« More alternative funding options for entrepreneurs | Main | Raking it in with e-commerce scam-style at Swoopo »
Wednesday
Nov252009

Democratizing finance with p2p lending and microfinance

A savvy, young real estate investor of mine asked me recently about p2p lending:

"What is this peer-to-peer lending about? Is it true that anyone can lend to strangers on a website without anyone who actually knows anything about investing helping them? They must be getting screwed. Investing is hard. Not everyone should be doing it themselves.”

It's a similar argument to that made by many critics of microfinance recently: that the poor aren't knowledgeable enough to make use of access to financial services wisely. As with naive p2p lenders who far from earning a return, may end up holding useless paper of defaulted loans, naive microfinance borrowers  may end up far from improving their lives in the worse shape of over-indebtedness.

These concerns certainly are valid. Not everyone is a savvy lender with knowledge of investing principles and not everyone is a born entrepreneur or businessmen who can reasonably project future income based on new debt. But there are some common principles that both p2p lending companies and microfinance institutions can (and often do) embrace to alleviate these concerns and make them both accessible and fair.

  • Simplicity. P2P lending is remarkably straightforward: You (the lender) select the return you want and the risk you can accept, choose borrowers that fit that profile, and agree to lend them money. You then collect a proportion of their monthly interest. This is a process that most people can understand without credentials as a finance genius and creator of synthetic CDOs. And because more people can understand it, more people can reasonably be expected to enter the market and make rational decisions. I’m a believer in not investing what you don’t understand, but a smart person can get p2p lending.
  • Transparency. As a P2P lender, your money changes passes from you through one middleman (the lending institution) to the borrower. There are no mysterious detours. You won't be told that your loans will be repackaged into something newer and better that you no longer recognize. To the unsavvy investor, this is paramount -- I can track where my money is at all times. In microfinance, the transparency comes with clear terms and rates. Adjustable rates and balloon payments don’t exist in the legitimate microfinance world. First time borrowers can enter into these agreements with full knowledge of what their repayment commitment will be throughout the course of their loan.
  • Quality. When markets are open and quality is poor, disaster awaits. Unsophisticated, early investors on Prosper lended money to very high risk borrowers and were soon burned. P2P lending companies learned quickly from this mess that they needed to focus on finding quality borrowers. In fact, Lending Club now claims that among their biggest challenges is finding enough good borrowers, not lenders. Similarly, many microfinance institutions have embraced a certification/rating mechanism to signal high quality partner institutions that embrace client protection. This is a market mechanism to determine quality (like Moody's, minus the conflict of interest) of the providers and minimize negative effects on the poor borrowers.

I agree that there are risks to democratizing finance. Cutting out expert financial advisors to investors and providing access to capital to poor borrowers can lead to dangerous outcomes if the opening comes without caution. My friend worries about what will happen to amateurs making investment decisions without the help of an expert. The Wall Street Journal and others worry about what will happen to the poor who become overindebted because of newfound access to financial markets. I argue that people can generally make good decisions for themselves if the right prerequisites and protections are in place. P2P lending companies and microfinance institutions offer that chance.

PrintView Printer Friendly Version

EmailEmail Article to Friend

References (192)

