In 2016, many investors in Singapore were piling their funds into peer-to-peer lending schemes at a time when China was clamping down on them hard.
One particular P2P firm in Singapore was growing fast. Running on VC fuel, Capital Match would go on to finance more than S$150 million (US$111 million) to small and medium enterprises (SMEs) in Singapore and Hong Kong by 2019.
But that growth may have come at the expense of its investors.
No, this isn’t a story about clueless investors getting their fingers burnt.
Two investors, who each put “six figures” in US dollars into Capital Match between 2016 and 2019, are outraged by the allegedly inaccurate or false information provided to them, which they say misled them into investing.
They aren’t just aggrieved because of their potential losses, which they accept is part and parcel of investing. Instead, they say that years of poor notification processes, irresponsible lending, and a lack of prompt recovery efforts on Capital Match’s part have compounded into a costly mistake for the platform’s many investors.
Both investors spoke to Tech in Asia on condition of anonymity.
On personal finance site Seedly, Capital Match has a 2.3 rating out of 5, with an investor cautioning others to “avoid this platform” in one review.
Other platforms like BRDGE and Funding Societies had ratings of 4.5 and 4.1, respectively, ranked on metrics like portfolio transparency, customer support, and user experience.
Capital Match’s business, meanwhile, appears to have significantly declined from its heyday, its filings show.
In an emailed statement to Tech in Asia, the company said it “strongly disagrees with any allegation of false or misleading information having been provided to investors on the platform.” It was unable to comment on its position on specific allegations, which are the subjects of ongoing court proceedings.
P2P lending platforms are no strangers to controversy. In 2020, hundreds of investors on Singapore-based CoAssets saw their holdings evaporate as the firm shut down amid a growing mountain of troubled debt.
That said, some like Funding Societies and Validus are going from strength to strength. Last week, Funding Societies raised US$294 million in funding from investors including Softbank Vision Fund 2 and VNG Group. Validus, in the meantime, is charting an expansion into Vietnam through a joint venture launched in January.
Established in 2014, Capital Match links investors to SMEs in need of upfront cash. It began offering invoice financing facilities in 2019.
The firm is not licensed by the Monetary Authority of Singapore (MAS). According to the regulator, whether a platform facilitating invoice factoring is required to hold a Capital Markets Services license “would depend on its business model, including the activities conducted, and the characteristics and terms of the transactions offered on the platform.”
Capital Match enters into factoring agreementswith SMEs, whereby it buys invoices issued by the SME and disburses upfront cash to the borrower using investor funds. In turn, the debtor repays the amount set out in the invoice directly to Capital Match.
In Sanmina’s case, it allegedly didn’t pay a bulk of its obligations.
The US$7.7 million in question represents payments on over 2,800 invoices that were issued by Jeams Transportation Warehousing – an SME borrower on Capital Match’s platform – to Sanmina for services rendered between 2016 and 2019.
In theory, arrangements like the one Capital Match has with Jeams are low-risk investments.
Assuming invoices are properly verified, the investor takes on the credit risk of the debtor – often an established blue chip company – instead of the SME’s, says Louis (not his real name), who has invested in hundreds of facilities on Capital Match since 2016.
Pierre (not his real name), an investor who has put money in several other P2P lending platforms, says he was drawn to Capital Match’s “semi-secured loans.” He began using the platform in 2016 and has invested in “well over a thousand” facilities since.
It worked out for a while. Then, Pierre noticed many delayed payments on his facilities tied to Sanmina in 2019, some “long overdue.” He approached the P2P lender for answers.
Capital Match already had this information but they were not sharing it with me.
A Capital Match employee let slip that “a seller had died,” which might have been a reason for the delayed payments. Pierre says he found the reason suspicious: Even if the seller had passed away, Capital Match should have had the right to these invoices.
Unable to get much out of Capital Match, Pierre began investigating. Through a lawyer, he found out that Jagit Singh, Jeams’ principal, had died in August 2019.
Up till that point, Pierre did not know the identity of the firm he had lent to, as Capital Match anonymizes the borrowers on its platform. Jumping through those hoops, however, was unnecessary, Pierre says. “Capital Match already had this information but they were not sharing it with me,” he adds.
