Category Archives: For Investors
Upcoming App and Conferences
- New App on Google, (iPhone version pending approval)
- On 27th February 2017, come see us at the AltFi Summit
- On 21st and 22nd March 2017, come see us at the Accounting Business conference
Precursor to Year in Review Webinar
Year in Review – Precursor – Review the milestones of Marketlend over 2016
Google Tax
Scott Morrison introduced the ‘Google Tax’ or the less exciting Diverted Profits tax on the 29th of November this year, stating that it will ensure that tax dodging corporations will be heavily scrutinised and taxed heavier if they try and dodge their tax. The tax will allow the ATO to broaden their scope and ensure that these large multi-nationals can properly be punished.This is something that a lot of Australians are frustrated with, especially SME owners that pay a 30% corporations tax. Running a successful business shouldn’t give you immunity from taxation, and that seems to be the case with the status quo at the moment.
We see a lot of successful multi-nationals enter Australia, crowd out Australian businesses and divert their income overseas to avoid any tax. You could argue that they are giving Australians jobs, sure, you aren’t wrong on that front. However, there is a major amount of money that we, as Australians, are putting into their companies.
Just because you can afford the best accountants in the world and amazing tax lawyers should not preclude you from paying tax. I think this is a bi-partisan issues that should be agreed on by both parties.
The proposal states a $200M increase in the Australian budget if tax evasion by multi-nationals is adequately prevented and the money is redirected back into Australia. As a Government that was cracked down on about this very issue, it is refreshing to see some action taken on it. It will be interesting where support lies on this tax, and how it will affect multi-nationals entering into Australia.Will it stop multi-nationals from setting up shop in Australia? If this passes, we’ll have one of the strictest laws on this issue in the world. Google has moved billions of dollars to Bermuda, it’s under pressure from Indonesia to pay its taxes, and it’s proud of how the company avoids taxes.Whether this is okay or not depends on what you believe.
Irish tax law is the a major way to avoid corporate tax liability, using payments between related entities in corporate structures to move payments across from a higher-tax country to one with lower jurisdiction.
A look into supply chain finance
A look into supply chain finance
Recently, supply chain finance has become a phrase that is common-place within the financial technology dialogue. It’s a bit different to many other ways of finance, in that it isn’t as simple as say a loan. However, it’s quite possibly one of the most powerful tools to increase the efficiency within a small or large business. Many consulted companies have looked into utilising supply chain finance as a way to increase their client’s efficiencies at every step of the supply-chain.
Supply Chain Finance is rather simple when you break it down into its core elements. It’s the movement of goods from the supplier to the buyer, financed by an external party. This finance creates a liability in the buyer’s account, which is typically paid off after the goods have been utilised or sold.
In more complex terms, it isn’t a loan/debt in conventional terms. It is an extension of the buyer’s Accounts Payable terms. It allows a buyer to leverage short-term credit, in order to ensure that there is enough working capital flowing through his business. In other words, it ensures that the funds that you can use to grow your business aren’t locked up in a delivery truck or your warehouse.
There is a lot of importance on freeing up cash that is trapped within a supply chain. It’s a delicate skill, but it can provide serious benefits to a business. For one, you’re able to have peace of mind when considering your transactions for that month. It is a lot nicer to know that you’ll be able to safely invest in new infrastructure or technology without risking procurement of your products.
There’s a misconception that supply-chain finance is only for large companies. This is incorrect. With the increases in financial technology, supply chain finance is becoming increasingly more available to small to medium enterprises. This can really improve the competitiveness of Australian businesses if they begin to utilise these tools. Having more cash-flow is arguably more important for a SME compared to a large organisations. One of the reasons why many businesses fail in the early days is a lack of cash-flow. By utilising supply chain finance, businesses are able to consistently grow whilst avoiding any major cash-flow issues.
Does Marketlend to supply chain financing? Definitely
Since Marketlend’s inception in December 2014, Marketlend has been providing the supply chain finance solution to small and medium businesses.In recent times, this product has also had the benefit of insurance protection on the solvency of the underlying buyer.
