I recently read Banker to the Poor by Muhammad Yunus, and was surprised that one of the primary barriers to stability in the microfinance business is currency fluctuations between countries.
It makes sense that the countries most vulnerable and in need of microfinance are often the countries at the greatest risk for fluctuations.
That of course got me thinking about my own Kiva Account. Would my paltry $25 be there to re-loan when the loan was repaid?
It doesn’t surprise me to see that Kiva has already thought about that. In June, Kiva.org launched a currency risk protection tool to better protect Kiva Borrowers against fluctuations in their borrower’s native currency.
The tool works by limiting the foreign currency risk for field partners to a devaluation of 20%. Any amounts beyond that is shared by Kiva lenders, if the field partner organization has selected to use the currency protection tool.
Next time you fund a Kiva loan you can check on this by viewing “About the Loan.” In the section there is a label titled “Currency Risk” and there are three risk statuses.
1. Covered: If the field partner has not opted in to the risk sharing program.
2. Possible: if the field partner has opted in to risk sharing.
3. N/A: if the partner doesn’t need to take risk precautions as they disburse loans in US Dollars.
Jessica Ward is a freelance writer and blogger in the Seattle, WA area. She writes on family, money and business. You can learn more about her projects at www.jessicaward.me
Showing posts with label kiva. Show all posts
Showing posts with label kiva. Show all posts
Kiva.org Lends in America: How Do They Do It?
I was heartened to see Kiva.org’s new domestic program. The loans are slightly larger than most of their overseas lending opportunities, but still relatively small for traditional business lending. However, I couldn't help but wonder how they're able to do this when so many other P2P platforms have failed to lend domestically due to heavy SEC regulation.
What I’ve learned is that Kiva loans don’t pay interest to lenders, and aren’t securities, so as such, they don’t fall under the SEC umbrella. Additionally, as a micro lender, Kiva is a 501(c)3 nonprofit organization, the government with oversight authority is the Internal Revenue Service (IRS).
This means that interest-bearing Kiva accounts are still likely to be a long way off (if ever), but that the program should be sticking around for a while for borrowers, which is great news for micro lending enthusiasts.
The initial domestic roll-out happened in early June and included 45 American entrepreneurs seeking loans from $1,025 to $10,000.
Kiva’s field partners are Accion USA and OpportunityFund.org.
According to an online article in OnPhilanthropy.com, Kiva has provided $76 Million in loans to help small businesses worldwide
Jessica Ward is a freelance writer based in the Seattle area. She writes on peer to peer finance, family and more. Her freelance portfolio is available online at www.jessicaward.me.
What I’ve learned is that Kiva loans don’t pay interest to lenders, and aren’t securities, so as such, they don’t fall under the SEC umbrella. Additionally, as a micro lender, Kiva is a 501(c)3 nonprofit organization, the government with oversight authority is the Internal Revenue Service (IRS).
This means that interest-bearing Kiva accounts are still likely to be a long way off (if ever), but that the program should be sticking around for a while for borrowers, which is great news for micro lending enthusiasts.
The initial domestic roll-out happened in early June and included 45 American entrepreneurs seeking loans from $1,025 to $10,000.
Kiva’s field partners are Accion USA and OpportunityFund.org.
According to an online article in OnPhilanthropy.com, Kiva has provided $76 Million in loans to help small businesses worldwide
Jessica Ward is a freelance writer based in the Seattle area. She writes on peer to peer finance, family and more. Her freelance portfolio is available online at www.jessicaward.me.
Kiva passes $60 million in loans
Kiva just surpassed the $60 million mark in loans through their microcredit platform. Kiva's target for 2009 is to lend another 60 million dollars matching what they did the first three years.
Here is a look at their current stats:
Are you on Kiva? Join our Kiva team.
Here is a look at their current stats:
| Total value of all loans made through Kiva: | $60,226,510 |
| Number of Kiva Lenders: | 446,097 |
| Number of loans that have been funded through Kiva: | 85,996 |
| Percentage of Kiva loans which have been made to women entrepreneurs: | 77.94% |
| Number of Kiva Field Partners (microfinance institutions Kiva partners with): | 95 |
| Number of countries Kiva Field Partners are located in: | 44 |
| Current repayment rate (all partners): | 97.74% |
| Current default rate (all partners): | 2.26% |
| Average loan size (This is the average amount loaned to an individual Kiva Entrepreneur. Some loans - group loans - are divided between a group of borrowers.): | $429.83 |
| Average total amount loaned per Kiva Lender (includes reloaned funds): | $134.90 |
| Average number of loans per Kiva Lender: | 3.69 |
Are you on Kiva? Join our Kiva team.
