Convenience vs financial yields: Mitigating the trade-offs

[SINGAPORE] Singapore-based fintech Chocolate Finance recently faced a surge in withdrawal requests, prompting it to pause instant withdrawals and shift to a standard redemption timeline of three to ten days. As a licensed fund manager, the company pools customer funds into short-term investments such as money market and bond funds. The episode sparked comparisons to a bank run, but a closer look reveals that it is primarily a liquidity management challenge rather than a solvency issue.

How Chocolate Finance manages liquidity

Unlike traditional banks that use deposits to fund loans while maintaining fractional reserves, Chocolate Finance invests in liquid, low-risk financial instruments. When a customer withdraws, the firm must redeem fund holdings, a process that typically takes a few days (T+3 settlement).

To facilitate instant withdrawals, Chocolate Finance operated a liquidity programme, where it fronted withdrawal payments from its own capital while awaiting fund redemptions. Under normal conditions, inflows and outflows balanced, allowing the system to function smoothly.