Entries in p2p lending (44)

Thursday
Jul302009

The Kiva community is still mixed on the move to welcome U.S. entrepreneurs

Kiva's recent poll of its members shows that there remains a sharp divide among lenders regarding Kiva's recent pilot program for American borrowers: 48% are in favor, 44% are opposed, and 9% are unsure.

As we profiled earlier, upon the announcement that Kiva would open its doors to borrowers not only in the poorest countries but to those in the U.S., many Kiva forums exploded with cries that this decision was counter to the Kiva mission to alleviate poverty. We never quite understood that rallying cry, since lenders, after all, retain full freedom to choose the recipients of their funding and there are plenty of Americans living in poverty. A more serious complaint, perhaps, is that such a move would divert money from the neediest borrowers, where the poverty is more extreme.

Kiva's study proves that this is not the case: lending is up across the board. June was a record month for the peer-to-peer microfinance lending site:

  • Excluding the U.S., more loans were made to the developing world than ever before -- $4,682,025
  • 4.6% of the loans were made to U.S. borrowers

Regardless of whether you agree with Kiva's policy, you have to admire how much they are engaging their community around the issue. This is one reason why social lending will continue to be the way of the future -- communities on both sides of the transactions have a say in how it is evolving.

Monday
Jul132009

Prosper, p2p lending online marketplace, is (really, we mean it?) back

It's been a long and arduous road (see here, here and here), but Prosper announced today that it is officially back, this time with the gold standard of proof: their statement with the SEC has been declared effective.
They are offering some innovative changes to the p2p landscape. From today's blog post by CEO Chris Larsen:

Trade Existing Notes
We’re also incredibly excited to introduce an Internet auction-priced trading platform for Prosper Notes. As many early Prosper lenders know, we’ve been working on this feature since we first launched in February 2006. We know that financial markets thrive on liquidity, which in P2P lending means lenders will have the opportunity to sell Prosper Notes any time regardless of the loan term. The note trading service is provided by Foliofn Investments, Inc., through their Folio Investing Note Trader platform.

Prosper Ratings
Other significant improvements include a new Prosper Rating system to make bidding easier and more rewarding. The new Prosper rating is built on Prosper’s huge database of approximately 28,000 loans. We have also introduced a minimum 640 credit score requirement for borrowers and a minimum bid floor for each Prosper rating to improve and optimize returns. Finally, to improve the ease of diversification, we’ve lowered the minimum bid amount to $25

Peer-to-peer lending may now be making its way to the mainstream. Federal Reserve Chairman Bernanke in a speech three weeks ago: “emerging technologies like peer-to-peer leading also show promise.”

 

Sunday
Jul122009

Follow-up: Social lending decision tree

As reader comments from my last post made clear, people approach social lending for charity/microfinance quite differently than they approach it for investment reasons. So while the platforms may operate similarly, lenders/investors explore the sites seeking varying characteristics and values. With that in mind, this decision tree divides the social lending space into two different trees right at the beginning. The same key differentiators are highlighted, but perhaps this method of bundling investment and charity sites is more useful to aspiring lenders seeking the right platform for their needs and goals.

[Note: Click "full" on the bottom left of the widget for the best view]

 

Monday
Jun222009

Kiva's opening to American entrepreneurs is not welcomed by all...

Apparently it's the worthiest endeavor to lend to those in dire poverty, and less so to lend to those who are only really poor. Or at least so says some of Kiva's most committed supporters who are disappointed by the microcredit p2p platform's move to allow US micro-entrepreneurs to compete for loans on the site.

As we profiled the day it was announced, Kiva began as a site to lend to the poor in Africa, but has been expanding to developing nations around the world, and earlier this week, announced that it would open to its first developed country: the United States. Americans have long dominated the lending side of the equation, and many Kiva supporters are worried that now that American borrowers can also list profiles on the site, that precious funds will be diverted from those who need it most.

What do you think? Kiva is advertising this poll to hear from their supporters: http://answers.polldaddy.com/poll/1720762/

Wednesday
Jun102009

Kiva opens to US entrepreneurs

Beginning today, US entrepreneurs will now be able to seek loans on kiva.org. Originally a site to lend to micro-entreprenuers in Africa, Kiva has now established itself as a truly global destination to facilitate lending to help alleviate poverty.The move to the United States comes at an opportune time. With the credit crunch, this is a tough time for aspiring small business owners to get the initial loans to get off the ground. Even formerly creditworthy individuals may find it hard to receive a small business loan. Some small business owners have already turned to p2p lending, and now Kiva also offers an alternative funding stream.