Kiva launches API for developers
Kiva just launched an API for "builders, mashers, and other creative types looking to make a difference in the world through loans to the working poor." From their announcement:
We’re brimming over with excitement here at Kiva Headquarters because today we get to introduce you to the Kiva API. We’ve been working hard over the past 4 months, crafting this interface so that anyone with a bit of software savvy can help us create new applications, tools, and features for the Kiva lending community. All you need to get started is a bit of instruction – the Kiva API is completely open and no developer registration is required to use it.
Prosper has an API that developers have used to create a variety of applications.
We’re brimming over with excitement here at Kiva Headquarters because today we get to introduce you to the Kiva API. We’ve been working hard over the past 4 months, crafting this interface so that anyone with a bit of software savvy can help us create new applications, tools, and features for the Kiva lending community. All you need to get started is a bit of instruction – the Kiva API is completely open and no developer registration is required to use it.
The Kiva API begins as a set of RESTful web services, focused primarily on the tasks of fetching public data from Kiva. For example, here’s are some of the things you can request through the API:
- all of the loans at Kiva currently raising funds
- all of the entrepreneurs from Uganda and Peru which have fully repaid their loans
- the latest lending activity on Kiva
- financial nitty-gritty for any of our loans
- the list of loans made by any one of Kiva’s lenders with a public lender page
All of this data is delivered with well-formed computer-friendly markup (e.g. JSON or XML) making it easy to integrate into applications. And, this list is just a start. Keep up with us here at build.kiva.org as we post news about new API methods and tools for development. Eventually, we intend to make it possible to recreate the entire lending experience on top of the API!
So what will you build? If you’re at a loss for ideas we’ve started a running list of many of the great ideas we’ve heard about so far. Here are a few:
- an application for iPhone or Blackberry that let’s you keep up with Kiva on the go
- a service where lenders can register for alerts on new entrepreneurs they want to fund
- integration into a social network where friends can engage around each others’ activity and loan updates on Kiva
- a map that simulates the realtime transfer of funds across the globe
Prosper has an API that developers have used to create a variety of applications.
Where in the world is microfinance?
This is a summary/analysis of where US microfinance reaches. I'm profiling the organizations included below (in no particular order). I hope you find this as enlightening as I did. If you're aware of other organizations, let me know about them and I'll add them in.
- Opportunity.org - Offers microloans and services to 1.1 million working poor in 28 developing nations.
- Unitus.com - Unitus, an international nonprofit organization, works to reduce global poverty by increasing access to life-changing microfinance services.
- Globalpartnerships.org - Global Partnerships currently works with 21 organizations in Latin America.
- Villagebanking.org - FINCA International provides financial services to the world's lowest-income entrepreneurs in 21 countries so they can create jobs, build assets and improve their standard of living.
- Microplace.com - Owned by eBay since 2006, MicroPlace's mission is to help alleviate global poverty by enabling everyday people to make investments in the world's working poor.
- Endpoverty.org - Since 1985, Enterprise has equipped over 200,000 families all over the developing world to support themselves through their own entrepreneurial efforts.
- WholePlanet Foundation – A division of Whole Foods, provides microloans to microenterprises in ten countries. Unlike Kiva and others, it does not appear that lenders are able to choose the program or individual they would like to contribute to. Total authorized grants to partners as of October 2008 are nearly Eight Million Dollars US.
- KIVA.org – Kiva’s slogan is “loans that change lives” and is one of the leaders in the microlending community. The Kiva Web site allows loan funders to choose individual borrowers to fund, and Kiva estimates that by 2010 they will have facilitated $100 Million in microloans.
- WOKAI – Wokai, meaning “I go” in Chinese is an Oakland, CA startup and has provided just 43 loans in china, but is poised for growth—and has obtained substantial media in areas where its chapter membership is growing such as Seattle and San Francisco. Wokai reaches out to the Chinese-American community for help funding loans that recycle three times (to three different entrepreneurs) and is afterwards used for long-term lending by the lending partner in China.
- ACCION – Accion International is a long-term and global player in the microfinance world. They are active in 24 countries and the USA, and according to their Web site they have made $17.4 Billion in microloans. Their historical repayment rate is a stunning 97%.
Video: The story of a Kiva loan
A Kiva fellow made the following video which follows the path of a $25 loan from London, England to Preak Tamao village, Cambodia. It is a bit long (11 minutes) but gets at the heart and soul of Kiva - people making loans which have a positive impact on the lives of others throughout the world. It also helps revolve the concern many have about donating to non-profit organizations - where exactly is my money going.
A Fistful Of Dollars: The Story of a Kiva.org Loan from Kieran Ball on Vimeo.
I want to thank Brett from Personal Loan Portfolio for giving me a Kiva gift certificate last month. I used it to donate $25 to Ghalam Nabie Share Ahmad who owns a restaurant in Kabul, Afghanistan. Having personally seen the poverty in Afghanistan (and eaten in some of these roadside restaurants) I feel a personal connection to my donation. Here is the recipient of my loan:
Ghalam Nabie is the son of Share Ahmad, and lives in Kabul, Afghanistan. Ghalam, 54, lives near the Afghan Hotel and is married with five children. He has a small restaurant in the city and has good experience in this field and would like to expand his business to support his family. He is requesting an individual loan of 50,000 Afghans ($1050) for a term of 18 months to enlarge his business and to buy a new desk and table and other necessary things for his shop in order to further his business with more success. Ghalam is very happy to be involved in this loan process and is especially grateful for the help of the AFSG and Kiva. He thanks all lenders around the world.
