Entries in peer-to-peer (24)

Friday
Jul232010

Venmo seeks to simplify peer-to-peer payments (simply, paying your friends back)

I write more I O U notes than I care to admit. I just never have cash and the coffee shop in my buildingSadly, not a joke doesn't accept credit card for purchases under $5 (a practice that violates their terms with the credit cards, but that I support). While I'm always good for the $3, surely there is another way. A way to avoid the awkwardness of buying a friend lunch when he forgets his wallet, and then promptly forgets your generosity. A way to avoid PayPal'ing a friend money for buying your tickets to a conference and have 3% taken off in fees.

Square will revolutionalize merchant payments. But for peer-to-peer paybacks, I'm excited about Venmo, a 100% free way for individuals to text each other payments. Users can deposit money directly into their Venmo account or have it pull from their bank. So instead of writing I O U $2.50, I can text Venmo "send Anita $2.50". We're immediately settled up and transactions costs are 0. Lovely.

Tuesday
Jul072009

Five things to ask yourself if you are interested in social lending

There is significant buzz around the concept of social lending these days. From the dramatic re-opening and prompt re-closing of Prosper Marketplace, to the calm (and dare I say bank-like?) steady returns of Pertuity Direct, mainstream borrowers and lenders across the spectrum are wondering whether social lending may be a legitimate pursuit. But who is it for? Is it an alternative reliable source of returns for investors? An option for borrowers who seem to have no other options? A platform to lend to the working poor around the globe? A risky, high-payoff avenue for lenders? A way to feel good about helping people reach goals that you support?

The truth is that social lending is an incredible diverse market space. If you’re thinking about entering the social lending sphere, ask yourselves these questions to know which platform may be right for you:

  1. What originally drew you to social lending? I see three main classes of people interested in social lending: 1) Investors looking for an alternative return stream; 2) Idealists looking for a concrete, high-impact way to contribute to social good; and 3) Casual lenders intrigued by the possibility of cutting out the bank to earn returns and create a more transparent financial experience. You should know immediately which type you are—investor, idealist, or casual lender—and your options will narrow considerably based on these goals.
  2. How much personal connection are you looking for? As the term “peer-to-peer lending” has evolved to the broader “social lending”, some sites are moving away from the direct p2p connection. Pertuity Direct, for example, has very consciously tried to move to the mainstream lending market by relegating the typical “borrower profile” to an optional community page. Instead, lenders buy into a pool of borrowers of a given asset class. This approach is excellent from an efficiency standpoint—no need to browse through profiles to try to create your own diversified portfolio—but the lenders looking for the feel-good sensation of getting to know your borrower will be disappointed. Lending Club offers the more traditional profile-browsing approach which gives you a direct connection to your borrowers. On Kiva and Microplace, you choose a microfinance institution who finds individual micro-entrepreneurs according to filters—in your chosen country, target demographic, etc.—whereas on LendforPeace, the entrepreneurs are all Palestinian. Through Virgin Money, you simply formalize deals with people you already know; no new relationships are gained, rather the site creates the framework to help prevent existing relationships from deteriorating when they are complicated by a financial bond. The latest entrant Unithrive connects Harvard alumni with current Harvard students – the possibility for a durable bond between individuals is there with both the financial and university connection.
  3. How much risk are you willing to take? Initial challenges with high default rates when the p2p lending space was in its infancy led to many charges that borrowers on these platforms are an adversely-selected population and lending is risky business. The industry has made great strides since then and has instituted far more stringent borrower requirements, but the risk factor is still relevant. Pertuity Direct and Lending Club are the only two companies that are registered with the SEC, so if the government’s blessing matters to you, your options are quite limited. The international microfinance sites have very low default rates (1.7% on Kiva). Pooled lending, like on Pertuity Direct, achieves the highest rate of diversification, but if you’re willing to accept the risk, you can choose borrowers paying a higher interest rate based upon their profiles at Lending Club. Prosper is still shut down, but many early lenders were burned on the site – often due to their own lack of judgment, but an issue nonetheless.
  4. Do you want to make money? At Kiva and LendforPeace, p2p microfinance sites, you earn no interest, but the sites offer a high-impact way for you to park additional money (as little as $25). At Microplace, you can earn up to 6% interest (although most investments fall more in the 1-3% range). At Pertuity Direct, the average interest rate is around 13.4% (minus fees). Lending Club claims a 9.05% average annual performance.
  5. Are you interested in a particular cause? Many sites target very niche markets. If you are appalled by the usury of payday lending, check out alternative Yadyap (“payday” spelled backwards). Passionate about education financing? Look into People Capital or Unithrive. If you are looking to provide economic opportunities in Palestine, LendforPeace is your site. To help mainstream American families, Prosper and LendingClub are the best known.
Monday
Jun152009