The timing of the launch is interesting for another reason: An article in yesterday's New York Times reports that charitable giving fell last year by the largest percentage in five decades. Kiva is still an interest-free investment. Might domestic micro-lending revitalize poverty alleviation efforts in the US? Will more donors feel inspired to provide p2p loans rather than donate to charity (as we've discussed before)?

Part of the answer surely depends on whether the remarkable loan repayment rates hold steady in the domestic US market (99.7%). One of Kiva's partners for this effort is ACCION USA, also the partner for Microplace. When I initially opened my Microplace accounts, I steered clear of the US borrowers facilitated by ACCION USA because they offered the lowest average repayment rate (more like 94%-96%). Just now when I researched to confirm those numbers, I see that Microplace has eliminated that statistic entirely across all of its loans. Why? Regardless, it will be interesting to see how the repayment rates of domestic loans compare to rates of the international loans.

Tuesday
May122009

Qifang: Does Hidden Potential Bubble Under the Surface of China's Copycat P2P Lenders?

China places special focus on educationBack in February we wrote about the increasing popularity of P2P lending in China. Today we are profiling another Chinese peer-to-peer lender called Qifang. Qifang is a new specialized lending platform that connects Chinese university students with lenders who can help fund their educational expenses. Lenders can be institutions such as banks, companies, NGOs, or individuals. Lenders can also be philanthropists that help finance educational expenses through donations. In this aspect, Qifang’s model builds on that of Kiva and Propser in the West.

However, upon closer observation we realize that Quifang’s model does not simply build on that of other P2P lenders; it outright mimics them. Upon submitting an acceptance notice or student ID, Qifang borrowers create a profile that has striking similarities to borrower profiles on Prosper, including a link to “endorsements from friends” (Prosper's special tool for leveraging social networks). Even more original is that borrowers set their own interest rates and terms allowing lenders to bid on borrowers based on the interest rates they set. 

And while I am looking through Qifang’s website I keep trying to put my finger on something else that is giving me déjà vu but what could it be? Ah, yes, the site’s design and colors are near mirror images of Zopa’s warm, orange stripe beneath a thinner black stripe. The recent Economist article on Qifang was right to reference the “shameless” copycat startegies of Chinese Dotcoms which have come to be known as “copy to China.”

Shameless it may be, but Qifang might also be brilliant. Education is stressed in Chinese society and the demand for education loans exists. As the Economist article explains, education loans have generally been provided by community groups, thus Qifang is simply taking something that already exists organically (real, on-the-ground P2P lending) and making it more transparent, efficient and scalable.

Additionally, Qifang may have replicated the model and design of Western P2P lenders but it has also learned from their mistakes. Taking into account unique aspects of Chinese culture, Qifang has built into its model tools that provide social collateral, reduce risk, and leverage the strong community ties found in Chinese societies. Social collateral comes in the form of required submission of certain family details which discourage borrowers from defaulting for fear of publically shaming their family. Similarly, by sending all loan payments straight to the school, Qifang decreases risk to lenders that may come about as a result of misused moneys. Last, Qifang encourages teachers, parents, and community lenders to become involved with loans as a way to increase both financial education and the social incentive to repay.

At about six months old, Qifang is too young for us to predict how well it will operate. However, looking at the profile of one young Chinese girl who has titled her loan as “I cannot witness my mother working hard for me every day, I have to rely on myself and be strong” and reading about the “honor” that she feels to be able to borrow from Qifang lenders, I can’t help but feel that powerful cultural forces beyond my understanding are at play. And this makes me wonder if P2P models are better suited for cultures where traditional (and sometimes seemingly constraining) social norms and bonds remain strong and undisputed?

Flicker credit: cleverCl@i®ê

Sunday
May032009

Prosper is Back...with an Innovative Vengeance! 

Earlier this week, the sleeping beauty of P2P lending – Prosper – was brought back to life by the California state government. After the SEC asked Prosper to pause its lending operations for six months, California’s Department of Corporations decided on April 28th to allow the P2P lender to resume lending for all lenders located in California and borrowers throughout the nation.

 

And Prosper is coming back on the scene with a new model to add to it P2P lending platform.  The Open Market Initiative is an attempt to create a secondary markets for loans by allowing institutional lenders to sell their existing loans, such as car, consumer, and small-business loans to Prosper member-lenders in California.

 

The idea here is that this secondary market provides liquidity for the institutional investors as well as a diverse and patriotic investment option for local Prosper lenders. In his Welcome Back letter, founder Chris Larsen, explains how the social focus and dedication to transparency that serve as Prosper’s cornerstones have been applied to the Open Market Initiative.