December was a record month for Kiva. In fact, at times, I had trouble finding a borrower to lend to. According to Kiva's December newsletter, $3,827,400 was loaned to entrepreneurs and $2,156,125 worth of gift certificates were purchased.
If you are on Kiva or would like to join, we invite you to connect with us in the Peer Lenders Team. I plan on increasing my coverage of Kiva on this blog in 2009.
A Fistful Of Dollars: The Story of a Kiva.org Loan from Kieran Ball on Vimeo.
I want to thank Brett from Personal Loan Portfolio for giving me a Kiva gift certificate last month. I used it to donate $25 to Ghalam Nabie Share Ahmad who owns a restaurant in Kabul, Afghanistan. Having personally seen the poverty in Afghanistan (and eaten in some of these roadside restaurants) I feel a personal connection to my donation. Here is the recipient of my loan:
Ghalam Nabie is the son of Share Ahmad, and lives in Kabul, Afghanistan. Ghalam, 54, lives near the Afghan Hotel and is married with five children. He has a small restaurant in the city and has good experience in this field and would like to expand his business to support his family. He is requesting an individual loan of 50,000 Afghans ($1050) for a term of 18 months to enlarge his business and to buy a new desk and table and other necessary things for his shop in order to further his business with more success. Ghalam is very happy to be involved in this loan process and is especially grateful for the help of the AFSG and Kiva. He thanks all lenders around the world.December was a record month for Kiva. In fact, at times, I had trouble finding a borrower to lend to. According to Kiva's December newsletter, $3,827,400 was loaned to entrepreneurs and $2,156,125 worth of gift certificates were purchased.
If you are on Kiva or would like to join, we invite you to connect with us in the Peer Lenders Team. I plan on increasing my coverage of Kiva on this blog in 2009.
P2P Lending on VOA News
Michael Sullivan from VOA News discusses P2P Lending on his radio program.
Much of the program is about Lending Club which, right now, is the leading P2P lending site. There is a discussion about how the current financial crisis is actually good for Lending Club. Prosper, Virgin Money, Zopa and Kiva are also all mentioned.
According to the radio program, Zopa closed due to "difficult lending conditions." Although it is easy to blame the credit crunch in this environment, the much more likely culprit is SEC regulations. Loanio and Prosper are also in a sticky situation right now due to SEC regs.
Much of the program is about Lending Club which, right now, is the leading P2P lending site. There is a discussion about how the current financial crisis is actually good for Lending Club. Prosper, Virgin Money, Zopa and Kiva are also all mentioned.
According to the radio program, Zopa closed due to "difficult lending conditions." Although it is easy to blame the credit crunch in this environment, the much more likely culprit is SEC regulations. Loanio and Prosper are also in a sticky situation right now due to SEC regs.
Charlotte Observer: 'Peer-to-peer sites connect lenders with borrowers'
Christina Rexrode has published a detailed look at peer to peer lending for the Charlotte Observer - Peer-to-peer sites connect lenders with borrowers. Reaction to the article among veteran lenders on prospers.org was very complementary. The national media typically makes glaring errors when writing about peer to peer lending. This article, however, was different. Oak_Hill_Fire said it was "not a purely fluff piece." Lender j9359 called it, "Probably the best written and balanced piece on Prosper I've read" and DakotahFury said, "it was one of the better articles I've seen."Christina and I exchanged several emails and phone calls regarding the article but kept missing each other due to our busy schedules. I hope this blog was helpful to her as she gathered information for her article. Her article is organized around five parts - the connectors, the risks, the borrowers, the lenders and the future. Read the whole thing here.
Speaking of the peer to peer lending and the media, there are three other articles over the weekend that are worth mentioning.
Los Angeles Times - Know the risks before investing in start-ups
In this Q&A the author recommends considering Prosper as a way to diversify investments to someone who is interested in investing in a friend's new company.
"If you're interested in seed-round investing, consider attending angel investor networking events to get a sense of the range of opportunities available. If you're interested in high-yield debt returns, Jacobs said, consider peer-to-peer lending websites such as Prosper, at www.prosper.com, where you can place many small loans across a portfolio of customers with different risk profiles."
Oddly, the same author did not mention the peer to peer lending sites when responding to a different question about lending money to family and friends.
"If you're making a very small loan, it might not pay to go through the time and expense of drafting legal documents or seeking collateral, unless there's a high possibility of default -- in which case you may want to reconsider."
I'd argue that Prosper and the other peer to peer lending sites are the perfect platform to use when lending money to family and friends.