Social lending for education financing

Harvard students already have the best deal in the country when it comes to higher education financing--the university absorbs all tuition costs for families making less than $60,000 per year--but now they have another exclusive option. UniThrive connects Harvard students with Harvard alumni for interest-free loans up to $2,000.

The Harvard location is a good test bed. The university's massive endowment is proof of its dedicated (and successful) alumni who want to feel a continuing connection to their alma mater. Harvard students are also likely pretty good bets for reliability.

The site integrates the peer-to-peer connection by allowing lenders to browse student profiles to find the prospective borrower they most relate to. The student is then required to write his/her lender a couple times a year with updates.

The site is an important step forward in the education financing debate. PeopleCapital also focuses on the student lending market, as we've profiled, but this direct college link may be an important differentiating factor for Unithrive. Only individuals with .harvard.edu e-mail addresses can access the site, creating an Ivy League in-club of trust and transparency. $2,000 is a tiny amount, however, and it will be interesting to see if the site evolves to allow lenders to earn interest. After all, if Harvard students are a good bet for reliability, why not make some money on investing in college students' futures?

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
Jun092009

Kickstarter: A Creative Marketplace for Creative Individuals

 

The Greek Muses celebrating KickstarterAttention all starving artists and ambitious inventors! We bring you Kickstarter—a P2P platform that helps match creative and inventive individuals with potential funders. Here is the quick rundown:

  • What kinds of ideas are funded? Movies, books, photographs, recordings, crossword-puzzle contests, board games, plush toys, and eccentric pastimes, such as the daily sending of postcards.
  • How it works: Project owners create a profile that details the idea or endeavor they are attempting to materialize. The idea owner states the total amount of money required, the minimum that can be donated and the funding deadline. Interested patrons browse through the projects and contribute in some cases as little as $1 to a project’s fund. No interest is earned because the funds are not investments.
  • Why fund a project? Project funders, or “backers”, receive rewards that let them get a taste of what they are supporting. Free copies of the art, opening-night tickets, and lottery submissions for prizes are just some of the rewards offered. The best funded projects are those that not only have captivating ideas but also those that have the most creative rewards for backers.
  • The good: Some projects have been so successful that they have received more than three times the initial amount of funding requested. And there is no limit to the amount of funding a project can receive.
  • The bad: Currently, the ability to post an idea is by invitation only, and interested applicants are told to sign up.
  • The potentially ugly: If a project isn’t fully funded by its funding deadline, it will receive no money at all. Kickstarter’s creators explain that this prevents artists who have received some funding from feeling pressured to complete a project that was originally envisioned to produce much grander results. It also allows artists to test ideas and see what kind of audience exists for their creation before they start putting money into it, which is a real benefit. It only gets ugly if you wanted $2,000 but got $1,999. There are no deadline extensions.

I like Kickstarter's founding principle of “art for art’s sake.” The general reality has always been that if you are going to be in the arts or any other creative field, you have to strike it big or let it go. Kickstarter allows small ideas to flourish because it helps connect small artists to the small audiences that will appreciate their work. These microartists—as I like to call them—have a realistic ability to create to their heart’s content. It will be interesting to see what kind of ideas emerge in this creative marketplace.

UPDATE: Our friend Cory is now on Kickstarter to fund his project to save sea turtles. It's a good project to check out and experience the site.

