Lande Making Critical Improvements To Its Farm Lending, Property Lending Going Strong

Lande* was the first P2P lending company in either the eurozone or continental Europe to be fully assessed by 4thWay – initially in 2022.

What does Lande do?

Lande's borrowers are Latvian, Lithuanian and Romanian businesses – mostly farmers – with the loans secured either on the farmer's land or home, on pre-priced grain with insurance against natural hazards, on farming machinery, livestock, and one or two miscellaneous loans.

Most loans pay lenders interest every month.

To lend, you must have a bank account in the EU, Iceland, Liechtenstein, Norway, the UK or Switzerland.

Lenders using Lande have lent €24 million since 2020.

How good are its borrowers and loans?

While farmers initially borrow for 3-60 months, most expect to extend their Lande loans into new loans, often into perpetuity, rather like an ongoing credit facility, such as an overdraft.

For example, the initial loan a farmer borrows from Lande lenders might be secured against a contract they have with a purchaser of grain in advance of the harvest. On receiving payment of the grain, the farmer borrower typically wants to use the proceeds for something else, such as buying new machinery, and will therefore keep borrowing through Lande to be able to do so, rather than repaying the loan.

While it's standard in farming all over the developed world to rely on both subsidies and loans, it also of course increases the risks for lenders, as borrowers in perpetual debt have to continually use part of their profits to pay loan interest.

The quality of security at Lande* is substantially better as you go from grain to machinery and then to land and property.

Grain loans at Lande have had a bad record as Lande took the security too much for granted.

Livestock can have issues, not least that repossessing and selling them is not easy, especially if the delinquent farmer is recalcitrant.

Land and property lending has proven to be exceptional quality. That's even while paying above 11% interest rates and the loan size has almost always been for less than half of the valuation of the land or property i.e. below 50% loan-to-value (LTV).

The maximum farmers can borrow is 60% of the value of any security type. The average lent has typically been even better, at around 45%. However, you need to adjust this because of some of the weaker types of security. 4thWay, in all its core Lande risk assessments, has always made adjustments for the quality that has added circa 20 percentage points to the loan size versus the security valuation. So a 45% loan size is assumed to be around 65%.

This has proven to be especially sensible, because Lande's borrowers have not always been especially financially literate or organised, and have sometimes even vigorously resisted settling their obligations. This adds pressure to the quality of the security and the likelihood of farmers suffering debt problems.

As a rule-of-thumb, then, you might therefore assume that a 60% LTV loan is more like an 80% LTV, with the exception of land loans. In some cases, this will be too conservative and others not conservative enough, due to varying ability to actually call in the often unique security, and due to farmer compliance or resistance.

Lande loan quality since 2023/24

Continuing on from the prior section, Lande has rapidly improved its loans over the past 6-10 months. (The necessity for this will become clear by the end of this report, although in different sections.)

In particular, it is tougher on the security borrowers can provide both at the start of the loan and also during the loan if borrowers indicate they want to rollover their loans.

Borrowers must provide additional security if they want a harvest loan greater than €20,000 or if rolling over a loan. Additional security on top of that is needed if Lande is unable to confirm the condition of harvest security at the point of rollover, e.g. the borrower says it is still in storage but Lande can't this time verify if it's true.

There is a red flag if the borrower wants to borrow again but the amount goes up.

In addition, Lande* claims that only the “best” borrowers now get harvest loans of up to €20,000 without additional security. At least in part, this means Lande needs to see they do have plenty of more tangible assets, such as machinery or a plot of land. So if the borrower later asks to extend the loan, Lande will do so in return for taking additional security from the farmer.

These changes now mean that just 15% of loans are harvest loans, down from about 35% previously. This is a positive change, as harvest loans have been the most problematic.

Lande's people

We've always said that their lack of experience was the biggest point to watch. Indeed, I don't think the word naive is over-the-top in how Lande started.

I would now say that, despite conducting many hundreds of interviews, and my team spending countless years of actual work time in researching P2P lending opportunities, I admit I underestimated the learning curve that Lande needed to go through at its first assessment in mid-2022.

For example they didn't understand their borrowers, who want to use their loans for a credit line and thought that grain would be sold and the loans repaid. In reality, at the end of a loan, farmers expect to roll over their debts, saying: “I have assets. I pay interest. What’s the problem?”

That said, Lande has been using their experiences over the past few years to rapidly improve what they do. Learning fast on the job isn't a given, as 4thWay has found that some P2P lending providers have been unable or unwilling to do so.