The Press Enterprise - Riverside residents recommend social lending Web sites
"Returning from a trip to Africa in early 2007, Bruce Hammond, of Riverside, wanted to help out people in some of the poor villages he had just visited. He did some Web research, and heard from friends about a nonprofit social lending site called Kiva.org, which had been mentioned on book tours and TV shows by former President Clinton, Oprah Winfrey and other celebrities....Some like Kiva are being used for purely philanthropic purposes, but experts say other for-profit sites are becoming increasingly popular meeting places for qualified borrowers and lenders."
Sun Sentinel - Lending networks take off on Web
"In a credit crunch, borrowers who need the money may ask friends and family or use their credit cards. But there's another group you might want to try: People you meet over the Internet."
P2P Lending Carnival #4
In June of last year I reviewed the top Prosper blogs. Since then, the number of bloggers covering P2P lending has increased significantly and the content covers much more than just Prosper. I'm proud to host the 4th edition of the P2P Lending Carnival. There are a huge range of articles in this edition including some heavy anti-P2P lending posts. Prosper, Lending Club, Lending Hub (Australia), Kiva, Virgin Money, and IOU Central (Canada) are covered. We have posts from borrowers as well as lenders. So enjoy...this represents the "best of" P2P lending articles over the last 2-3 weeks. Past editions have been hosted by Lazy Man and Money, Brip Blap, and Rateladder.
6 Ways To Manage The Risk of Peer to Peer Lending - This is a post by SVB on the official Prosper Blog. She wants to make the leap into P2P lending and takes a look at how to overcome her risk aversion. She has some great tips. I look forward to following her story as she starts lending.
5 Ways to Help Get a Prosper Loan Funded - Jacob from Early Retirement Extreme has lent out more than $12,000 over the past 18 months and has a few great tips for borrowers.
Is Person to Person Lending Safe? - Cash Money Life responds to reader's questions about the safety of P2P lending. "Just like any other investment," he writes, "you need to do your research to determine the level of risk you are willing to assume and the percentage of your portfolio you are willing to invest."
Peer Lending Lessons From the Dating World - In case you missed it, the CEO of Lending Club, Renaud Laplanche, was interviewed on CNBC's Power Lunch. During the interview, a comparison between P2P lending and dating was made. Money $mart Life discusses the comparison and offers some "peer lending 'dating' tips" of his own.
Get a Better Rate for Your Small Business Loan from Virgin Money - Ben takes a look at the story behind Richard Branson's purchase of Circle Lending and its rebranding into the Virgin Money empire.
Prosper vs. Lending Club SmackDown–Who has the best interest rates? - The Dough Roller makes a detailed comparison of the interest rates at Prosper and Lending Club from the borrower's perspective. DR writes, "How they set interest rates is fundamentally different. Prosper follows an EBay auction style format...Lending Club sets the interest rate based on a formula...there is no bidding." DR finally concludes, "Whether you are a borrower or lender, the starting place should be to determine the interest rate you would pay or receive at Lending Club....At present, I suspect that many Prosper lenders are underestimating the risk of default, which results in better interest rates for borrowers at Prosper, and better interest rates for lenders at Lending Club." This is a well researched article and the best comparison I've seen so far. The comments are very good as well. As Don points out in the comments, Prosper uses ScoreX Plus from Experian which differs from the FICO credit score Lending Club uses so a strict comparison can't be made between the two when looking at interest rates. For more Prosper bidding tips take a look at Matt's article about when to bid on a Prosper loan.
6 Ways To Manage The Risk of Peer to Peer Lending - This is a post by SVB on the official Prosper Blog. She wants to make the leap into P2P lending and takes a look at how to overcome her risk aversion. She has some great tips. I look forward to following her story as she starts lending.
5 Ways to Help Get a Prosper Loan Funded - Jacob from Early Retirement Extreme has lent out more than $12,000 over the past 18 months and has a few great tips for borrowers.
Is Person to Person Lending Safe? - Cash Money Life responds to reader's questions about the safety of P2P lending. "Just like any other investment," he writes, "you need to do your research to determine the level of risk you are willing to assume and the percentage of your portfolio you are willing to invest."
Peer Lending Lessons From the Dating World - In case you missed it, the CEO of Lending Club, Renaud Laplanche, was interviewed on CNBC's Power Lunch. During the interview, a comparison between P2P lending and dating was made. Money $mart Life discusses the comparison and offers some "peer lending 'dating' tips" of his own.
Get a Better Rate for Your Small Business Loan from Virgin Money - Ben takes a look at the story behind Richard Branson's purchase of Circle Lending and its rebranding into the Virgin Money empire.
Is Peer to-Peer Lending Ready for Prime Time? - Moolanomy considers P2P lending "riskier than the stock market" but thinks there is still the potential to earn money as a lender.