 

"In addition, Open Market brings the same social lending possibilities to securitization that we have always seen in the Prosper Loans Marketplace. For example, auto loans listed on the Open Market will show in which auto plant and city the car was made. That way fellow Americans who put a value on American jobs might make loans to cars made in Ohio, for example, at a better rate than loans to cars made in Germany. This could never be done with traditional securitizations because investors never had that level of transparency."

 

While Prosper’s secondary market is not the first in P2P lending, (LendingClub gives members the option to trade notes amongst each other) it is certainly one of the most creative and extensive. However, as Mr. Larsen himself points out, “creative financing” does not carry a positive connotation nor a sense of patriotic pride these days.

 

An additional problem brought up in a recent Economist article is that the difficulty today with selling institutional investor’s loans is the pricing and not the liquidity. Thus, the extent to which Prosper’s creative secondary-market model is able to truly align incentives and truly scale remains to be seen.

 

Monday
Apr132009

LendforPeace, a p2p microfinance platform for Palestinian entrepreneurs, has early success

A new p2p lending site connects lenders to micro-entrepreneurs in the Palestinian territories. At LendforPeace.org, lenders can make a loan directly to vetted borrowers in the West Bank and through this process, the site hopes to help "humanize the conflict" and give its users a more personal view of the Palestinian experience.

At LendforPeace.org we aim to tie the power of microfinance to the notion that economic stability is a necessary component of a lasting peace between Palestinians and Israelis.

West BankIn an discussion with me last week, co-founder David Fraga explained why LendforPeace.org is an important complement to Kiva: It reaches people who might not be drawn naturally to microfinance, but who are interested in conflict in the Middle East. The niche focus allows a different lender population to be targeted.

LFP has also introduced an innovative option not currently enabled at Kiva. Lenders can donate money to a Revolving Microfinance Fund. By allocating the money here, your money is immediately re-loaned to another worthy entrepreneur. Mr. Fraga explains that this is an important step forward in efficiency; large sums of money invested in Kiva are currently "dead capital" sitting in lenders' accounts yet to be withdrawn or re-loaned. Also, unlike any loans made to entrepreneurs on Kiva, your contribution to the revolving microfinance fund is tax deductible in the US.

A very real concern for lenders investing in entrepreneurs around the globe is uncertainty over whose activities they are funding and whether the money is going to the intended place. In our discussions with Mr. Fraga, we are convinced that LFP has a very robust due diligence process in place for the MFIs with whom they partner on the ground and the micro-entrepreneurs:

  • Government vetting. Both partner MFIs of which have been vetted by USAID and comply with the US State Department's antiterrorism clause.
  • Financial vetting. The MFIs are also regularly audited by the accounting firms PricewaterhouseCoopers and Ernst & Young to ensure responsible financial practices.
  • LFP vetting. LFP also sends its own personnel to audit partner portfolios and to perform site visits with current and prospective borrowers.
  • MFI vetting and risk sharing. The local partners perform extensive due diligence on each lender and they match each loan or sign a risk-sharing agreement. This ensures that that the MFIs have aligned incentives with LFP lenders.

While the founders are focusing on the core functionality of p2p loans currently, they have exciting ideas for where to take the site in the future. An e-commerce capability would allow lenders to directly buy the goods created by their borrowers, for example, if an entrepreneur is an artisan. A discussion section would allow borrowers and lenders to communicate directly, and other interested members of the community to join the discourse.

LendforPeace.org is supported by grants from the Clinton Global Initiative, Ashoka Youth Venture, Davis Projects for Peace. The site was launched in February and Mr. Fraga was just interviewed by Fox Business News and the newscasters were practically gushing. As he argued in our discussion with him, "we [the founders--two Jews and two Arabs] may not agree about much, but it's hard to disagree with the concept of economic development and that people shouldn't be poor." LFP offers a tangible and transparent way for those who are touched by the Middle East conflict, but feel frustrated that it is beyond their reach, to play a small and constructive positive role in the process.

Flickr credit: hazy jenius

Saturday
Mar282009

Facebook to help Uncrunch America?

Following up to our previous entry on Uncrunch America, ReadWriteWeb argues why Facebook should join the campaign to use peer-to-peer lending to help loosen the credit crunch.

Bernard Lunn writes:

"Facebook has 200 million users who have come together because they know each other. That is the basis of trust. And lending is based on trust, a simple fact that got obfuscated by Wall Street's toxic financing vehicles.

Facebook can empower its users in very real ways by connecting them in peer-to-peer financing networks. Facebook does not need to do the heavy lifting of providing peer-to-peer lending -- for example, dealing with all the regulatory issues. It just needs to do what it does best: leverage the social graph."


