The platform Debitum (formerly known as Debitum Network) is a Latvian peer-to-business (P2B) lending marketplace specialized in small business financing. Investors can invest in asset-backed business loans through financial instruments offered under the supervision of the Central Bank of Latvia.
Recently, Debitum has been through a number of changes, with the granting of its investment brokerage licence, a change of shareholders, the arrival of a new management team, and its separation from the DEB token.
Let’s perform together Debitum Network review.
Table des matières
What is Debitum ?
Debitum is a peer-to-business lending platform operating from Latvia that connects investors with loan originators in Europe. Starting from 10€, the funds raised are used to lend money to borrowers, namely business owners needing capital to invest in resources and manpower in order to scale their revenue and profits.
Company “SIA DN Operator”
As a company “SIA DN Operator“, the platform started its activity in April 2019 in Riga, Latvia under the unified registration number 42103092209. The base capital of the company is €750K, above the amounts observed in the P2P industry.
Supervised by the Financial and Capital Market Commission from the Central Bank of Latvia, Debitum is authorized to provide investment and ancillary (non-core) investment services through its FinTech platform to European investors.
Initially, Debitum was founded by Mārtiņš Libert, Donatas Juodelis, and Justas Šaltinis, three Latvian entrepreneurs who had together founded Debifo in mid-2015 to provide invoice financing solutions for small and medium-sized businesses in Lithuania.
But even though Debifo was successful, the company could not expand its lending operations in other EU countries due to regulatory problems.
That is why the founders initiated the idea of setting up a marketplace where lenders could offer their loans for financing. And in 2017, the idea of creating Debitum Network (the former name of Debitum) was born.
In 2019, Debifo had a leading position in Lithuania providing €85M+ in working capital to more than 350 companies (financing some of its loans via Mintos). This is when Martins, Donatas, and Justas decided to sell Debifo to Factris, a leader in credit solutions.
Although Donatas and Justas continued to work for Factris, Mārtiņš Libert is the one who started to develop Debitum Network. Mārtiņš entrusted the creation of the platform to INNTEC, an IT company he founded in 2012 with Donatas.
Debitum actual Shareholders
Although Mārtiņš Libert was the sole shareholder until 2023, he sold 100% of the shares to three other Latvian entrepreneurs with economic, finance, and banking experience : Ingus Salmiņš, Ēriks Reņģītis and Henrijs Jansons.
Ingus Salmiņš is the majority shareholder with 60.67% through SIA ZIdea. After a law degree and a Master’s in accounting and finance, Ingus has spent his entire career in the banking and financial services sector.
Ēriks Reņģītis owns 30.33% through SIA Amplo. After a Master in Business Administration obtained in Riga Technical University, Ēriks has spent most of his career within Auctus Capital SIA, a corporate finance advisory company, first as Associate Director and then as Partner.
Henrijs Jansons has been CEO of Debitum since January 2022 after extensive experience in the P2P lending and credit sectors. He is a minority shareholder within Debitum with 9% through SIA WIN WIN INVESTMENTS.
The management team
Before joining Debitum, Henrijs Jansons studied economics and spent most of his professional career in the IT sector, more specifically in business intelligence and product development.
Henrijs has a few years of experience in P2P lending as he has formerly been Head of Business Intelligence at Eleving Group (present on Mintos) and platform lead on DoFinance.
At his side, we have Gvido Bajārs, who has been an attorney at law with his own law office since 2008. He is Chief Legal Officer and member of the board of Debitum.
Anatolijs Putņa has been the Chief Operating Officer of Debitum since 2023. After graduating in economics, he worked a few years in the banking sector and joined Crowdestor as COO from 2020 to 2023.
Debitum statistics in 2023
Here are some statistics for the current year:
- Total funds invested : € 74.9M
- Total interests paid to investors : €2,15M
- Average annual return : 12.27%
- Number of investors : 11,000+
- Average portfolio per investor : €3,828
In 2023, investments on the platform averaged €1M per month, in the same order of magnitude as 2022 but below 2023, when volumes financed could reach up to €3M in a single month.