Prosper Taxes and Prosper Taxes: Help Me… Help You - Rateladder and Lazy Man both take a look at the confusing tax situation for the various forms of income and loss including interest, defaulted loans, late fees, referral rewards, collection fees, service fees and group leader rewards.Prosper vs. Lending Club SmackDown–Who has the best interest rates? - The Dough Roller makes a detailed comparison of the interest rates at Prosper and Lending Club from the borrower's perspective. DR writes, "How they set interest rates is fundamentally different. Prosper follows an EBay auction style format...Lending Club sets the interest rate based on a formula...there is no bidding." DR finally concludes, "Whether you are a borrower or lender, the starting place should be to determine the interest rate you would pay or receive at Lending Club....At present, I suspect that many Prosper lenders are underestimating the risk of default, which results in better interest rates for borrowers at Prosper, and better interest rates for lenders at Lending Club." This is a well researched article and the best comparison I've seen so far. The comments are very good as well. As Don points out in the comments, Prosper uses ScoreX Plus from Experian which differs from the FICO credit score Lending Club uses so a strict comparison can't be made between the two when looking at interest rates. For more Prosper bidding tips take a look at Matt's article about when to bid on a Prosper loan.
7.2M In January Prosper Loans, But How About February? - Mike from Prosperous Land takes a quick look at recent loan stats. He is one of my favorite Prosper bloggers and I'm glad he started posting more often. For a look at two of his articles about recent Prosper drama read Prosper Approaching Nuclear War and Junk Mail Seller Revisited.
Lending Club Loan in Review - LuLu, a college student, borrows money from Lending Club and pays off her Discover Card, Citi Card and consolidates other debts.
IOU Central Launches P2P lending in Canada - WiseClerk, the best site for information about international P2P lending, takes a look at Canada's first P2P lending service.
My Opinions on P2P Lending - Ana rants against P2P lending. "I don’t think P2P lending is a good idea at all, not only for philosophical reasons but also for practical reasons," she writes. She feels these sites encourage unhealthy debt and would even avoid being a lender to avoid the ethical dilemma of "slapping those chains of debt onto another person."
Why I Started Lending Money With Prosper And Lending Club - After seeing the rates drop on his high yield ING savings account, David from My Two Dollars is turning to P2P lending.
Peer to Peer Lending: Neat Idea, Bad Investment - Adfecto thinks that bonds or the stock market are better investment options due to high default rates. He says, "I started out very excited and the more I learned, the more I ran the other way." Adfecto, I'd be interested in your comments on Matt's risk management article.
P2P Borrowers: The Greatest Tenants You Can Find - Mike compares a peer loan to a real estate investment. He writes, "I have come to think of the people I loan money to as the ideal tenants for my virtual real estate business."
Pennsylvania loans or what were early Prosper lenders thinking? - Brett takes a look at the high rate of defaults on Pennsylvania loans. We have also wondered about Pennsylvania in the past. In addition, Brett looking for some help critiquing his new Prosper portfolio.
How to Write a Good Application for a Personal Loan - The Lending Hub (not to be confused with the Lending Club) is a new P2P lending start-up in Australia. They share some tips on how to write a good loan request as a borrower. Their tips are solid and apply no matter what company you are seeking funding from or what country you are in. Stay tuned...later this week we will have a guest post from Ivan, Lending Hub's CEO.
Thanks everyone for submitting articles. If you want to be included in Lending Carnival #5 you can submit your blog post here.
Kiva to offer interest to lenders
Kiva has typically not been an investment option because they do not pay interest to lenders. They do charge interest but the money goes to cover their costs. According to an article in E-Commerce Times, Kiva plans on offering interest to lenders in the near future.
"Though Kiva members are donors, not lenders, borrowers are charged interest, which enables Kiva's local microfinance partners to cover their costs. Depending on the country, regulatory and economic situation, these can look quite high.
'The industry average is around 35 percent; our average is around 20 percent, but it really varies from organization to organization and country to country. In Mexico, there are tax considerations ... others [lending partners] include training services as well as the loan which increases the interest rates,' Ramsey explained.
....
What's next for Kiva? One thing on the slate is expanding its services to include loans and offering Kiva members the option of lending and earning an interest rate return though with local microfinance partners providing the loan contracts -- something it hopes to do in the next year.
'Kiva is regulated only as a 501c3 tax-exempt nonprofit, and so we do not allow our lenders to receive interest. In the future, when we offer interest rates, we will be looking to be regulated as a person-to-person lending Web site, not a bank or a securities broker/dealer. This is similar to the regulatory treatment of Prosper.com, Zopa.com and Myc4.com,' Kiva cofounder Matt Flannery explained."
You can read the rest of the article, Taking Internet Finance to the Next Level, Part 2: A Case Study, at E-Commerce Times. We previously reported on Part 1 of the article as well.
"Though Kiva members are donors, not lenders, borrowers are charged interest, which enables Kiva's local microfinance partners to cover their costs. Depending on the country, regulatory and economic situation, these can look quite high.
