LendingKarma poised to launch at Finovate

**Disclosure: This post has been edited. Since it's original posting, we have been contacted by Lending Karma founders with new information and have adjusted the post accordingly. Changes in bold.


Sometimes I just can’t get enough Karma.

Here’s another “Karma” company that will also be presenting at Finovate 2009 later this month. LendingKarma.com isn’t officially launched yet, but I used Google’s handy cache system to investigate further to see what they’re all about. They appear to be a re-branding of the San Francisco-based company LoanBack.com, which provides a system for generating promissory notes. (LendingKarma.com went live on 4/7/09). LendingKarma is not affiliated wtih Loanback.com, except that LendingKarma's founder was once a founder of LoanBack, but left the company a few years ago. Lending Karma is a compeitor but plans to add additional services in the near future.

I’ve investigated LendingKarma with the SEC and was unable to find a record of them, so I’m presuming the business model remains the same: To provide a system for creating a mutually-agreeable peer-to-peer loan. They offer services to “invite” someone to lend to you, based on the agreement you write up with the assistance of their system. They also provide email reminders to the borrower about payment. Both companies are based in San Francisco.

According to cached LendingKarma.com pages, rates for services vary from $29.95 to $59.95 per year.


In my house, I’ve recently had occasion to write up a simple promissory note for my ten-year-old daughter. I’m happy to loan her a little bit of money (I think the balance owed is $10.00) but I can see that later on in life, I would like to be able to loan her money in greater sums, with understanding the payment expectations. If I were to loan a teen or young adult money for a car or home downpayment, this might be just the product I need.

LendingKarma doesn’t appear to handle the collections but does remind borrowers of a balance owed, and tracks the amount outstanding, which could help manage both parties’ recordkeeping. It also provides a legally-enforceable promissory note. As the old adage goes, “good fences, make good neighbors.” This written agreement is tailored to be specific to the circumstances and may reflect a secured, or unsecured loan. Also, being enforceable could settle a financial dispute without damaging an existing relationship.

Jessica Ward is a freelance writer and blogger based in Seattle, WA. She also blogs at http://www.pennywisefamily.blogspot.com/.

Microfinance: By Children, For Children

My only travels in the developing world thus far are limited to the month I spent in Ethiopia last year. I marveled at the ingenuity of the children—many of whom fended for themselves. When I visited orphanages, I carried with me more than 5,000 “twisting balloons” to make balloon hats and animals for the kids. The rough terrain, rowdy behavior and stray voltage common there was hard on the balloons, and they popped almost instantly.

What surprised me was that the children collected up every last scrap of broken balloon and put them to use. Some made jewelry, some built sling-shots, others took the ends and made hair elastics from them for braids. A balloon micro currency erupted in each building that I visited over the two weeks that my balloon supply held out.

Another thing that I’ve learned from families who have since visited is that the balloon currency still exists in some of the buildings—months later! Children have stashed and preserved balloons (some still intact and un-inflated) for another day.

My mind came back to this scenario when I saw a story today on the Children’s Development Bank (CDB). CDB is a bank run by and for children in India, Afghanistan, Bangladesh and Nepal.

CDB serves the street children of these countries. These kids use their entrepreneurial skills as workers for hire. Because street children are so vulnerable to theft, they rarely amass enough money to make an entrepreneurial move in building their business or education. Instead, they spend what they need to meet their day-to-day needs and spend the rest of their money on small luxuries (Pepsi and chewing gum were the favorites among the street children in Ethiopia).

CDB is solving this problem by providing interest-bearing deposit accounts to children as well as low interest microloans. The novelty of this plan is that the entire business is operated by children. A board of children determine who will receive loans—and they evaluate the credibility and creditworthiness of the child who wants the loan, as well as their intentions. The children on the advisory board also determine membership, eligibility and the size of the loan available as well as interest paid on savings for members of the bank.

Children are encouraged (and do) invest in the bank their daily earnings. They also take loans to improve their education or business services. They can borrow for items such as inventory (many children in Ethiopia had toilet-paper sales businesses) or shoe-shine supplies or any number of other tools to provide their services.

While the process is facilitated by adults with knowledge of finance, recordkeeping and banking, children are the decision-makers.

You can read more about the Children’s Development Bank by visiting their Web site at http://www.childrensdevelopmentbank.org/new.htm.

IMAGE CREDIT: CDB Web Site www.childrensdevelopmentbank.org

Jessica Ward is a freelance writer, blogger and mother of two children. She blogs at www.pennywisefamily.blogspot.com.

Loan money to family and friends through Prosper

In my opinion, Get Rich Slowly is the best finance blog on the net. Today JD Roth, the author, posted a question from a reader. Tim's brother-in-law is in college and is having trouble making ends meet. Tim wants to help him out but is "not keen on the idea of just loaning him money directly." The brother-in-law just lost his job and is asking for about $10,000 to pay for his car, rent, and food. In my opinion, Prosper is a great solution. Here are some of the advantages:

• Tim does not need to loan the full amount. He could potentially lend as little as $50.
• Tim could endorse his brother-in-law which could help the loan get funded.
• Tim's brother-in-law would get the help he needs but would be forced to be financially responsible and pay the loan back.
• Tim has reduced his overall financial liability on the loan but is still fully supporting his brother-in-law.
• If the loan listing attracts enough attention, Tim could eventually get bid out of the loan reducing his financial liability to zero.
• Tim can earn a modest return on the money he lends to his brother-in-law, while the brother-in-law can get an interest rate as low as 6% depending on his credit.
• The loan listing preparation would force Tim's brother-in-law to think through how he currently spends his money, how he plans to use the loan, and how he plans to pay it back.
• The brother-in-law would learn the importance of maintaining a good credit score.
• This is better than co-signing for a loan which could have a significant negative to Tim's credit score if his brother-in-law missed payments.

Are there other advantages I've missed? What are the disadvantages? I know that many Prosper lenders read this blog - has anyone loaned money to family through Prosper or funded part of a loan where this was the situation? What would you do if you were in Tim's situation?

If you are new to Prosper, start borrowing here.