Insight & Analysis

Click and collect: municipal borrowing made easy

Published: Jan 2018

Preparations for borrowing by the Swiss municipality of Allschwil used to be a labour-intensive process for Head of Sector Finance and Taxation, Joseph Hammel. With the arrival of a new online platform, the workload has been reduced to a few clicks.

When the Swiss municipality of Allschwil needs short-term funding, Joseph Hammel, Head of Sector Finance and Taxation, makes a quick phone call to his main banks and the money is usually ready the next day. Long-term loans are a whole new ball game.

Each time, the Community of Allschwil (a suburb of Basel) chooses to go elsewhere for long-term funding, they are required to explain their decision to the local banks. Although able to access reports indicating current best terms and rates, Hammel is obliged to produce records of loan requests and transactions, explaining his choice. For this reason, it is also necessary for him to create a detailed ‘tender’ document for every new loan. This is sent to short-listed banks, brokers and institutional investors for their review and offer.

“I wasn’t very happy with the process because it was very labour-intensive,” comments Hammel. When Swiss FinTech, Loanboox, contacted him about its independent money and capital market platform, he says he was ready to look.

A new kind of lending

The platform enables public-sector authorities, such as Allschwil, to ask for credit offers above CHF/EUR 0.5m from registered institutional investors and banks. So far, it has around 180 lenders on board, including some major pension funds, insurance companies and banks (together with some, but not all, local institutions). It also has some cantons (Swiss administrative divisions) and other municipalities seeking a better return on their excess cash holdings which, Hammel says, he had never considered approaching before.

For Hammel then, the Loanboox demonstration was convincing. When he tried it for the first time and saw the offers coming in, he declares that he had “never had such good conditions”. He feels that the number of lenders on the platform helps to keep the terms competitive, adding that because loan offers cannot be restated, every lender’s response must be their best if they want the deal.

“The first time I used it, it was so incredibly easy compared with what I had to do before,” states Hammel. In fact, he adds that it was “a little bit too easy”, making him think perhaps that he had missed something.

In practice

Following standard KYC on-boarding processes, registration requires uploading of basic financial data. When requesting a loan, the user enters the required duration, amount and date the funding is needed. A ‘four-eyes’ review process is in place, adding a security layer for each request.

All investors are notified and those interested will submit their best offer along with their proposed terms. Borrowers then review, accepting their preferred offer, paying one basis point (0.01%) per maturity-year of the funding. It’s free for investors.

The ideal use-case

A commercial entity seeking a loan from a new lender has to present its financial and business planning in depth for it to be considered. In Hammel’s view, the need to provide such sensitive data, and the effort required to check it, might preclude corporate use of the platform.

However, it makes perfect sense for Allschwil Community. Its loan security is based on its legal capacity to levy taxes. With Allschwil set to re-finance as its year-end approaches, the exact amount of funding needed to bolster its liquidity depends on the taxes collected. Loanboox makes the whole refinancing process less of a rush to complete.

Hammel offers his seal of approval for the platform, adding that he has already pointed sector colleagues in its direction. To date, there are about 600 public-sector borrowers in Switzerland and Germany on the platform, with requests totaling around €6bn (CHF equivalent) and a further €600m processed within the first few weeks of it going live in Germany. It is, he confirms, “a very practical solution”.

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