Finally, in terms of returns, rates vary between 9.75% and 12%, depending on the project and loan originator.
How does Debitum work ?
Debitum platform is a marketplace where lending companies offer individual and corporate investors the opportunity to fund development projects from small businesses. The investments are guaranteed and backed with collaterals, and in return, investors receive their capital and interest payments according to a predefined schedule.
Debitum is a P2B marketplace
Debitum is a peer-to-business (P2B) lending platform focused on small business financing. The platform connects investors with loan originators looking for funds for their customers, mainly SMEs.
On one side, we have investors (individuals or companies) looking for financial opportunities to increase their capital. To do so, they lend money to small businesses and receive compensation in the form of interest rates.
On the other side, loan originators lend money to SMEs that simply need additional cash flow to meet larger orders than the company is used to handling. Their objective is to get temporary additional liquidity.
These businesses (small local shops, restaurants, etc.) turn to these loan originators because of the excessive bureaucracy that has developed within the banks. This makes it impossible to obtain short-term loans quickly.
In this way, these businesses gain access to an additional source of funding, in return for which they provide a collateral as guarantee.
As collateral for a temporary boost to their liquidity, these companies present invoices, for example, indicating that they will receive payments from their customers equal to or greater than this financing within a certain period of time (usually 3-4 months).
By connecting loan originators to investors, the Debitum marketplace helps them to raise more capital, meet greater demand and expand their business activities.
They pay a commission to the platform in return for the funding they receive (generally between 2%-3%).
Private investors pay no fees to the Debitum platform for deposits, withdrawals, or any other functionality used when investing on the platform. From the interest rate indicated on each investment, investors can calculate the profit to be received.
Debitum loan originators
Debitum currently works with 5 loan originators, including the long-established Evergreen Capital, Flexidea and its subsidiary Flexidea Polska, and Triple Dragon. They have recently been joined by Sandbox Funding.
Evergreen Capital has been providing funding to Estonian SMEs 🇪🇪 since 2013 backed by a personal guarantee from the company director or owner.
Flexidea has been offering invoice financing solutions in Latvia 🇱🇻 since 2017 to local and international companies (supermarkets, manufacturers, service providers, etc.).
Flexidea Polska (a Flexidea subsidiary created in 2022) is a digital platform offering invoice financing solutions to SMEs located in Poland 🇵🇱.
Triple Dragon is a fundraising company founded in London 🇬🇧 in 2016 that specializes in the video game and mobile app industry, offering receivables-backed loans.
Sandbox Funding is a non-bank lender to Latvian SMEs 🇱🇻 whose loans are mainly secured by business pledges, receivables, and mortgages.
Chronology of a P2B investment
On Debitum, the minimum amount that can be invested in one asset is €10 and the maximum is indicated in the box “Remaining principal”. This amount has recently changed as before that, it was set up at 50€.
This amount is generally invested for periods ranging from 4 months to 24 months but most of investments last less that 1 year.
Most of the assets proposed for investment are amortized with bullet repayments, meaning that the borrower pays the interest on a monthly basis (interest rates go from 9% to 12%) and the principal amount at the end of the loan term.
But investors may also find assets amortized with “declaining balance” : interests are paid monthly too, but moreover borrowers make partial principal repayments every month.
At the end of the payment term, the borrower still has a 7-day grace period during which they can repay the loan without additional penalty, but during that, they still have to pay a daily interest fee.
After that, a penalty fee is applied on top of the interest (generally 10% to 18%).
If the repayment of a particular loan is more than 90 days late, then the loan originator has the obligation to buy back the loan and cover remaining principal as well as outstanding interest.
Investing on Debitum
Who can invest on Debitum ?
To invest on Debitum, you just need to be at least 18 years old and hold a bank account. But Debitum does not specify in its investment services agreement that the bank account needs to be located in the European Economic Area.