 

Saturday
May092009

The comeback party is over. Prosper shuts down again.

Today Prosper announced to the community that it is "voluntarily" shutting down again after less than 2 weeks open to California lenders. We profiled earlier from both a positive and negative perspective, the innovative Open Market Initiative that Prosper's debuted at its re-launch. Personally, I was skeptical about this new strategic direction, and with this decision, I'm really doubting Prosper's model.

Some official clearly found the state-by-state approach without full SEC blessing to be unacceptable. For social lending platforms, I would stick to Pertuity Direct and Lending Club, both SEC-approved, for now.

Here is the text on Prosper's website:

Prosper is Currently in a Quiet Period

We have been overwhelmed by the outcry from potential investors around the country who want to participate in peer-to-peer lending. Thank you for your support and your letters to us.

After much consideration we have decided to voluntarily shut down our operation in order to complete our SEC approval for a nationwide peer-to-peer lending platform. As a result, due to regulatory concerns, and in the interest of working toward getting our registration statement effective as soon as possible, we are discontinuing our California intrastate offering at this time.

If you're an existing lender, your current lender agreements will be unaffected; your existing loans will continue to be serviced; you'll be able to track and monitor your loans; and you'll be able to withdraw funds from your Prosper account.

If you are a borrower with an existing loan, you will continue with your current borrower agreement and be unaffected by the registration process.

We want to assure you that Prosper is looking forward to being able to offer a transparent, durable and participatory lending institution very soon.

As a result of this decision, we will not be accepting new lender or borrower registrations or loans, or new commitments from existing lenders effective immediately. Until this process is complete, we are required to be in a quiet period and will be unable to respond to press, blogger or other inquiries related to our SEC registration process, even though we would like to.

We sincerely apologize to the Prosper community members for this inconvenience or disappointment our decision may have caused. We want to thank those of you who demonstrated your support through your active participation whether by investing with us again or referring friends to our site.

Thank you in advance for your understanding, support and patience once more. We look forward to serving the needs of the community in the hopefully not too distant future.

Monday
May042009

Counterpoint: Prosper is Back…But is this innovation wise?

As we profiled yesterday, Prosper, the former industry leader of the p2p lending industry, continued to innovate and evolve during its forced “quiet period” in anticipation of its re-launch. In addition to offering traditional p2p loans, Prosper has now introduced its Open Market Initiative, which will allow other financial institutions to place their already funded loans on our site for auction. In his blog post, CEO Chris Larsen makes the argument that more opening up these loans to greater competition will lead to better rates.

That may be so, but I have a number of concerns about this model. First, I’m concerned about these lenders unloading their bad loans on the site. Prosper suffered some early challenges regarding poor repayment rates and I’m surprised to see them immediately target a less-than-prime space right at re-launch. Additionally, are retail investors really prepared to evaluate these loans effectively? Many of Prosper’s early lenders struggled to effectively diversify their p2p loan portfolio, explaining some of the initial losses reported. I see no reason to believe that they will be able to price more complicated small business, car, and consumer loans.

Finally, Prosper seems to be encouraging lenders to make financial decisions from the heart. From Mr. Larsen:

“...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 structure introduces a level of transparency that we have not seen in loans before and it sounds great from a social entrepreneurship perspective. But is it wise from a personal financial decision-making perspective? Just as it may be dangerous to fund borrowers based on how they look (recall the recent study on how Prosper lenders gave more money to faces that looked “trustworthy”), it is risky to fund companies based on values. If your primary motive is gaining a healthy return, then whether you “like” the individuals or companies’ practices should be a non-factor. If your motive is to provide social value, then perhaps you would be better off funding a loan through Kiva.

I do agree with the sentiments of Mr. Larsen, however, that “the crisis is painful but is also a once in a lifetime opportunity to rewire finance in a way that is fundamentally more transparent, more participatory and more durable.” I’m glad to see Prosper back online and running. I’m really glad that it’s been able to start passing the onerous regulatory hurdles. Best of luck to the site in its second incarnation.

