Credit insurance versus Buyback

We're not discovering anything new by saying that saving involves effort and that the money of the vast majority of savers is the result of work and sacrifice. This is one of the reasons that make SECURITY one of the most sought-after characteristics when making an investment.

Within Crowdfactoring, both offering invoices covered by Credit Insurance and offering the guarantee of repurchase or Buyback allow providing greater security to the investor when recovering the invested capital; but before delving into their analysis, it must be emphasized that the main guarantee that a Crowdfactoring platform can offer is the rigorous and professional analysis of all invoices, acting as a preliminary filter before their publication. In the case of INVERSA, in addition to our own analyses, we use external and independent analyses from INFORMA that provide updated data on the balance and solvency of the paying company.

Having said that, Can we offer even more security? The answer is "yes", and this is where both come into play, acting as protection systems against the risk of default.

- At INVERSA, we opt for Credit Risk Insurance, as it is the safest alternative for our investors; its characteristics and operation have already been addressed in another article, "Talking about Security: What is Credit Insurance?" In it, we address the first guarantee in the event of default, that of the insurance itself, but today we want to expand this analysis by highlighting the role of the Insurance Compensation Consortium as a factor that provides a second guarantee.

The Insurance Compensation Consortium (ICC) is a public entity, attached to the Ministry of Economy and Finance through the Directorate General of Insurance and Pension Funds. Among its main activities, its subsidiary nature stands out as a direct insurer or as a guarantee fund. This measure represents a determined support for insurance as a stabilizing element of risk.

- In the case of the other alternative for managing defaults known as Buyback, it is the issuer of the guarantee, i.e., the platform or more commonly the originator of the operation, that is responsible for repurchasing the investment and returning the invested capital.

Both are options that considerably reduce the risk, but let's compare them in the worst-case scenario:

- It may happen that the issuer of the buyback (the platform or loan originator) cannot meet the guarantee. In this case, the investor would not recover their money.

- On the other hand, it may also happen that an insurance company has problems, and this is where the figure of the Insurance Compensation Consortium makes a difference, as a public body through which we would recover our money. According to words published on their own website:

"The Consortium is entrusted with a protective function for creditors under insurance contracts (insured, beneficiaries, and third parties harmed) in cases of companies in liquidation entrusted to the Consortium, or that are in a situation of bankruptcy".

We can conclude by saying that the great advantage of Credit Insurance over Buyback is that the former offers double security, that of the insurance itself and that of the ICC if necessary.

As of today, many of the invoices published in INVER SA are covered by Credit Insurance, making them a great investment opportunity.