In addition, Lande has hired someone with what seems like precisely the right experience for these kinds of loans over 20 years. The big caveat there is that I have not yet been able to interview her to see what she really knows and haven't yet conducted background checks on her.

Lande* now also has perhaps 10 lawyers working for them to stay on top of any loans where borrowers fail to meet terms, especially when they fall behind on payments. This is a really positive development.

However, Lande still needs to learn more, and more quickly from the lending that takes place through its own lending platform. What I especially regret not seeing is someone at Lande who has the right training to manipulate numbers and data, and to automate a lot of that task.

For example, neither of the key people I most recently interviewed could tell me how many loans have needed to be restructured due to borrower difficulty. For lending like this, which involves a high volume of small loans, such figures should absolutely be at their fingertips.

On top of that, I even had the sense they probably don't have a formal definition laid out for themselves as what constitutes a “restructured loan”. They really need to define all these things, automate their data and learn from it properly to speed up improvement of their loans and further minimise problem loans.

Lande's lending processes

The incentives for Lande's loan salespeople used to be seriously misaligned, as they did not emphasise loan quality. This is likely a substantial contributing factor to the backlog of mostly harvest loans in trouble. (More on that in a second.)

Their new bonus scheme is better. Lenders will see the results of that over the next year or so in their own loans, although 4thWay will not be able to monitor it. (More on that too, coming up.)

The new hire with 20 years experience I mentioned earlier is said to know most borrowers by name and she takes a very close interest. This is a fantastic development for what is really a group of very diverse borrowers, although all farmers, and is likely to be useful for spotting and dealing with issues early on.

It's also a major contrast to previous loan monitoring, which was palpably ineffective. The earlier you can spot signs of issues, the greater the chance of getting repaid and getting the money more punctually.

When it comes to renewing loans, Lande* has toughened up its processes. Borrowers are increasingly required to show they did indeed collect their harvests, that their income levels are strong, that they haven't got into more debt.

If there's a red flag, Lande says it now requires them to repay and pushes for repayment. Unfortunately I haven't had sight of suitable evidence to support that particular claim, as Lande has historically been slow in this regard.

However, Lande's certainly got harder on chasing bad debts, where they had been far too soft. They now take a harder line and stick to stricter schedules, giving little leeway for borrowers if they fall behind.

Lande claims that “a lot of” loans are now coming back on schedule. That is highly plausible due to its additional hires and processes, but, due to breaks in the data Lande was submitting to us, I've not been able to attempt to verify it.

About Lande's risks and interest rates

These kinds of loans were not the easiest to assess to begin with. All the borrowers are from just one segment, farming, rather than a robust basket of many types of borrower, who can offset each other if one segment of the economy is doing badly. As I wrote originally, “Lande is mostly lending to farmers, which adds some uncertainty to our forecasts.”

Since then, Lande's historical book of loans rapidly became much more complicated to assess as the types of lending it does to farmers has evolved.

My latest assessment is that around 1/4 of the unique loans (meaning correcting for rollovers) are either late or a bad debt. This is a very substantial degradation over the 18 months that we received data from Lande.

Lande* still has to prove it can recover this bad debt. However, having discussed its plan with us, which at the present time is still confidential, it fills me with pretty reasonable hope that lenders who have long been waiting for resolution on their loans can expect to get all or most of their money back over the next 12 months. The proposed solution will be a very welcome relief in terms of increasing the safety net and in providing assurance for lenders on both existing and future loans.

With interest rates between 10% and 13% on all loans, it's quite a substantial reward to offset further risks.

Our core risk-reward assessment and Lande's 4thWay PLUS Rating

Lande originally earned the 3/3 Exceptional 4thWay PLUS Rating in 2022 and this rating was confirmed again in 2023. The 4thWay PLUS Rating is a measure of risk in very hard times versus interest rates, to see whether lenders typically come out of disaster periods with positive returns.

However, for much of 2024 we have been unable to provide Lande with a rating.

Lande produced the detailed data we needed for ratings purposes manually, which decreases accuracy. It also meant that it struggled to keep providing data at regular intervals, which is essential for some of our assessment techniques. Most importantly, the data grew so much that Lande told us it was unable to keep it up-to-date for us and so it was discontinued.

Putting aside the fact that it should have this sort of data automated and at its fingertips for its own use, it means we can't calculate how lenders with simple, sensible lending strategies might perform in a severe recession that occurs simultaneously with a property- or asset-price crash, which means no rating for the time being.

Without support from Lande that includes regular data, 4thWay cannot be an early warning system to lenders of any issues that might develop.