'The industry average is around 35 percent; our average is around 20 percent, but it really varies from organization to organization and country to country. In Mexico, there are tax considerations ... others [lending partners] include training services as well as the loan which increases the interest rates,' Ramsey explained.
....
What's next for Kiva? One thing on the slate is expanding its services to include loans and offering Kiva members the option of lending and earning an interest rate return though with local microfinance partners providing the loan contracts -- something it hopes to do in the next year.
'Kiva is regulated only as a 501c3 tax-exempt nonprofit, and so we do not allow our lenders to receive interest. In the future, when we offer interest rates, we will be looking to be regulated as a person-to-person lending Web site, not a bank or a securities broker/dealer. This is similar to the regulatory treatment of Prosper.com, Zopa.com and Myc4.com,' Kiva cofounder Matt Flannery explained."
You can read the rest of the article, Taking Internet Finance to the Next Level, Part 2: A Case Study, at E-Commerce Times. We previously reported on Part 1 of the article as well.
P2P Lending Predictions for 2008
As we get ready to bring in the new year here are what a few news organizations around the world have to say about P2P lending...
Ten things that will change your future from the Sydney Morning Herald
"PEER-TO-PEER LENDING Whether you're distributing music or books, auctioning off unwanted household items, wanting to bet on a horse race or looking for a soulmate, the internet can put you in touch with someone who is interested in what you have or are.
Kiva takes that idea and applies it to the established concept of microfinance - making small loans to the working poor to help them establish or expand businesses.
So, instead of giving a donation to an organisation such as Oxfam to distribute, peer-to-peer lending lets you invest small amounts directly in a particular entrepreneur - such as Mohamad Marah in Kabala, Sierra Leone. With his $US200 loan, Marah has been able to expand his garment business, buying three extra sewing machines. So far he has repaid half the loan. More than $US15 million has already been lent through Kiva - and the default rate is claimed to be just .23 per cent. http://www.kiva.org"
Many using Web sites to find, help entrepreneurs around the world from the North Jersey Media Group
"...Some philanthropy experts worry that the peer-to-peer lending sites could suck away money from traditional charities such as UNICEF. And microlending has its share of critics..."
Get real: People will want to connect in 2008 from the USA Today
"Eisenbeis says we should expect to see more examples of 'people banding together to help each other out,' whether it's groups picketing home loan companies or individuals starting so-called peer-to-peer lending programs to assist those experiencing foreclosure and personal bankruptcy.
'There's a 'we're all in it together' feeling out there that's only going to grow as more people get affected by issues such as housing and health care,' Eisenbeis says. 'People are going to lean on each other and push those in power to find the necessary solutions.'"
Peer-to-peer lending the 'eBay of loans' from Deleware Online
"The market for the loans is still relatively small but growing fast, according to Celent, a research firm. Celent projects that $5.8 billion in peer-to-peer loans will be made in the U.S. by 2010, an 800 percent leap from the amount this year...
The more established players -- such as Prosper and CircleLending, which sold a majority stake in the company and rebranded itself Virgin Money US this year -- dominate the business. But more rivals are entering the industry at a time when even people with good credit are finding it harder and costlier to borrow from traditional sources.
In December, Zopa opened up shop in the U.S. Also this month, Lending Club, which began as a service for Facebook members, expanded nationwide.
'It seems that the credit crunch is accelerating our growth,' says Renaud Laplanche, CEO of Lending Club."
Ten things that will change your future from the Sydney Morning Herald
"PEER-TO-PEER LENDING Whether you're distributing music or books, auctioning off unwanted household items, wanting to bet on a horse race or looking for a soulmate, the internet can put you in touch with someone who is interested in what you have or are.
Kiva takes that idea and applies it to the established concept of microfinance - making small loans to the working poor to help them establish or expand businesses.
So, instead of giving a donation to an organisation such as Oxfam to distribute, peer-to-peer lending lets you invest small amounts directly in a particular entrepreneur - such as Mohamad Marah in Kabala, Sierra Leone. With his $US200 loan, Marah has been able to expand his garment business, buying three extra sewing machines. So far he has repaid half the loan. More than $US15 million has already been lent through Kiva - and the default rate is claimed to be just .23 per cent. http://www.kiva.org"
Many using Web sites to find, help entrepreneurs around the world from the North Jersey Media Group
"...Some philanthropy experts worry that the peer-to-peer lending sites could suck away money from traditional charities such as UNICEF. And microlending has its share of critics..."
Get real: People will want to connect in 2008 from the USA Today
"Eisenbeis says we should expect to see more examples of 'people banding together to help each other out,' whether it's groups picketing home loan companies or individuals starting so-called peer-to-peer lending programs to assist those experiencing foreclosure and personal bankruptcy.
