with a minimum investment period (6 to 12 months), which may limit an investor’s ability to withdraw their funds quickly. Investors need to consider this lock-up period when deciding whether this investment approach aligns with their needs and financial goals.
- Diversification risk: While the Legal Strategy invests in a portfolio of multiple loan assets to reduce individual borrower risk, there may still be potential risks associated with the specific industries, regions, or loan types. Investors should ensure they are comfortable with this level of diversification and consider the potential impact on their overall portfolio.
While there are inherent risks in any investment, Nibble has taken steps to mitigate some of these risks through its Legal Strategy’s deposit-back guarantee covering a minimum 8% annual interest and diversification across a large number of loans.
It’s essential for investors to weigh the potential risks and rewards and carefully consider if this strategy aligns with their financial goals and risk tolerance.
How risky are the loans in the Legal Strategy?
The loans you invest in using the Legal Strategy on Nibble are classified as B, CC, and C. This means that they have a medium to high risk according to the scoring models used by IT Smart Finance:
Compared to the other investment strategies at Nibble, the loans in the legal strategy are more risky, but also have the potential for a higher reward.
Nibble Legal Strategy loan distribution by classification:
- B: 54%
- CC: 28%
- C: 18%
You can always check the current distribution for each strategy on Nibble here.
Is the Legal Strategy from Nibble worth it?
The Legal Strategy from Nibble can be a great way to diversify your investment portfolio. But if you are considering it as your main form of debt investment, you should carefully consider the risk compared with regular P2P lending.
The main difference between the Legal Strategy and other approaches to P2P investing is that with the Legal Strategy you are investing in loans that are already struggling whereas with regular P2P lending, you more often investing in current debt that might become overdue in the future.
The risk is often higher with overdue debt, but since you are buying at a large discount it might be worth it. But when you invest in debt like this, it is expected that a lot of the debt will never be recovered. At the end of the day, what you choose to invest in depends on your risk tolerance.
The Nibble Legal Strategy is definitely not risk-free even though Nibble has an 8% deposit back guarantee. However high returns of this form of debt investment can potentially make it worth the risk.
If you are in doubt about whether the Legal Strategy is the right choice, Nibble also has more standard P2P investment opportunities.