Therefore, a bank account located in a country that has Anti-Money Laundering / Combating the Financing of Terrorism (AML / CFT) controls should be able to be accepted.
A good international option is Wise, which I personally use for international transactions and is very effective. They also provide a free credit card that can be used worldwide.
Finally, it is also possible to invest in Debitum loans through a company account. The person who opens the account simply needs to have the right to do financial operations in the name of this company.
Although Debitum investors are mainly located in few countries, the spectrum is larger than that if we have a look to the top countries :
- 🇩🇪 Germany 25.5%
- 🇱🇹 Lithuania 22.4%
- 🇫🇷 France 10.0%
- 🇪🇸 Spain 4.9%
- 🇧🇬 Bulgaria 4.0%
- 🇬🇧 United Kingdom 3.1%
- 🇳🇱 Netherlands 3.1%
This ranking seems to reflect the languages in which Debitum’s interface is available : German, Lithuanian, French, Spanish, and Russian.
What do we invest in ?
Debitum offers to invest in financial instruments approved by the regulator that pool together different business and factoring loans, called asset-backed securities (ABS).
These ABS are issued by a special purpose vehicle (SPV) 100% owned and controlled by Debitum.
The SPV acquires some loans offered by a loan originator and pools them together following the process approved and monitored by the Central Bank of Latvia. Then, these financial instruments (ABS) are offered to investors on the Debitum to invest in them.
Compared to usual claim rights, asset-backed securities, also called “Notes” (which is the term used on Mintos), theoretically propose a higher degree of diversification, given that the risk is spread across several borrowers.
In addition to minimizing the risk related to the default of the whole financial instrument, ABS are covered by real collateral from the businesses that make up the underlying pool (pledge on assets or on receivables, unpaid invoices, 3rd-party guarantee, owner’s personal guarantee).
Where do we invest ?
Before the recent change in Debitum’s ownership, as shown on the map below, the funded loans were widespread in Europe and North America.
Since then, the list of loan originators has been shortened and the loans proposed (through ABS) are mainly located in the UK, Estonia, Latvia, and Poland.
As with most FinTech platforms, registering on Debitum is a straightforward procedure which takes only a few minutes. To prepare for the registration process, simply have your ID card or passport, your personal email address, and your mobile phone number at hand.
To get a special 1% cashback, you need to register through our affiliate link (no referral code needed). As such, you will get this cashback on all investments made during 60 days after your registration in asset-backed securities with a term of at least 90 days.
During your registration, you will go through Know-Your-Client (KYC) verification, simply to check you are the person on the passport, and to comply with Anti-Money Laundering procedures.
After that you will be able to transfer money to your account and to invest your funds as per your wishes depending on your investment strategy.
It generally takes 1-3 business days for funds to appear in your account, especially if you go with international online banks such as Wise, which does not charge fees for euro deposits (Debitum does not charge any fees for deposits and withdrawals).
How to invest on Debitum ?
To make his or her selection, an investor has access to information on each loan on offer. Despite the abundance of information provided, only 5 criteria are really important when deciding to invest in asset-backed securities (ABS).
- Underlying assets: The higher this figure, the more diversified the financial instrument, thereby reducing the associated risk.
- Loan originator: The choice should be based on their experience, financial health, and our objectives as investors in terms of geographic diversification.
- Trust score: Assessed by in-house experts and 3rd-party professionals, the trust score gives factual information on borrower’s reliability.
- Annual interest rate: This is the annual return on the proposed investment. Below this, one can find the interest rate in case of late payment.
- Loan timeline: This is the contractual duration of the investment, which serves as the basis for calculating the annual interest rate.
What about automatic investment ?
Since Debitum became a regulated P2B marketplace, the platform no longer offers the auto-invest feature as this specific feature needs a transition period to work with asset-backed securities (ABS).
But considering the limited number of asset-backed securities and the financial volume of each of them, the manual investment is quite easy to handle.