I agree with the sentiment of commenter Clay: Facebook itself doesn't need to get involved, but a third party developer could build a great app to connect Facebook users to the p2p lending community.

 

Saturday
Mar282009

Yadyap hopes to offer a p2p alternative to payday loan market

There are more payday lending stores (22,000) in the United States than there are McDonald’s locations (12,804).[1] A typical payday loan, or the euphemistic “cash advance,” will charge $15 to $30 on a 2-week $100 loan, for an effective APR of 390% to 780%.

The payday lending industry claims that these rates are not predatory because they are still better than any of the other options for short term, small loans. For example if someone is down $100, bouncing a check would cost ~$48, a credit card late fee would cost ~$30, and a late/re-connect fee for utilities would cost ~$50.

I don't buy most of the arguments of the payday lending industry, notable for their strong-arm and misleading lobbying tactics, but the truth is that there are not many alternatives for individuals who live paycheck-to-paycheck and feel forced to turn to a check cashing shop for immediate needs.  I'm happy to see that peer-to-peer lending may be able to change that.

Yadyap is a p2p lending platform focusing exclusively on the payday loan business. They haven't launched yet, but you can follow their news here. I'm slightly wary of lending myself given the poor credit scores of their target borrower demographic, but with a decent track record of low default rates, I could be on board. Here is a sneak peak of their operating model:

"At YadYap borrowers receive instant loan approvals, funds quickly deposited to their bank account, and lending rates that are determined by the free market through a competitive auction. Additionally, YadYap tracks each borrower’s performance and shares these scores with lenders. Good performance is rewarded with lower interest rates and loan fees as more lenders compete to fund their loans."


[1] Brook, Daniel. “Usury Country.” Harpers Magazine. April 2009.

Flickr Credit: Orin Optiglot

Monday
Mar232009

Transcapitalist P2P Fund Adds MicroPlace: Like Kiva with Interest

After profiling the increasing returns offered by Microplace, we decided to add them to the Transcapitalist P2P Lending Portfolio. Microplace, like Kiva, focuses on micro-finance loans to entrepreneurs worldwide; however, they have passed the regulatory hurdles and can offer interest to their lenders.

MicroPlace’s mission is “to help alleviate global poverty by enabling everyday people to make investments in the world’s working poor…Microfinance institutions around the world have discovered an effective way to help the world’s working poor lift themselves out of poverty. These organizations need capital to expand and reach more of the working poor. At the same time, millions of everyday people here in the United States are looking for ways to make investments that yield a financial return while making a positive impact on the world. MicroPlace simply connects investors with microfinance institutions looking for funds.”

What is the Microplace model?

Microplace allows you to select investments offered by microfinance institutions in-country who define the terms of the loans. The microfinance institutions then make loans to the working poor in the communities where they work. Lenders can sort by region, level of poverty, focus (e.g., women-only), rate of return, and repayment date. The side also lists the repayment rates for each cohort, ranging from 95-99%.

What is my expected return?

Rates of return range from 1.5-6% and repayment dates range from 9-48 months. The specific portfolio that we designed has an expected rate of return of 4.2%.

Here is our portfolio:

Total Invested

Investment

Country

Rate of Return

Repayment Date

Repayment Rate

$50

Working Capital for Community Needs

Nicaragua

6%

48 months

98%

$50

Calvert Foundation

Kazakhstan

3%

21 months

98%

$50

MicroCredit Enterprises

Women Worldwide

5%

24 months

95%

$50

Azercredit

Azerbaijan

3%

33 months

99%

$50

Financiera FAMA

Nicaragua

4%

21 months

98%

What do I like so far?

  • Really good website. Excellent filtering and upfront information makes for a clear and transparent experience. It’s a fun place to browse.
  • High returns. At least for microfinance!
  • Easy diversification. Lenders can invest in organizations world-wide with a wide variety of entrepreneurs and rates of returns.
  • Great mission. Contributing to combat global poverty with a market solution.

What don’t I like?

  • False advertising. The 6% only applies to a couple of investments; the vast majority fall in the 1.5-3% range.
  • Distant repayment date. Most loans fall in the 2 year range. During that period, you have no access to your money (unlike Pertuity Direct which has an instant liquidity option for a 2% fee).

Still, I'm glad to see a microfinance p2p platform that allows the lender to earn interest! This will help make the concept more mainstream.

 

Saturday
Mar212009

P2P lending a VC choice in Europe

Paul Jozefak, Partner at NeuHaus in Germany, yesterday talked to ReadWriteWeb about the state of early-stage venture capital in Europe. His number one venture now? Peer to peer lending.