I currently expect Lande* lenders to do fine after recoveries of late and bad debt start coming in thicker, but as time goes on, if the datasets we have become old and obsolete, 4thWay won't be able to monitor it for you.

Ukraine and farming upheavals in Europe

You may have noticed quite a few articles on upheavals in farming across Europe with inflation and the Russian war in Ukraine. On top of that, the market has changed quite spectacularly for arable farmers since Lande launched in terms of how farmers sell their grain.

It's hard to see in the latest and last dataset from Lande, as we've not received the data consistently enough, but so far the impacts of these things don't really seem to show much.

Lande has not gone out of its way to blame late debts on these issues and it says it's waiting to see the impact over this year.

Lande's future

Although many lenders have been frustrated with delayed, renewed and restructured loans, especially harvest loans, I'm mostly positive as a result of my latest assessment into Lande this spring 2024, and other positive news that Lande* seems more likely than not to be able to announce to lenders this year.

Its land and property loans in particular have an excellent record and remain solid; it's got work to do to pick up its record elsewhere, although the interest rates you receive help offset higher risks.

Buying and selling existing loans early, before the borrower repays

This section was updated on 15th July, 2024.

For a long time, Lande had disabled its secondary market, where you can buy and sell existing loans. It said the reason was the substantial technical glitches that it suffered.

Mostly, when you lend money, you should look to lend at the start and wait till borrowers repay you. That normally is the most sensible strategy. So I think secondary markets shouldn't be important to lenders.

And yet seeing whether there's a balanced and functioning secondary market can also give you clues to the actual lending provider's health.

So, on the 21st May, I had written here: “Keep an eye out for its secondary market. The longer it remains offline, the more you should consider it to be a potential warning sign.”

However, Lande re-opened its secondary market shortly after I wrote that. What I now see is that there are 820 different loan parts up for sale, probably for a total value approaching €150,000. This is only about 1% of all outstanding loans, but it's enough for new lenders to quickly take part.

Most likely, this also includes some new loans, as Lande often pre-funds some loans uses the secondary market to sell them for the first time to new lenders.

What we no longer know is whether loans that are in arrears are still being listed on the secondary market. Lande had previously written on its website that they were not and, last year, Lande told 4thWay directly that this is not the case and re-confirmed that statement in a meeting with us later the same year. Yet we double-checked the data, and cross-referenced it with other sources too, and found this not to be true: loans were being listed that were at least four months behind payment.

I don't know if this was a bug or not, and I don't yet know whether you can still accidentally end up buying late loans now that the market has re-opened. Since we no longer receive detailed data, it's not possible to check this any more.

Picking loans yourself

We don't have the right sort of data from Lande to help us understand how easy lenders are finding it to diversify quickly across lots of loans, in a matter of months. We see that it typically has perhaps 10-20 completely new loans each month and a similar number of rolled over or otherwise linked loans.

Automated lending

Lande doesn't commit to automatically spreading your money across a specified, minimum number of loans. But you're accessing the same pool of loans that's available to lenders who choose their own loans.

If you want to be a real “pro” auto-lend user, you could initially set your auto-lend to spread your money across the lowest-risk loans. Selecting all land and property loans is the simplest way. If you also set those loans to a limit of 50% LTV, you're still getting access to almost all of those loans.

There are no additional costs for using the auto-lend feature.

Update on 15th July, 2024: Lande has also now lowered the minimum amount you can put into each loan through automated lending, when you're using its advanced filters. This has gone down from €250 to €100, making it easier for you to spread across more loans.

For those of you using the basic automated lending, without advanced filters, the minimum remains €50 per loan.

How much cash can you deploy?

Loans are not very large – even the land and property loans. So the average lender lends just a few thousand euros, so it takes time to build a bigger lending portfolio if you have a lot to lend. Don't expect to be lending six figures through Lande any time soon!

Minimum lending amount

You lend for as little as €50.

Currency risk

If your own currency isn't the euro, there's currency risk (or reward).

The euro can easily move, say, 10% to 15% against most other currencies in less than a year – either in your favour or against.  In such cases, one year's movement could wipe out – or double – your lending returns.

There are ways to contain this risk – and cut costs at the same time. To minimise currency risk and get the cheapest exchange rates, see The 12 Key Peer-To-Peer Lending Risks.

Regulation and lending structure

Lande is regulated in Latvia, which is seen in a positive light, overall, by the OECD and the IMF.

Lande has had approval to operate since launch and it received its full licence as a European crowdfunding platform in February 2024.

Visit Lande*.

Pages linked to above:

The 12 Key Peer-To-Peer Lending Risks.