Later, Pierre was “shocked” and “disappointed” to find out that the firm involved – Sanmina – had allegedly not been notified in the way that Capital Match had explained to him.
He had invested in notified facilities, in which the debtor – or the company that’s being billed the invoices – is informed about the factoring agreement between the lending platform and the SME borrower. The notification ensures that the debtor pays the lending platform when it’s time. It also gives the lending platform direct recourse to the debtor in events of late or non-payment. (In contrast, in unnotified facilities, debtors aren’t notified of these arrangements, and lending firms have to claw back payments from the SMEs.)
Tech in Asia has viewed court documents submitted to the Singapore High Court by lawyers representing Capital Match and Sanmina.
Sanmina-SCI Systems denies owing Capital Match US$7.7 million – or any other sum – in outstanding payments. It also denies receiving a Notice of Assignment (NOA) informing it of any factoring agreements between Capital Match and Jeams in 2016.
Court documents reveal that the NOA, sent by Singh to Sanmina via email, had never reached Sanmina’s finance team, which it was addressed to, but was instead received by a “senior logistics supervisor.” It had supposedly also never been signed.
Despite that, between 2016 and 2019, Sanmina’s finance team had paid out some S$4.1 million (US$3 million) to a Capital Match bank account that had been designated for Jeams’ debt. This, however, was just a fraction of the total bill.
On Capital Match’s part, it says that summary lists of invoices, which were signed off by Sanmina’s employees, had served as a basis for entering into new factoring agreements with Jeams.
However, around July 2019, the lending firm found that some of the invoices were fictitious.
“All Is Well”
Capital Match continued disbursing cash to SMEs despite having trouble collecting money from debtors.
In June 2018, Capital Match disbursed S$66,000 (US$49,000) to Jeams and was trying to raise a further S$136,000 (US$101,000) for the SME despite being owed S$4.7 million (US$3.5 million) in outstanding payments from Sanmina, a WhatsApp conversation admitted into court evidence shows.
In the same WhatsApp conversation, Singh revealed to a Capital Match employee that he was “desperate” to pay out salaries to employees, which had already been delayed.
Eight months later, in February 2019, Capital Match continued to enter into new factoring agreements with Jeams even as the debt from Samina hit “about S$5.6 million” (US$4.2 million), with some invoices delayed by “close to a year,” a transcript of an audio recording submitted to court evidence shows.
Capital Match says allegations made against it relating to these facilities are “false.”
“It is a firm policy and a part of our SOP (standard operating procedure) that we do not disburse any additional funds to SMEs where we are not satisfied with their creditworthiness, or where there are outstanding payments,” a Capital Match spokesperson says.
Another problem was that in parallel, Capital Match had been writing to investors to assure them that everything was well.
In an update to investors dated June 7, 2019 and seen by Tech in Asia, Capital Match wrote that Jeams was “growing strongly,” and that it had facilitated financing of Jeams’ invoices to Sanmina for “more than two years now and there has been no default on any of the invoices.”
That wasn’t all.
WhatsApp screenshots between Singh and Capital Match’s commercial director revealed that Singh had borrowed money from the platform via two different entities – “Jeams TT” and “Jeams TW.” The former likely refers to Jeans Transport Trading, a separate entity that Singh also oversaw.
Because the identities of the SMEs were anonymized, investors did not know that they were doubly exposed to the same person – Singh – because both entities would have been listed under a different serial number on the platform.
“In conversations I’ve had with Capital Match, they haven’t been willing to acknowledge that their conduct has effectively led to this,” says Pierre.
Lack of Information?
Online lenders do keep borrower identities a secret for a good reason: SME borrowers prefer to be discreet in case its customers, suppliers, competitors, or employees are also investors on the platform.
A Capital Match spokesperson explains that it does so to prevent other parties from contacting borrowers on its platform to offer them additional financing, which might in turn increase the credit risks of its borrowers.
“Investors are provided information on relevant details on the SMEs and any guarantors in accordance with our SOP, with such information being sufficient to identify any connection between related SMEs on the platform,” the spokesperson adds.
On another major lending platform, borrower identities can be shared with its investors but strictly after getting a request, its CEO tells Tech in Asia.
