When a repayment is late, we apply a provision to your outstanding capital.
The provision increases the longer the repayment is late.
The provisions are reflected in your current internal rate of return and your gains.
Provisions are applied to loans when a borrower falls behind on their payments. When a borrower falls behind on their repayments, it is usually a sign of financial difficulties. There is a chance that the borrower cannot repay your loan and the longer a project is behind on their repayments, the higher this chance becomes. To reflect this in the value of a loan and to prepare you for a potential loss, we apply a provision to your outstanding capital in this loan.
How do we apply provisions?
We apply a provision based on how much behind a borrower is on their repayments. The provisions are therefore linked to the health status of a project:
Installments behind | Provision to outstanding capital |
1 installment behind | 40% |
> 1 installment behind | 80% |
Contract terminated | 100% |
If a borrower catches up with their repayments, the provisions are removed.
How do state guarantees factor into this?
We consider a state guarantee a strong security. Therefore, we do not apply a provision to the amount that is covered by the state guarantee. After all, the chance that the state does not repay the guarantee is small.
However, to make sure that we also account for the chance that the guarantee cannot be called, we apply a provision to the amount covered after a certain amount of time has passed since the termination of a loan. The provisions for a state guaranteed project look like this:
Installments behind | Provision |
1 installment behind | 40% provision to outstanding amount not covered |
> 1 installment behind | 80% provision to outstanding amount not covered |
Contract terminated | 100% provision to outstanding amount not covered |
More than 270 days after contract termination | 75% of total outstanding amount |
More than 365 days after contract termination | 100% of total outstanding amount |
Where can I see provisions?
Provisions show in several places in your portfolio:
Loans Page: on the Loans Page you can see the amount of provision per project by filtering out the projects that are repaying normally.
Portfolio outstanding: because the outstanding of your portfolio is the sum of the outstanding of all projects in your portfolio, the sum of outstanding is also decreased with every provision that is applied.
Portfolio balance: the sum of your provisions is shown in the balance part of your portfolio. They are subtracted from your interest paid and together this sum equals your gains.
Current rate of return: because provisions affect your gains, the provisions are also reflected in your current rate of return.
When does a provision become a loss?
It is important to understand that a provision is not the same as a loss. As long as there is a chance that (part of) the loan can be recovered, we do not consider a project as lost. Therefore, a provision becomes a loss when there is no chance of recovery of the outstanding capital and possible guarantees are paid. Usually this goes in combination with a certificate of irrevocability, or similar, that we receive from a court that manages the insolvency procedure.
Losses are specified in your portfolio summary and per project. In some countries you can declare losses on your tax declaration and there’s a tax incentive. Please see with your local tax administration if this applies where you live.