"Smava is in the peer-to-peer lending business...the credit crisis has been a big boost to these ventures. This business also seems like it will have national champions and not be consolidated by a few global players, because A) trust tends to require proximity; B) local regulation still matters; and C) it is such a massive opportunity that a venture that does well even in only one country could still be very big."

P2P lending is doing well with venture capital here in the US as well. Lending Club recently raised $12 million in second round funding.

Friday
Mar202009

Microfinance to "return the economy to health"

Mohammed Yunus, Nobel Prize winner and founder of Grameen Bank, the first microfinance institution, has a suggestion to help lift the world out of the current crisis: microfinance loans. He made his name lending small sums of money, less than $2,000 to poor women in Bangladesh, but he sees hope in extending the concept through the developed world.

As covered by Forbes Magazine, during recent remarks at the Foreign Correspondents Club of Japan in Tokyo, Yunus "cites a program his bank started last January in New York City's Jackson Heights section, a low-income neighborhood in the borough of Queens that is home to many immigrants. Grameen America disburses loans averaging a paltry $2,200 to women there. Although New York has been hit hard by unemployment tied to the financial turmoil, Grameen's repayment rate there is still 99%, Yunus says: "In the same city where big banks collapsed, we're untouched by the crisis."

Yunus believes that microcredit could  spread across the United States as big banks contract. Grameen has attracted the interest of Susan Buffet from Berkshire Hathaway and is considering opening up branches in several U.S. cities. He hopes that microcredit can eventually replace payday loans and check-cashing shops: "Although we live in a world where we deal with billions of dollars down the block, people are looking for much smaller sums."

If you're interested in being a lender to international microfinance institutions, try out two peer-to-peer sites, Kiva.org and microplace.com.

If you're interested in being a peer-to-peer lender domestically, see our review of all the major players. Soon-to-come is a site directly focused on the payday loan market, YadYap.

Wednesday
Mar182009

First step of the Transcapitalist P2P Fund complete

Today I invested $250 with Pertuity Direct, a recent entry to the social lending marketplace. This is the first step in a plan to invest $1,000 total across 4 different p2p lending platforms to compare the experiences and returns. I'll update as the fund matures and share my experience with the hope of informing p2p newbies interested in entering the space and shopping among the services currently available.

What is the Pertuity Direct model?

The company takes a different approach to social lending (I use the term "social lending" rather than "p2p lending" consciously because it better describes their model and its the term that they use). Lenders invest into the National Retail Fund--essentially a p2p mutual fund--which composes all of the loans made through the website.  Through this structure, the Fund's investments are automatically spread out over a large portfolio of loans, providing a level of diversification usually not reached with p2p platforms.

What is my expected return?

Borrowers pay interest rates ranging from 8.9% to 17.9%. As borrowers pay back loans, investors earn returns. Pertuity charges a lending fee of approximately 3.17% 1.63% [Update: the Pertuity Direct team informs me that the rate for lenders is now 1.63%]. The service is too new to have information on default rates or average returns. [Update: The National Retail Fund now has preliminary figures up. The average interest rate is 13.5%]

What do I like so far?

  • High expected returns. 
  • Prime borrowers. The service requires a minimum 660 FICO score, but the average score is more like 740. Expected defaults are low.
  • Incredibly easy. I signed up, had my information confirmed, and invested $250 within 5 minutes. It will take 2-3 days for the loan to be finalized. I didn't have to screen a single borrower.
  • Predictable liquidity. Perpetuity offers the option to withdraw all of your money before the close-out date for a small 2% fee. Most other services require you to commit for the full term of the loan (often 3 years).
  • Full SEC-backing. This site did it right and waited until they had full SEC approval before launching. I feel confident putting my money with such a competent team.

What did I not like?

  • The experience felt distinctly "un-p2p". I went from start to finish without "meeting" a single borrower. The experience was simple and professional (which is good), but it was just like dealing with a normal bank.
  • Poor conveyance of information. Information is hidden within Pertuity Direct's site and that of its partner National Retail Fund. Prosper Lending Review's site helped.
  • $250 minimum investment. This is a sharp contrast to Kiva or Lending Club, where you can start with $25.
Monday
Mar162009

Microfinance P2P lending platform Microplace claiming increasingly high returns

Microplace, a peer-to-peer lending site focusing on the niche international microfinance market, is bucking the current downward financial trend and offering increasing rates of return for its lenders. A competitor to Kiva, Microplace (an Ebay company) offers a similar line about how small loans can make a real difference in the lives of entrepreneurs in developing nations. By contrast, Microplace's loans are securitized, allowing its lenders to charge interest (set by the site) on their loans.

Microplace has claimed a progression of "average returns" since its foudning. The recent trend is impressive: