New investment only for bravest

AS players in the unsecured lending market reel from the effects of rampant consumer indebtedness, a new financial product is offering investors exposure to it — with the promise of great returns.

Blue Sky Financial Innovations is partnering controversial lender Bridge Loans to bring to market the Secured Capital Enhancer.

The creator of the investment vehicle, Franceua Nell, said it would provide high-net-worth investors the opportunity to generate protected annual returns in the region of 12% and up to 14%.

He said the product functioned as a traditional five-year linked endowment policy, which, by taking advantage of tax coupons obtained by an underwriting insurer, is able to offer returns tax-free.

Although the majority of investors’ funds will be deposited with a traditional bank to “guarantee” the initial capital investment, the tax coupons, along with a “secured” return provided by Bridge, deliver the sweetener.

“Bridge issues a financial instrument to the insurance company that, together with the other instruments, provides the investor in the policy with a combined return,” said Bridge CEO Emile Aldum.

But although the promise of “secured and tax-free” returns comparable to what might be achieved on the equity market might have investors jumping for a bite, there is some cause for caution.

One financial expert who reviewed the published details of the product warned that the underlying investments into which it deposited investors’ money, notably Bridge, would need to generate very high sustained returns.

The uncertainty in the unsecured market, coupled with high levels of consumer indebtedness, might put pressure on these returns, said the expert.

Bridge, a short-term microlender, was instrumental in the establishment of the Cambist platform through its link to the Aldum family network of companies. Cambist at one point offered investors a “guaranteed” return of 24%, later lowered to 19.5%. However, the platform quickly became embroiled in controversy after investigations showed that it was facilitating the sale of garnisheed debt to the public.

“Cambist used these garnishee orders to get money which was to be reinvested in Bridge. I don’t agree with that. You are using the failure of the client to support the business,” said Nell.

Calculations performed on information obtained by Business Times showed that one Bridge client, who was granted a loan of R6 500, would be expected to repay about R43 000 to clear her debt.

Interest and other charges imposed by Bridge allowed the loan to accrue to an outstanding balance of R17 717 before the debt was handed over to one of Bridge’s legal debt collectors to secure a garnishee order. The

The uncertainty in the unsecured market might put pressure on returns

client, despite having repaid R10 800, is still in debt to the tune of R28 902.

This case and others are understood to have been sold to the public through Cambist.

Cambist founder Corne Aldum said: “The sale of cases on Cambist has no influence whatsoever on the financial value of that case and the financial position of the debtor.”

Bridge has vowed that this kind of abuse will soon be a thing of the past. In October last year, Bridge implemented revised service level agreements designed to prevent abuse.

Although the agreements are not retroactive, they will prevent the rapid accumulation of legal charges and interest, according to the head of Bridge’s legal department, Clifford Coombe.

Nell said he was confident that the risk to investor returns was contained.

He said “you need to have an appetite for risk” to invest in the Secured Capital Enhancer, but “the way Bridge controls its debt is very good”.