EasyEquities has introduced securities-based lending, attracting inquiries from qualifying clients for over R5 million in margin loans on the first day. This move by the country’s largest retail investing platform signifies a strategic expansion in financial services.
Almero Oosthuizen, the head of product at EasyEquities, clarified that this lending option is available to portfolios that exhibit diversity and liquidity, indicating sound investment behavior over the years. Investors meeting this criterion, including regular deposits and diversification, have been invited to participate. The specific qualifying criteria for these margin loans are expected to evolve over time.
The new product, named EasyCredit, allows investors to secure loans of up to R300,000 against qualifying investments. The interest on these loans is required to be paid monthly, and the entire amount is repayable at the end of the 12-month term.
On its inaugural day, EasyEquities received more than 100 expressions of interest from users eligible for loans exceeding R5 million, as mentioned by Oosthuizen. The platform aims to analyze conversion rates and user adoption by the end of the month, with findings to be shared during Purple Group’s results presentation in November.
This launch marks a significant shift towards democratizing securities-based or equity-backed lending, a service previously accessible primarily through private banking-type services provided by major financial institutions.
The pool of potential customers for such products has historically been limited. EasyEquities intends to tap into a broader base, aiming to offer this type of lending to a larger portion of South Africans. As of February, EasyEquities boasted over 830,000 active clients, a number likely to have exceeded one million by this point.
Almero Oosthuizen emphasized that, based on their research, over 50% of all withdrawals made over the past nine years were to fund emergency events. Typically, these funds were returned to the platform within 12 months. However, these clients often had to sell investments under less-than-ideal market conditions, as other forms of credit were either difficult to access or cumbersome.
The group’s research demonstrated a strong demand for securities-based lending, prompting the launch of this product. Besides offering a convenient credit option, utilizing securities as collateral for loans helps investors avoid unnecessary tax implications associated with forced withdrawals.
EasyEquities plans to charge an interest rate of prime plus 3% per annum on EasyCredit loans. An affordability test is conducted as part of their registration as a credit provider. Additionally, an initiation fee of 1% of the loan value is charged, with interest payable on a monthly basis.
Upon approval, investors pledge a portion of their portfolio as collateral, ensuring that EasyCredit loans are secured. The platform offers a selection of the top 100 JSE-listed companies and various exchange-traded funds as qualifying securities.
Loans are limited to 33% of the value of one’s qualifying securities, known as the loan-to-value (LTV) ratio. However, there is some flexibility if the value of the securities declines, allowing for an LTV of up to 48%. EasyEquities monitors and takes necessary actions to bring the ratio back to the 33% level if it exceeds 42%.
Moreover, the platform implements a collateral lock on accounts that have taken a loan. While investors can still buy and sell securities, they are restricted from transferring or withdrawing cash up to the value of the collateral lock.
Originally planned for May in beta, EasyEquities had envisioned offering clients the ability to take a conservative, low-cost loan against their share portfolio. However, the broader rollout to qualifying account holders was slightly delayed, now expected to occur in July and August, indicating a slight shift in the group’s timelines. The platform intends to collaborate with partner Sanlam to expand access to this product.