With such a practice, a big drawback for investors is that they can’t conduct their own due diligence or verify the information shared by the platform.
In Capital Match’s case, this information is typically collated on a “request sheet” that details the total loan quantum sought, expected payment date, monthly interest rate, as well as the identity of the debtor. It also includes financial statements – albeit unaudited – in the preceding years and various methods of recourse the debtor has in the event of defaults.
Tech in Asia looked through over a dozen of these “request sheets” that laid out investment terms for notified securities backed by Keppel Fels, Sanmina, Flextronics, and Toyobo.
An estimated S$1.2 million (US$890,000) in defaults have occurred on facilities linked to Flextronics and another S$2 million (US$1.5 million) on those linked to Toyobo, based on one investor’s back-of-the-hand calculations, though the outstanding sums are possibly more.
Capital Match also began legal action against sellers and their guarantors in a Toyobo-linked facility in March 2020. Legal proceedings are ongoing.
Investors on the platform are still owed funds from facilities linked to Keppel Fels that date back to 2016, after Capital Match told investors in December that year that it found “issues with some invoices involving inconsistencies internally at Keppel.” It also stopped offering invoices issued to Keppel on the platform at the end of November 2016.
That’s despite several of these facilities being personally guaranteed by the borrower’s directors, who owned a freehold terrace valued at S$2.8 million (US$2.1 million), request sheets dated in 2016 show.
In September 2017, investors were told that the freehold terrace, which was in the process of liquidation, was valued at “US$2.9m+ with an outstanding mortgage of around US$2.2m.” There was no mention of any outstanding mortgage prior to this, Louis says. Effectively, the dollar value of the personal guarantee had shrunk by about a third.
In response to a letter of demand that Louis sent in April 2021, Capital Match said that the property owners had not been forthcoming with those details. “We are not responsible for any representations made by parties in the facilities, nor are we responsible for the adequacy, accuracy and/or completeness of any information supplied by parties to the facilities entered into,” it wrote.
Further, request sheets stated that the facilities would be backed by a trade credit insurance that was “in process” and would “require a few weeks to get finalized.” This would protect Capital Match – and its investors – against defaulted payments.
However, Louis says he found out in 2021 that the trade insurance policy never materialized. When quizzed, Capital Match said that there had been no representation that the insurance policies were guaranteed, but the firm also didn’t update investors about the policy’s status.
Louis says that over the years, he has had to chase Capital Match dozens of times for updates, but responses from the firm were sporadic and vague.
On one Keppel Fels-linked facility that was in arrears, Louis recounts receiving his first update only 82 days after its stipulated payment date in September 2016. He was never updated when it was first delayed, or even when it was 30 days late, but “only when it was almost in technical default,” Louis says.
Then, in June 2020, Louis noticed that the multiple facilities relating to Keppel Fels were suddenly marked as “bad debt.” Upon clarification, a representative for the firm explained that recovery efforts were still underway.
Capital Match tells Tech in Asia that its updates can be sent “anytime between 60 to 90 days” past payment due dates and that delays beyond its control, such as from court proceedings, can lead to updates only being provided when there are significant developments. It adds that a majority of its investors are satisfied with the timeliness of its updates.
Both investors say they have put in requests to review and inspect documents relating to their facilities, but were declined.
In response to these allegations, Capital Match says that all investors who make a request to review and inspect documents relating to financial transactions at its offices can do so.
It has, however, rejected some requests in 2020 because its offices were closed due to the pandemic. It has also rejected requests that were related to facilities that were the subject of proceedings before the Singapore Courts. The firm adds that it had provided these reasons to relevant investors at the material time.
MAS guidelines on securities-based crowdfunding operators do not spell out if, and how soon, investors have to be informed in the event of a default. That said, Capital Match is not licensed by the MAS.
On another major lending platform, investors get updates on delinquent accounts “after the grace period of seven days past due,” after which they are updated regularly on its platform about its collection efforts, its CEO tells Tech in Asia.
It’s unclear why Capital Match continued to extend millions of dollars of financing to Jeams despite the accumulation of alleged unpaid invoices by Sanmina.