Using market place lending technology Marketlend has been able to offer a cost-effective and a reducing administrative solution to a number of buyers and also to some suppliers to offer their buyers.
When combined with debtor finance, the business can obtain a full solution with 150 days credit. For example, Marketlend pays the supplier, provides 90 days terms to the buyer and subsequently purchases invoices the buyer who has issued to its underlying customer to pay for the amounts have been paid on 60 days terms.
Not only does the business obtain credit terms that allow them to make better use of their funds, but it also reduces the business administration activities and reduces the need for their collections resources.
Check out more at https://app.marketlend.com.au/supply-chain-finance/ or hear Marketlend explain it in an animated interview at the above link.
RBA rate cut to historic lows to boost growth, is that really going to happen?
The RBA has cut the interest rate by 25 basis points from 1.75% to a historic low of 1.5% in an effort to stimulate the economy, specifically boosting growth and reducing the Australian dollar. Concerns have been raised about the subsequent effect that this will have adverse effects on the property markets. By decreasing the interest rates, many are worried that this may result in a further inflation within the property market.
RBA governor Glenn Stevens has addressed the concerns that surround the Australian property market, stating that the banks themselves will be cautious in lending within the property market and hence solving this issue themselves. However, it seems rather callous for the RBA to leave the fate of the Australian property market and by extension, the Australian economy in the hands of four private institutions. Banks are allowed to have market power and they are allowed to make lawful decisions; they do not possess the same mandate to protect the Australian economy as the Government and the RBA.
Inflation is substantially lower than the current 2-3% target in addition to this, low growth figures announced within the retail market places foreshadows another cut in the near future. The pressure is rising within the Australian economy. If the RBA was to drop interest rates again, their collars might be a bit tighter. Without the buffer room, they could fall victim in the hands of a liquidity trap. In addition to this, if Donald Trump was to win the U.S. election, it is forecasted that a major sell of U.S. dollars may occur. This would drop the rates of the $USD and subsequently push the $AUD even higher. A higher dollar means less exports, and a decrease in competitiveness within the global economy.
Even more alarming is the fact that the banks have not truly passed on the interest rate cut. The Big four banks have passed on about half of the cuts, keeping the rest for themselves. The stimulatory effects of the cut will not be fully realized as a result of this, and it’s concerning as this has been the trend over the last decade when considering interest rate cuts. The banks will have to explain their decisions in-front of the House Economics Committee. Unfortunately, this committee isn’t one that can enforce the law. It is the ACCC that must investigate whether there is a violation of market power.
We’ve seen this happen before. In 2012, the RBA held the rate at 4.25% of the cash rate, however the Big Four banks acted independently and increased the interest rate for the benefit of their own share-holders. With such a small cluster of banks deciding the Australian economy, it is worrying to think about the power that this financial oligopoly has. The Government seems to be extremely lenient on the banks and the statements made by Glenn Stevens support this as they consistently put the ball in their playing field.
Will we lose our AAA rating, and what happens afterwards?
Before delving into this discussion, I thought it would be useful to give a brief explanation of what Standard and Poor’s Rating Agency (S&P) ratings actually mean. It has become a relatively big buzz-word amongst political pundits over this election season. AAA rating is the highest possible rating, implying that the likelihood of a country to repay its debts is most likely and that is it most unlikely that a country will default on its debts.The ratings often impact the ability to borrow at lower rates; the higher your rating level, the lower your interest on the loans you incur. These international rating agencies aren’t perfect and there’s been many times where they’ve made serious blunders, but it’s quite obvious to see where the international rating agencies are coming from.
Over the last few weeks, S&P has demoted Australia’s rating outlook from ‘stable’ to ‘negative’. This is attributed to our growing level of Government net debt as a % of GDP and our inability to form a stable government that can make hard change. This is more weighted towards the latter. In comparison to the other twelve AAA rated countries, our net debt is actually on the lower side; at around 17.9% and the median of these countries is approximately 26% as of 2015. However, more importantly, the absence of a Government that can enact real and lasting changes within the budget have seriously impaired our credibility. Our revolving door of prime-ministers and the instability shown within our leadership from the last election is sure to rattle some bones. Even with the Coalition securing a majority Government, the size of that majority is small and its up in the air whether they will enact some serious change to offset our debt in the next budget.