'There's a 'we're all in it together' feeling out there that's only going to grow as more people get affected by issues such as housing and health care,' Eisenbeis says. 'People are going to lean on each other and push those in power to find the necessary solutions.'"
Peer-to-peer lending the 'eBay of loans' from Deleware Online
"The market for the loans is still relatively small but growing fast, according to Celent, a research firm. Celent projects that $5.8 billion in peer-to-peer loans will be made in the U.S. by 2010, an 800 percent leap from the amount this year...
The more established players -- such as Prosper and CircleLending, which sold a majority stake in the company and rebranded itself Virgin Money US this year -- dominate the business. But more rivals are entering the industry at a time when even people with good credit are finding it harder and costlier to borrow from traditional sources.
In December, Zopa opened up shop in the U.S. Also this month, Lending Club, which began as a service for Facebook members, expanded nationwide.
'It seems that the credit crunch is accelerating our growth,' says Renaud Laplanche, CEO of Lending Club."
eBay + MySpace + ? = Peer to peer lending
Brad Slavin has written an informative 15-page paper reviewing the peer to peer (P2P) lending industry (pdf) with a focus on Prosper and Zopa. His outlook is very optimistic. I've extracted a few of the highlights from his article. Quotes are in italics.
"The timing is right for sites like Zopa and Prosper, which are part of a broader wave of sites aimed at fostering online communities. These companies are challenging the status quo using an online loan marketplace with a social computing twist. These online lending communities can be considered as a combination of eBay and MySpace.com — a place where consumers come together to loan and borrow money from each other."
It looks like Brad is not the only one that has an optimistic outlook. Prosper just secured an additional $20 million in venture capital and Facebook's Lending Club is off to a great start. He thinks the current conditions are just right for peer to peer lending.
"...an increase in individual debt, a low return on savings, and increasing asset prices are also changing consumers' borrowing and lending behavior thereby creating a favorable environment for alternative investment platforms such as peer-to-peer online lending exchanges. The success of these web based P2P lending communities can be gauged by the strong growth in their members and loan volume. Zopa has attracted 87,000 members and Prosper currently boast of approximately 100,000 members."
Although he published the article yesterday, Brad must have pulled his stats some time ago. Prosper currently has over 310,000 registered members. Later in the article he mentions that Prosper has loaned $24 million. The figure is now $71 million. Even though his stats are dated that just further reinforces his point that the peer to peer lending industry is in a period of rapid growth. He mentions some of Zopa's awards:
"Zopa won "Internet Innovation of the Year" at the 2006 CNet Technology awards and was named by American magazine Business 2.0 as one of the eleven most disruptive companies in the world."
He did not mention similar accolades that Prosper has won including the #1 website of the year in 2006 by Time Magazine.
Brad talks about the success of other online communities and user generated content including eBay, MySpace, blogs, Wikipedia, Amazon, Flickr, YouTube and others and compares that to the success of the social lending space. I think he is very correct there. Beyond all financial considerations, the social aspect is one of the big allures to many at Prosper. Brad also makes the point that online communities can do what financial institutions do at less cost.
"...it turns out that online communities can do a lot of what banks, credit card and payday loan companies do and cheaper. The opportunity lies in consumers' mistrust of financial institutions. According to a Forrester study, 'most people believe their banks put their own interests ahead of consumers', and a majority doesn’t think their financial institutions have strong ethics.'”
I have mixed feelings about this statement. In many ways Prosper and other peer to peer marketplaces are less efficient. The cumulative time that dozens, sometimes hundreds, of lenders expend to fund one loan is very high. Although time consuming, in some ways, the social lending marketplace can be more vigilant than banks. The story of Jessica Wolcott's scam is a good example. Hundreds of lenders engaged in online detective work to prevent fraud, something that would have been cost prohibitive for a normal bank.
Brad provides a bullet list of the nine advantages of peer to peer lending. They are:
"The timing is right for sites like Zopa and Prosper, which are part of a broader wave of sites aimed at fostering online communities. These companies are challenging the status quo using an online loan marketplace with a social computing twist. These online lending communities can be considered as a combination of eBay and MySpace.com — a place where consumers come together to loan and borrow money from each other."
It looks like Brad is not the only one that has an optimistic outlook. Prosper just secured an additional $20 million in venture capital and Facebook's Lending Club is off to a great start. He thinks the current conditions are just right for peer to peer lending.
"...an increase in individual debt, a low return on savings, and increasing asset prices are also changing consumers' borrowing and lending behavior thereby creating a favorable environment for alternative investment platforms such as peer-to-peer online lending exchanges. The success of these web based P2P lending communities can be gauged by the strong growth in their members and loan volume. Zopa has attracted 87,000 members and Prosper currently boast of approximately 100,000 members."
