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Here’s what your journey as an investor with liwwa would look like:

1. You deposit $1000 in liwwa account via wire transfer.

2. Activate auto-invest based on your risk appetite and investment horizon.

3. Auto-Invest invests in 150 SME loans.

4. Receive regular monthly payments.

5. Collect returns after 3 years.

6. You’ve turned your $1,000 into $1,300.

Credit Assessment Process

At liwwa, we focus on developing the most sophisticated tools for credit assessment and financial reporting. Our in-house credit model relies on a diverse set of inputs to arrive at one discrete output, the credit grade.

We employ a credit scoring system to provide users - both borrowers and lenders - with a clearer understanding of the assessment process. Doing so also allows us to deliver more fully on two of our core values: Transparency and Fairness.

As part of our assessment process the Credit Team first checks whether the applicant meets the minimum requirements to be considered for a liwwa loan, such as having a Certificate of Registration and Trade License and being in operation for more than a year.

Since small businesses often lack prepared financials, Credit Officers use bank statements and in-person assessments as proxies. Then, Credit Officers weigh and analyze the data collected to generate a credit report and credit grade, based on which the Credit Committee makes its decision on approving or rejecting a loan.

The credit grade is the outcome of our proprietary survival risk assessment model which uses advanced analytics combining historical data and industry expertise while factoring in three dimensions: the borrower’s profile, the business profile, and the business’ financial position.

Loans are assigned credit scores ranging from 0 to 10 which are translated into risk level grades from A (lowest risk) to D (highest risk). This range provides Investors with more granular ratings allowing for more refined choices among risk levels.

What is liwwa’s risk grading system?

liwwa’s credit grading system is an alphabetic grading that assigns each loan a letter score ranging from A to D corresponding to the expected level of risk:

How is it calculated?

liwwa’s credit grading system is based on a survival model, more precisely a Cox Proportional Hazard Model. The model estimates the survival probability of the loan, using the available data on three dimensions: the borrower’s profile, the business’ profile, and the business’ financial position. The model estimates the survival probability of the loan, using the dimension’s available data at each stage of the repayment schedule, to ultimately assign it a credit score which is translated into risk level grades (A to D).

The following visual illustrates the credit assessment process:

Important Note

The liwwa risk grading rating is not a measure of the quality of the investment and is not meant to replace individual due diligence. The information provided on any loan should not be interpreted as a warranty, or a promise of future performance. Further, historical data used to refine risk ratings is not necessarily indicative of future performance. Ratings are for informational purposes only. Ratings are not individualized for any specific investor’s financial situation and should not be considered investment advice. Furthermore, these ratings are not intended to be predictions of how any particular investment will perform. Each investor should carefully consider investments in any loan and be comfortable with his/her understanding of the investment.

What is the Internal Rate of Return?

The Internal Rate of Return (IRR) is a metric that allows investors to compare investments with different repayment schedules, tenors and amounts in a standardized manner. The IRR takes into consideration the structure of cash flows from your investment and accommodates for the time value of money. Note however, that the IRR is not an inflation-adjusted rate of return. An investment that pays $100 every month for 10 months will have a greater IRR than an investment that pays $200 every two months for 10 months. This is because, according to the time value of money, $1 today is worth more than $1 tomorrow. For example, earlier cash flows from the first investment can be used to make other investments and earn returns on them.

Does an IRR of 20% mean I will receive 20% more cash than I invest?

No, because IRR reflects both the amount and the timing of loan repayments (see 'What is the Internal Rate of Return?' above).

What is the difference between Internal Rate of Return and Annual Rate of Return?

The IRR is different from the Annual Return because it is a metric of time-adjusted returns, not just annual returns. Two investments that have the same annual returns can have different IRRs due to differences in their repayment schedules. Let’s study the case of two separate investments of $100 each that both have an annual return of 10%.

Although these investments both have annual returns of 10%, they have different IRRs – which means that they are not equally attractive from an investment standpoint. Since the IRR in scenario B is 20%, twice that of scenario A, scenario B is the better investment opportunity. This is because there is value in getting repaid sooner – you can re-invest this cash and start earning returns on other investments earlier.

How does liwwa calculate the IRR for a loan?

The first step is to look at the expected cash flow schedule from a loan. Payment schedules differ from loan to loan due to differences in tenor, grace period, and the periodicity of payments (e.g. every month vs every 3 months). Below is an example of a $100 investment to a loan with a 12 month tenor and 10% annual return, with a monthly repayment schedule.

The first item on the cash flow schedule is the investment made by investors, which shows as a negative amount (i.e. a cash outflow). The following items on the schedule specify the dates and amounts of payments to be made by the borrower.

Once we've established the expected cash flow schedule, calculating the IRR is straightforward, and can be done by applying the Internal Rate of Return formula to the cash flow schedule above. Many spreadsheet applications, like Microsoft Excel, offer a function that allows you to calculate the IRR easily. You can copy the schedule above to a Microsoft Excel spreadsheet and apply the XIRR formula on the values and dates above. Using this function, you should get an IRR of 22.67%.

liwwa's internal implementation of the IRR formula replicates the results produced by Excel's XIRR formula. Please note that rounding errors, especially when dealing with smaller numbers, can have drastic effects on IRR calculations. To account for potential rounding errors, liwwa’s backend system calculates return figures up to as many as 12 decimal places thereby providing highly accurate portfolio numbers – even if the investor only sees numbers rounded to 2 decimal places.

What happens once the borrower starts making repayments?

After the borrower starts making payments, the cash flow schedule will start including both the actual payments made and their dates, as well as the scheduled payments to be made in the future. If a borrower is late on payments, liwwa adjusts the cash flow schedule accordingly.

How are the risk-adjusted returns different from the unadjusted returns?

The unadjusted returns are calculated assuming that the borrower will make all loan payments on time. This is displayed by default.

The risk-adjusted returns take into account the likelihood that the loan is repaid late or only partially. The risk class and the tenor of the loan both influence the size of the adjustment.

The risk-adjusted returns are lower than the unadjusted returns, because they take into account the probability that a Class-B, twelve-month loan will not be repaid fully or on time.

Transparency is our motto. We have NO hidden fees!

liwwa generates its revenue from a service fee on successful loan payments and that fee is visible to investors for each loan.

For example, Mohammad is a borrower who needs a $10,000 loan to buy his new baking supplies. 10 liwwa investors buy into Mohammad’s loan, investing $1,000 each. When he makes his first monthly payment, say $1000, liwwa takes its 3% service fee ($30) and sends the difference ($970) to the 10 investors ($97 each). This will continue for all 11 loan payments, so each investor is expected to receive $1,067 on their $1,000 investment by the end of the loan.

Our service fee varies depending on the tenor of the loan. For example, we charge a higher fee for a loan with a twelve-month repayment period, than for a loan with a six-month repayment period.

6 months loan – 2%

9 months loan – 3.28%

12 months loan – 3.75%