Deficit isn’t necessarily a negative thing. There have been many times when Labour and Liberals have used it to bolster the economy, or avoid a serious rough patch. But with our growing annual debt levels of approximately 3% a year, it’s seeming unlikely for a party to govern and lead Australia into a surplus where they can be considered stable. At least not in this political climate.
So what are the consequences, and is there a solution?
The consequences of being downgraded are a higher foreign risk premium on all foreign loans, which would result in higher interest rates for borrowers within Australia, whilst interest rates for lenders would not be equally increased. It can lead to a major drop in the value of our currency, which may seriously impact our international buying power and our imports. It would also lead to banks and finance companies paying more for their debt raising when completing offshore debt issuance. Consequently as usual they are more likely to pass it on to the customer. Fortunately for most peer to peer lenders, it will have little effect as these lenders are accessing local money investors who do not have to consider the currency risk, and country rating.
Being downgraded in S&P ratings can also lead to some seriously negative morale within the Australian economy. There’s still an opportunity for Australia to pull through and make sure that we don’t lose our AAA rating. We’re watching infighting within Parliament and within the parties themselves. Without any co-operation, we’re seeing leaders being thrown under the bus the moment there approval rating hits a specific number.
Without any solid leadership and an apprehensive Australian population, it’s hard for either party to make a solid stance and tighten the belt come budget-day. The solution is much easier said than done and the party that can achieve this goal is truly worthy to be within Government.
Education, Auditing and Central Decision Making will enhance Smart-Contracts – Blockchain technology
Auditing, Education, and Centralised Decisions will enhance Smart-Contract, Blockchain Technology
There’s a particularly interesting case that involves Libyan Investment Authority (LIA) suing Goldman Sachs for about $1.2 billion dollars’ worth of trades that the two organisations had made a deal on.To put some context into this case, LIA was an organisation set up by Libya and several other neighbouring countries. Unfortunately, the firm had practically no legal or financial experience, and were heavily reliant on consultants and investment companies giving them advice.
Allegedly, Goldman Sachs developed a relationship with LIA and began to develop trust for future business transactions. They did this by offering elusive Goldman Sachs internships to LIA’s employees; providing business class flights and accommodation to exclusive conferences in exotic cities like Dubai and Morocco.Several years later, Goldman Sachs allegedly advised LIA to take several trades, of which Goldman Sachs would profit approximately USD$350M+. LIA purchased these contracts and paid GS’ commission, however, several months later they realized that they had fallen into a big hole. The trades weren’t stock, shares or bonds, they were allegedly complex derivatives.
Unfortunately, due to the lack of legal and financial expertise at LIA, they weren’t able to understand that, as a result of failure, they would not be able to recover a single penny of their $1.2 billion dollar investment.
There’s an obvious issue here. Goldman Sachs didn’t necessarily break the law, they may have acted unconsciousably.
The contracts weren’t illegal or invalid, they didn’t coerce LIA into doing so, but LIA believes that there was injustice here. LIA believes that they didn’t know what they were getting themselves into, and Goldman Sachs took advantage of that. Whether or not there is a violation of the law is up to the court to decide, but I think it is apparent that there is a major education gap within financial institutions, especially between poorer countries and richer countries.
When smart-contracts enter, this gap becomes even larger. Complex derivatives may be hard for a firm like this to understand, however, when we look at the Ethereum security vulnerability that happened over the last thirty hours it’s obvious that smart-contracts represent an even larger hurdle to jump over.
Ethereum is a “decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference.” It is essentially programmable money, that is held within a Decentralized Autonomous Organisation(DAO) that is a mutual fund. There is no active management that manages the money or moves it; the money (Ethereum) is programmed to do that. As a result, people purchase Ethereum for US dollars and invest within the mutual fund. This ether can be converted back into US dollars if an investor wants to exit.