Meanwhile, the platform is actually working with the regulator to agree on the design and functionalities of such a feature in order to comply with the brokerage license.
No secondary market
Debitum does not offer any secondary market, despite the duration of the investments listed, which may be an obstacle for short-term investors. For these investors, it is best to limit the proportion of their investments on the platform.
For medium- and long-term investors, the absence of a secondary market is not a problem.
Their time horizon pushes them towards investments of several months, which means that the presence or absence of a secondary market is of little importance to them.
On the contrary, on some platforms, the secondary market is a way for speculators to massively invest and then resell at a premium (as on Esketit, for example). In this sense, the absence of a secondary market prevents speculation.
Is it safe to invest on Debitum ?
Debitum is a regulated platform that offers a trust score that proved to be efficient in the past when assessing loan originators. Moreover, the platform offers a buyback obligation on 100% of the investments, and loan originators have always fulfilled their commitments (except in case of a war situation).
Debitum is a licensed investment brokerage company (License No. 06.06.08.728/537) supervised by the Financial and Capital Market Commission from the Central Bank of Latvia since 2021, one of the most protective in Europe.
The platform is regulated under the legislative framework created by the European Union to regulate financial markets in the bloc and improve protections for investors (MiFID II).
Therefore, Debitum goes through regular audits and must comply with multiple reporting processes.
According to MiFID II regulations, investors’ funds are kept separately from the platform’s own funds and protected by the investment brokerage law. In case of insolvency, the bailiff cannot use investors’ funds to cover any creditor claim.
Debitum Trust Score
Prior to its buyout, Debitum used services of credit rating agencies to provide an objective third-party risk assessment based on the probability of default. But this decentralized scoring has been replaced by the Debitum Trust Score.
Before offering asset-backed securities (ABS) to investors on their platform, Debitum applies a score between A+ and F to each.
This Trust score is based on their due diligence analysis of the loans listed and of the loan originators’ performance, considering the following business metrics parameters :
- ✅ Loan portfolio quality
- 💯 Financial ratios
- 💠 Organizational structure
- 🔰 Loan underwriting principles
- ➰ Business practices
- ♻️ Debt collection successful
Although this scoring process is a very positive point when it comes to assessing the safety of Debitum, the past outsourced and independent risk assessment was much better.
As an example, it enabled Debitum Network to identify risky loan originators like Aforti in the past.
Debitum Network was the only company to use independent professionals for risk scoring of assets and loan originators. Therefore, we expect this innovative process that ensured a good reputation for the platform to come back to show how safe the investments are on Debitum.
Skin in the game
For all assets listed on Debitum, loan originators keep a share of 10% to 20% of the investment to ensure the quality of the portfolio they propose. As such, loan originators keep a skin in the game for all the assets listed.
With a skin in the game for each asset, investors have a sort of guarantee that their interests are in line with those of loan originators.
For example, if a loan originator applies a 20% skin in the game on an investment of € 100 000, then the maximum investment amount could amount only to € 80 000 (since the remaining € 20 000 serves as skin in the game for the loan originator).
On all listed investments, Debitum offers a buyback obligation to protect investors in case of a loan default. If a borrower fails to meet their contractual obligations, after 90 days, the loan originator has the obligation to buy the loan back from the investor.
When a buyback obligation is activated, the loan originator reimburses the remaining principal and pays the outstanding interest as well as the late penalty fee.
But as all the financial instruments listed are secured, when such a situation happens, the loan originator has the legal possibility to sell some of the borrower’s collateral (stock, property, invoice, inventory) to recover the funds.
The buyback obligation has been triggered on less than 2% of the loans on Debitum, which is a very low rate when we compare to similar P2P lending platforms. And more importantly, the default rate remains at 0%.
Up to now, legally speaking, Debitum has always maintained a zero default rate, since loan originators have always fulfilled their contractual obligations to investors. In fact, this is one of the statistics displayed by the platform.
In the cases where borrowers defaulted on their repayments, the loan originators paid the principal and interest due to the investors from the profits generated by their business.