Capital Match’s aggressive lending to Jeams could have been aimed at bolstering its loan books in the lead-up to a merger with Sesami, a Singapore-headquartered procurement firm, in November 2018.
Sesami was a profitable software company serving large corporate customers like Singapore Airlines and the National Healthcare Group that spent millions on procurement from SME suppliers. A merger would give Capital Match an immediate pipeline of new clients while turning Sesami into a tech company overnight.
In theory, the merged entity would be larger than the sum of its parts: It was expected to see combined revenues of “more than S$20 million” (more than US$14.9 million) and be profitable on an EBITDA basis.
But the benefits of the merger didn’t appear to have been realized on either end. Official filings show that since 2019, Capital Match’s assets and revenues have taken a dive. Its accumulated losses also increased by almost fivefold between 2019 and 2021.
Sesami’s revenue, meanwhile, was only US$3.6 million in 2021.
A former employee says that disagreements in direction and leadership styles between Pawel Kuznicki, Capital Match’s Polish founder and former CEO, and Teck Soon Ong, Sesami’s CEO, hampered that vision. Both of them served as co-CEOs of the new entity. A “big cultural gap” also existed between Sesami, which was run by “much older guys,” and the young, dynamic team at Capital Match.
In July 2019, Kuznicki stepped down from his leadership post without giving a reason.
Things appeared to go downhill after his departure. “The company was built in [Kuznicki’s] image and when he left, it was very difficult for the company to carry on,” the ex-employee says.
A source close to the company tells Tech in Asia that the company lacked the depth of experience in the financial sector to manage the risks that came with its growing loan book. Sesami executives also did not have the experience to run a fintech firm.
Tech in Asia was unable to reach Kuznicki for comment on this story.
Capital Match continues to solicit new investors to its platform.
A page on the Capital Match website displayed its rates of return on investments, as well as non-performing loan rates for 2020 when Tech in Asia accessed the platform in January.
Unpublished figures from 2016 to 2017 that were obtained from the site’s source code show that the quality of credit on the platform has deteriorated some years after 2016.
Capital Match says it cannot confirm that these figures were shared on the platform in the past.
A spokesperson from the firm adds that less than 0.23% of its invoice financing facilities in 2020 and 2021 have gone beyond 60 days past due, and that the average return on its platform in the past two years was “approximately 11% per annum” on the funds deployed.
According to Louis, the Commercial Affairs Department (CAD) is currently investigating Capital Match for operating without the proper licenses. Tech in Asia reached out to the CAD to obtain an update on the case, but it declined to comment.
Tech in Asia also understands that a lawsuit against Capital Match was brought to the High Court at the end of last year on the grounds that it had misled investors. The lawsuit has since been withdrawn.
Louis, who has approached the MAS for assistance, says he was told that as an unlicensed entity, Capital Match does not fall under its purview. “As an investor, you should really think twice when you do investments in Singapore because in practice, there’s hardly any recourse,” Louis says.
In a statement to Tech in Asia, an MAS spokesperson says: “MAS strongly encourages investors to deal only with entities regulated by MAS, so that they will be protected by the laws administered by MAS. By dealing with unregulated persons or entities (including those based overseas), investors will forgo the protection given under the MAS regulations.”
Louis admits that it was an oversight on his part to invest through an unlicensed platform, which he had not been aware of at the time, and that he would have “been more careful” had he known.
He’s now close to exhausting his options.
The cost of pursuing legal action can be prohibitive for individual investors in Singapore. Louis says that he has been advised that a lawsuit could cost him “between S$200,000 to S$600,000 in court fees” (between US$149,000 to US$446,000), making little sense for an investor to file one unless they’re owed well more than that.
Though rare in Singapore, minority stakeholders have come together to take representative action. While banding together does not necessarily increase the chances of a better outcome, one upside is that hefty legal costs can be split.
That said, in Singapore requires all members of the class to be identified and agreed upon before litigation commences, which could pose a challenge.
While Louis still hopes to recover a partial sum of his capital, he isn’t hopeful. “Realistically, I don’t think that’s going to happen, but I do hope to protect future investors,” Louis says. “Hundreds if not thousands of investors who are affected who have families who worked for that money.”
Currency converted from Singapore dollars to US dollars: US$1 = S$1.34.