On Friday morning, 17 June 2016, the DAO was hacked. In simple terms, the DAO was programmed to promote decentralisation and encourage the creation of child DAOs by rewarding a split of the fund to result in additional ether (money). The hacker found this feature, and used it to take millions of dollars out of the DAO and into his own account.Now here’s where the interesting part kicks in. The DAO is a smart-contract, which means the code itself is the contract. The code controls and sets forth all the terms of creation; the hacker did not do something wrong with the code. The code had a flaw in it. However, it is its own contract, so the hacker didn’t violate the contract. This vulnerability was within the confines of the contract; it might be considered ‘morally wrong’ but it’s arguable whether it is considered a theft.
Vitalik Buterin, the founder of Ethereum, is proposing a “soft fork” that will prevent the attacker from being able to make valid transactions, effectively freezing the funds. The stolen funds are locked in a “Child DAO” and are unable to be moved for another 27 days, Buterin says — giving the community time to debate and adopt a potential solution. “This will later be followed up by a hard fork which will give token holders the ability to recover their ether,” Buterin writes. (This solution would not involve any “rollback” or negating any transactions.)The decentralised nature of the DAO — and of Ethereum and digital currencies more generally — means there is no central authority that can simply flip a switch and make changes. Decisions have to be reached by community consensus.
There is a clear inherent issue with this, as obtaining consensus from 2 or three people might be difficult, but when you starting to talking in 1000 or millions, this is very difficult. Typically it is usually that you look for a decision to be affirmed and those who disagree can opt out of the participation, otherwise you will end up chasing your tail for a very long time.
There’s going to be a huge market for smart-contract auditing, and centralised decisioning. For these smart-contracts to fulfil their goal, they’ll need to be a lot more secure than what happened and clear processes to step through to resolve the issue without too much delay or discord.
Disclaimer
All comments or repetition of facts are only alleged facts and obtained from press reports not from the writer’s own due diligence. The writer is not making an affirmation of the facts and this post is only the opinion of the writer.
Smart-contracts and Block-chain technology
‘Blockchain’ is a hot word in financial technology at the moment.
I’ll be honest, I didn’t really know what the word meant until a few weeks ago, when I had a bit-coin veteran break it down for me. Essentially, Blockchain is a massive statement of all the transactions on a specific network. The blocks, think of them as a bank statement, are ‘chained’ together to create a cohesive document of every single transaction that has occurred on a specific currency, the most popular instance is Bitcoin. According to the World Economic Forum, 10% of global gross domestic product is now stored on blockchain technology.
So how do smart-contracts fit into this?
Smart-contracts are heavily based on the theory of asymmetric information. When one party has more information than the other, perhaps they know that the buyer will have trouble getting the money back if the product is performed to a poor standard, an asymmetric information issue arises. Smart-contracts are used to negate the issues of asymmetric information and other issues. Put simply, a buyer might want to increase his websites Google SEO rankings. He contacts a marketing agency to ensure that he is placed third for the key-word “banking”. They both agree on a price and initiate a smart-contract. Essentially, the money is stored in a block that is inaccessible by either of them until the buyers company is ranked third for the SEO key-word he asked for. If they disagree, both parties decide a third-party mediator to decide whom the money should go to.
It’s a relatively simple concept with a lot of potential for financial technology in the future. It has opportunities to be used in bonds, shares, derivatives, and many other financial instruments where the event can be encoded into the smart-contract. Think about the potential that this sort of contract could have if it was available to the retail market? A financial industry without any inefficiency or risk of financial intervention by a third-party intermediary.
Simply put, it’s an escrow system that is “smart”. It can be programmed to watch for specific events, and if they are carried out, it can release money. The moment a company turns a profit for the financial year, the respective smart-contracts can instantly release a dividend to their share-holders.
The two largest limitations is that it has no notion of state. A project is not “completing”, it is either incomplete or complete. This might have issues for more sophisticated financial instruments or technology, but it is certainly an interesting field to watch over the next few years. These have a possibility of completely revolutionising financial technology!
Access to finance for SMEs
We never try to suggest we can protect investors against losses on loans, and whislt we can be diligent in our origination, processing and collections, there will always be losses.
It is lending, and lending has risks. Investors should obtain their own independent legal and financal advice prior to investing in any investment on Marketlend.