But the war that broke out in Ukraine in early 2022 had repercussions, especially for Ukrainian loan originator Chain Finance. The company was unable to mitigate the consequences of the war.
However, contractually speaking, war is a case of force majeure and cannot be invoked to force any repayments. This is actually impossible at the moment, given the country’s economic situation.
Overall, if we look at the total volumes traded on Debitum, the impact remains relatively limited, amounting to €1.9M.
In addition to this, the loan originator has already recovered some of these funds through the sale of associated collateral (cars in this case). This money will be paid to Debitum as soon as transfers between Ukraine and Europe are possible (martial law in Ukraine).
It is also interesting to analyze the backgrounds of the managers who are part of the executive team, to see what kind of people we are entrusting our money to.
This is an aspect that needs to be studied in order to assess whether there is a risk in terms of human resources.
On average, Henrijs Jansons has spent around two years in each of his positions, a sign of a certain professional instability for a company director.
This makes it difficult to understand how the CEO can develop a long-term strategy.
Another instance of questionable experience is that of Debitum’s Chief Operations Officer (COO), Anatolijs Putņa, who was Crowdestor’s COO from 2020 to 2023. Yet Crowdestor is a platform known for its chaotic management.
Debitum is not profitable yet
To date, Debitum has published three annual reports, a report for 2020 (including 2019), a report for 2021 and a report for 2022 (still awaiting translation, but which has the merit of having been quickly put online).
For the moment, the platform is not profitable, which can be explained by the fact that it started its activities shortly before the onset of the Covid crisis, which did not help it get off the ground.
Even so, Debitum’s take-off is still proving rather slow, with sales of €138,000 in 2021 and negative earnings of €84,000, and sales of €185,000 in 2022, which nevertheless led to negative earnings of €110,000.
While the Debitum management team can be credited with its ability to limit operating costs, the fact remains that we expect to see a reversal of the situation in terms of earnings.
Loan originators reports
We have very little financial information on the loan originators who are the companies we invest with and who are the legal entities behind the buyback guarantee.
It would be good if Debitum could share this type of information with us before we decide to enter into a partnership with these loan originators.
Because, in addition to the solidity of the companies to which we lend, as assessed by the Trust score, it’s also the solidity of our partners and co-investors that we should consider before investing together.
Opinion on Debitum
Debitum offers attractive yields on investments that are not only secured by a buyback obligation, but also backed by a wide range of collateral types. On top of this, the investor experience is made incredibly easy thanks to a professional and intuitive interface.
In addition, the platform enables investors to diversify their portfolio both in terms of the nature of the loans (borrowers are companies), and geographically, with Triple Dragon, a loan originator based in the United Kingdom.
But diversifying among different loans does not change the fundamental principle that the buyback obligation is only as strong as the loan originator. No matter how you mix loans from different borrowers, in the end it’s the loan originator who stands as guarantor to investors.
But from this point of view, it’s worth noting that Debitum has no default on its record, and that the rate of investments on which the buyback obligation has been activated is extremely low (approx. 1.5%).
Some will point to the Ukrainian loan originator situation, but in my humble opinion, it’s hard to hold Debitum responsible for a situation created by the outbreak of war on Europe’s borders.
In terms of areas for improvement, the platform should consider integrating more loan originators, as the five currently listed do not provide sufficient diversification for investors. At the same time, this will increase Debitum’s profitability and stability.
They can also be criticized for their low level of liquidity, given the absence of short-term investments, since their term of maturity is at least a few months. This lack of short-term loans is not compensated for by the presence of a secondary market.
Lastly, the most sensitive point in my view concerns the human resources. While the management team has some experience of P2P lending, most of it has been gained on platforms that have not been particularly professional.
The main challenge for Debitum is to show that this new management team is strong and inventive enough to energize the platform by attracting both new lending companies and new investors. If Debitum proves up to this challenge, it is certainly a platform with a bright future.
Thank you for reading this analysis.
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