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

Monday
Apr062009

Pertuity Direct takes social lending mainstream

CEO Kim Muhota explains that Pertuity Direct operates “at the intersection of traditional banking, social networking and capital markets.” In an interview with Transcapitalist last Thursday, the Pertuity Direct team sought to make the case for why their model enables them to go after the mass market and eliminate the frictions that exist in the p2p market.

First a few basics about the PD model:

For borrowers:

  • The current sole loan product is a three year installment loan. The average interest rate is around 13%.
  • The minimum FICO score is 660. PD is very selective in the borrowers that they approve.
  • Borrowers retain full privacy. No credit information is made public. Pertuity Direct handles all of the underwriting and approvals, then sells the loans to NRF.
  • Loans are either funded in their entirety or rejected. Within 3 days you will have full certainty over whether your loan will be approved.
  • Borrower closing fees total 1-2%

For lenders:

  • Focused exclusively on the prime to super-prime sector of the marketplace. Borrowers have an average FICO score of 740.
  • Lenders participate through the National Retail Fund, a mutual fund registered with the SEC. There is no auctioning of interest rates or browsing profiles to choose who to fund.
  • The fund is valued daily. The penalty fee for early withdrawals is a fixed 2%, but it only applies for the first 12 months. After that, the full investment amount can be withdrawn for free. Earnings can be redeemed on a quarterly basis.
  • There is no net worth requirement to invest. The minimum investment is $250.
  • Lender fees total 1.63%

From these facts, a simple question arises: what makes Pertuity Direct a social lending platform? Without interest rate auctions, borrower profiles, or direct borrower-lender relationships, it seems that the defining p2p market characteristics are missing. Lisa Lough, SVP of Marketing explains that the community aspect is still present. Borrowers can choose to make their story public in the community section if they wish and lenders can participate in the Pertuity Bucks program to help pay down the principal of borrowers whose stories they find to be particularly compelling.

Still, Mr. Muhota explains that their model is significantly different from the competitors. Studies indicate that one reason people have not been interested in p2p is because it seemed alien to them; lenders often do not have the expertise to make credit decisions and borrowers are faced with too much uncertainty over whether their loans will be funded and at what rate. Consequently, the PD opinion is that auction-based, labor-intensive approach is not the way of the future for social lending. For the broader population, the competitive set is traditional banking and investment products and PD seeks to offer an alternative to those.

As social lending evolves, PD believes that they are well positioned to step into a “huge gap in the marketplace.” Their model is equally well suited to those borrowers and investors who love the community aspect of p2p lending as to borrowers who would rather remain anonymous and lenders who are simply looking to invest in a strong asset class.

First, they have sought to make the account opening process “as simple as possible.” Indeed, as I described in my experience opening an account with them, a lender can have an account running within 5 minutes. They also seek to “aggressively manage risk” so that lenders don’t have to. From a borrower perspective, they highly value privacy, an important element of reaching the prime marketplace. Prime borrowers with a variety of opportunities are going to walk away from a deal where they have to make their personal credit information public. By protecting the privacy of their borrowers, PD avoids the adverse selection problem confronted by the p2p players.

By integrating these best practices of traditional banks but offering a different loan product, PD seeks to take the banks and credit card companies head on. Mr. Muhota made clear that PD is not just striving to be the main social lender, but rather sees the traditional banking and credit establishment as competitors, because “until you look broadly to the market, you remain a niche player.” Consumers are looking to put their money to work in a safe asset class and PD can provide that service. Unlike the Lending Club platform (the only other social lender registered with the SEC) where each dollar lent needs to be assigned by the lender to a given borrower, which can be a time-consuming process and totally unwieldy if you are working with several thousands of dollars, the PD model allows lenders to deploy their capital efficiently and at any sum to a diversified pool.

Social lending has clearly evolved from the model of browsing individual stories and choosing to fund borrowers one-by-one. Pertuity Direct offers an intuitive and mainstream approach to social lending that makes it attractive to the broad market and may well be the best model for the emerging industry as it moves forward.

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.