Although he published the article yesterday, Brad must have pulled his stats some time ago. Prosper currently has over 310,000 registered members. Later in the article he mentions that Prosper has loaned $24 million. The figure is now $71 million. Even though his stats are dated that just further reinforces his point that the peer to peer lending industry is in a period of rapid growth. He mentions some of Zopa's awards:
"Zopa won "Internet Innovation of the Year" at the 2006 CNet Technology awards and was named by American magazine Business 2.0 as one of the eleven most disruptive companies in the world."
He did not mention similar accolades that Prosper has won including the #1 website of the year in 2006 by Time Magazine.
Brad talks about the success of other online communities and user generated content including eBay, MySpace, blogs, Wikipedia, Amazon, Flickr, YouTube and others and compares that to the success of the social lending space. I think he is very correct there. Beyond all financial considerations, the social aspect is one of the big allures to many at Prosper. Brad also makes the point that online communities can do what financial institutions do at less cost.
"...it turns out that online communities can do a lot of what banks, credit card and payday loan companies do and cheaper. The opportunity lies in consumers' mistrust of financial institutions. According to a Forrester study, 'most people believe their banks put their own interests ahead of consumers', and a majority doesn’t think their financial institutions have strong ethics.'”
I have mixed feelings about this statement. In many ways Prosper and other peer to peer marketplaces are less efficient. The cumulative time that dozens, sometimes hundreds, of lenders expend to fund one loan is very high. Although time consuming, in some ways, the social lending marketplace can be more vigilant than banks. The story of Jessica Wolcott's scam is a good example. Hundreds of lenders engaged in online detective work to prevent fraud, something that would have been cost prohibitive for a normal bank.
Brad provides a bullet list of the nine advantages of peer to peer lending. They are:
- Avoid banks and other middleman
- Anonymous transaction
- A whole new asset class
- Optional rates and loan amount
- Lower interest rates for borrowers
- Higher returns for lenders
- Faster and easier process
- Increased transparency and control
- Satisfaction
I disagree with one of his points - anonymous transaction. He argues, "All transactions are done anonymously and borrowers are not inundated with emails and telephone calls as are borrowers registering with traditional online lending companies." I think that loans which occur on Prosper are less anonymous than loans might be through a bank. You place your credit history and other personally identifiable information where they can be accessed by anyone. Even though it is against Prosper's TOS, group leaders bombard borrowers with invitations to join their group. Many borrowers send pay statements and other personal financial records to group leaders to become vetted.
Brad makes a point about the imbalance between lenders and borrowers.
"...the biggest problem at the moment at these online lending marketplaces is theimbalance between number of lenders and borrowers. There is just not enough money in thesystem to meet all the reasonable needs."
He's right. There are many more borrowers than lenders. This is good for lenders but, in my opinion, if the market were to become much more competitive then interest rates would come down and lenders will lose the incentive to bid. I don't think interest rates can come down much more and still provide an attractive investment option to lenders. In addition, according to a post on Money Walks, about 80% of the listings are made up of E and HR credit grades. As Matt has discussed earlier, too many of these high risk loans on Prosper default to make it worth bidding.
There is an interesting comparison between Prosper and Zopa in the article. Some of the information is dated but I thought the paragraph on diversification was interesting.
"Zopa extensively use diversification as the key to mitigate default risk. Zopa is able to manage default risk by taking a more protective approach with respect to lenders by only accepting borrowers with high credit quality and by forcing lenders to diversify their loans across at least 50 borrowers. At Prosper, lenders can diversify, but are not forced to do so. It allows lenders to bid small amounts on all or part of loans; it is easy for lenders to create well-diversified portfolios."
I didn't know Zopa forced diversification. I can see pros and cons to that. It probably reduces the lenders remorse of inexperienced lenders who place bad bids but I can see how it might frustrate more experienced or aggressive lenders.
Brad highlights the social aspect of Prosper.
"Prosper.com was created with the objective of making consumer lending more financially and socially rewarding for everyone....Compared to Zopa, Prosper has added a number of community elements, the most important one being groups. Prosper relies on a strategy borrowed from hoi: shame, believing that people repay real-world co-operatives because they fear losing face among peers. It works on the principle that people from close communities act more responsibly towards each other."
I think this statement is right on the mark, but also runs counter to his earlier contention about the ability of borrowers to receive funds anonymously through the peer to peer marketplace.
Brad wraps up the article by mentioning several players in the peer to peer lending marketplace. Many I had not heard of before - kiva, PalTrust, Moneytwins, Rippleplay and CircleLending. From his conclusion:
"Currently these websites work for relatively small, unsecured, and primarily personal loans. With maturity the market may potentially see some other entrepreneurs entering the market and eventually starting up other financial services e.g., mortgages for homeowners to finance purchases or refinances. Such sites could ultimately supplant the existing financial institutions. As a response, the incumbent financial institutions may either start their own lending marketplaces or will partner with the niche P2P lending marketplaces."
What do you think? Will the peer to peer loan marketplace expand to include mortgages and other financial services? Is the outlook as optimistic as Brad contends?
(Thanks wiseclerk for the tip.)
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