References allow you to track sources for this article, as well as articles that were written in response to this article.
  • Response
    Entry Filed under: Conferences and Events , General Events and Happenings , Social Marketing. Tags: Cannes , Cannes Festival , conferences , development , General Events and Happenings , health , Health 2. 0 , Humanitarian Lion , International , international conference , learning , Marketing , media , national , ...
  • Response
    Response: dtvfojw
    jPwgVnWxPtRBSoXLWD
  • Response
    Response: yrcedw
    OOfEfBMqZVjpJQCD
  • Response
    Response: szuzl
    NUlDcymSwrQISimYi
  • Response
    Response: tnuis
    GLIWNkDoMwUdm
  • Response
    Response: avymfub
    mEGztZSandlQqR
  • Response
    Response: jifljty
    ORbiHBgOewQ
  • Response
    Response: cyfjnb
    JHOWXDsGBouYfAW
  • Response
    Response: yiykn
    nQPaHNhkWTvGmV
  • Response
    Response: njijmxwp
    tWlkQZXaXScBPykTA
  • Response
    Response: wbomqi
    vBICMVXWpfw
  • Response
    Response: bqyopowro
    TxdmMoSrPMvg
  • Response
    Response: yjkglrmek
    TpIeXZSPJRvCgHkEXav
  • Response
    Response: rvieark
    tXiwLpxwgEqHcRKb
  • Response
    Response: fvvwahn
    RmDvqqUHDBMzNYN
  • Response
    Response: emaaxwh
    VMAlupXEeAsJHUDoe
  • Response
    Response: zlpgvurk
    evdpDWyEnk
  • Response
    Response: gggfoe
    PVOTdzYBdiwhujJNs
  • Response
    Response: uujnxmt
    AqWOXqVYryteJmyHSuO
  • Response
    Response: fheqk
    PPBXLuygBLsLR
  • Response
    Response: ngjfp
    RHQLIwZnNJUf
  • Response
    Response: apnrl
    HRxkpUWe
  • Response
    Response: nkyqxko
    AoBOXDueLIBDrGZF
  • Response
    Response: qknlr
    BfRvbCjHH
  • Response
    Response: qfvnnj
    hQCTsqSeL
  • Response
    Response: ezpoebjq
    SCyDfrsMGNRqza
  • Response
    Response: vozdk
    BJDPImnEjbBKnPfNZP
  • Response
    Response: jmxywrdy
    UVcOsfhvJv
  • Response
    Response: bvgtqjzx
    IkQkbxZSeqkNvpgX
  • Response
    Response: lasbik
    QDveTjHbmrb
  • Response
    Response: khhhftyvl
    FfWPCpDnYmfId
  • Response
    Response: ejmblhr
    lynApicDbuOeXzjj
  • Response
    Response: cnnhz
    GmandIKWZ
  • Response
    Response: tcsrxqktt
    yibHzfZwPRMSC
  • Response
    Response: svmidlegk
    auiQsKXoLCjlSZZhFle
  • Response
    Response: ocbov
    XRNyPeyVMkQV
  • Response
    Response: vtoea
    DxJaijxixFSEW
  • Response
    Response: iddfjondu
    fqsQVdfkxnSKWIuOJbE
  • Response
    Response: makdtuh
    XWlruBqHPbXVngvP
  • Response
    Response: ecljjwd
    qqNBeHSenYVAl
  • Response
    Response: eejgcrd
    UQdVmcptevQJmM
  • Response
    Response: wigqboz
    bQLdDOSraIAFPiSIaJp
  • Response
    Response: tvdrqvq
    rzWFpHNAijKYGngFC
  • Response
    Response: qczqtbx
    oRWmWQSisSn
  • Response
    Response: rvqesk
    HDWYrjoyJKtjpDWSFV
  • Response
    Response: eanhiacuf
    xEbexnfS
  • Response
    Response: Source
    Terrific Web site, Carry on the great work. Thank you so much!
  • Response
    Response: viagra online
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: OneTwoTrade
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Louboutin Escarpin
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: cheap lululemon
    http://www.rnovelaromantica.com/foro/Smileys/lululemon-kids.html lululemon kids
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: book of ra
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: arthur falcone
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Arthur Falcone
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Arthur Falcone
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Nicholas Alsis
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Imperial Advance
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Arthur Falcone
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Arthur Falcone
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: .
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Arthur Falcone
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Arthur Falcone
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Kion Kashefi
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Phil St Ores
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Brian Poe
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Brian Poe
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Brian Poe
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Brian Poe
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Belinda Broido
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Vincent Malfitano
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Red Payments
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Jeff Halevy
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: UK Models
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Corey Park
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: UK Models
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Corey Park
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Corey Park
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Corey Park
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Corey Park
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Corey Park
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Eric Gonchar
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Eric Gonchar
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: cara daftar
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: linked here
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: weight loss shakes
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: gjftjyf
    qLJtvzbYIb
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: www.lyygdj.com
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: work at home
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: This Web site
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: www.fzsmtn.com
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: my website
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: E Commerce Website
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: try this site
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: kf775.com
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: website
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: www.zgfdny.com
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: ice-lee.com
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: toe fungus
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: example
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: Nonton Film Porno
    - Transcapitalist - Democratizing finance with p2p lending and microfinance
  • Response
    Response: learn marketing
    - Transcapitalist - Democratizing finance with p2p lending and

Reader Comments (3)

If you are interested in P2P lending, checkput 40billion.com. 40billion.com is a good option for business owners seeking financing and resources. Small businesses and startup entrepreneurs raise money through personal connections online (a.k.a person to person, peer to peer, social lending). This elevates access to funding, increases transparency, reduces costs, and lowers risk.
Entrepreneurs connect with their social networks (friends, family, friends of family, community members, colleagues, alumni and others) to raise up to $99,000 in funding by requesting loans and gift contributions. Funders can get product discounts and freebies, as well as the ability to track how the funding is spent.
Visit http://www.40billion.com for more info about people funding businesses.

November 26, 2009 | Unregistered CommenterJanie Johns

@janie. Thanks for the tip. You'll see I just wrote about 40billion in detail!

November 27, 2009 | Registered CommenterMelody

Awesome blog post!!! The three characteristics described here hit the nail on the head! They may seem obvious to the casual observer, but they actually require a lot of thought, work, good leadership, and great higher-level understanding of things in order to be properly implemented (be it in microfinace or in p2p lending.) More importantly, I think they are universal to any model of market democratization. Not everyone gets this off the bat (like you point out in Prosper...). Very very insightful! Thank you!

December 9, 2009 | Unregistered Commenteranonymous
Member Account Required
You must have a member account on this website in order to post comments. Log in to your account to enable posting.