Month: October 2007

Is identity theft a possible threat to the p2p lending concept

wiseclerk

On most peer to peer lending services (Prosper, Lendingclub, Smava, Boober) the identity of the borrower is hidden to the lender. Only the service itself knows the identity of the borrower. Therefore the lender has no means to check if information given is accurate and has to trust the platform.

The service has to

  • ensure that it takes adequate measures to verify the identity the borrower has stated at registration is correct
  • instill trust to the lender that the fraud risk of borrowers impersonating under a false identity is minimal, non-existant or while existant not covered by the lender.

Prosper gives a "100% Identity Theft Guarantee" and in case of identity theft repurchases the fraudulent loan:

Prosper reserves the right to buy back loans at any time. If Prosper buys back a loan, the outstanding principal balance will be returned to lenders and the loan will be marked as "repurchased".

Prosper typically repurchases loans in accordance with Prosper's 100% Identity Theft Guarantee, under which Prosper has agreed to repurchase loans from lenders if the loan is found to involve identity theft of the named borrower's identity.

Prosper is committed to providing a safe and secure marketplace, and works with law enforcement authorities to prosecute to the fullest extent perpetrators of identity theft.

Rateladder had one of his loans repurchased today. But how often does this occur?

Looking at the Wiseclerk Prosper loan stats by status, the column Repurchased shows a value of 400000 US$. Out of the total loan value of 96 million US$ that is about 0.4%. Not all of the repurchased loans are due to identity fraud.

Prosper checks identity by several measures like checking documentaion supplied by the borrower, calling him, verifying bank adresses, sending postcards to his adress… There have been several discussions on this topic with details on the Prosper forum.

Other services use other measures. German Smava.de uses the PostIdent-process a service that requires the registering service to produce a government id (passport) in person. The Postident process is used by nearly all German online banks and is considered quite safe.

P2p lending services can tolerate only a low level of identity theft cases. The innovative approach of p2p lending requires that lenders trust the concept and the service. Fraud cases endanger that trust.

Microplace launched today – invest to end poverty

wiseclerk 2 Comments

Under the slogan "Invest wisely. End poverty" the social lending service Microplace.com, an Ebay company, launched today.

The Mission of Microplace is:

MicroPlace’s mission is to help alleviate global poverty by enabling everyday people to make investments in the world’s working poor.

Our idea is simple.

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.

The result: more microfinance in the world, satisfied investors, and above all, fewer people living in poverty.

It is not direct peer to peer lending, since lenders choose a country and an 'investment', thereby defining the purpose for which the invested money is used. Refer to this page for a good overview on how the Microplace concept works.

Lenders (termed investors) can invest via Paypal (no paypal fees). Their money goes to the selected microfinance institution (MFI). The MFI uses the money on the purpose described.
The investor buys a security issued by a security issuer. Currently investment offers have terms of 2 to 3 years with interest rates between 1 and 3 percent. Each investment offer (example) is described in detail by a prospectus.

Only U.S. residents are eligible to become investors. Minimum investment amount varies by offer (typically 50 US$).

Microplace 

 

First repayments on the loans I funded at MyC4

wiseclerk

In early September I started funding peer-to-peer microloans to African entrepreneurs on MyC4. Yesterday the first repayments were credited to my account. Siraje Sselugo, a poultry farmer, that wanted to increase the number on chicken paid on time. I had loaned him 20 Euro for a 6 month term at 24% interest. Lydia Lwanga, who sells school stationary and wants to stock more products with the loan, repaid on time. My loan to her was 15 Euro for a 6 month term at 22% interest. All the other repayments were on time, too:

Smava account
(Screenshot of my account balance at MyC4).

MyC4 allows minimum bids of 10 Euro. So far my portfolio contains 37 small bids on funded loans.

iGrin – First p2p lending site in Australia launched

wiseclerk 2 Comments

Earlier this month the first Australian p2p lending service iGrin.com.au quietly launched. Here is what Phil Hopper, iGrin's CEO told me, when I contacted him about iGrin's goals: 'We set out with the intention of being Australia's first and best P2P banking community. To date we have intentionally kept a low profile whilst we have gone about proving our business model and ensuring compliance with the Australian regulatory environment. The team behind iGrin has predominantly come from the banking industry and brings with it a wealth of product development, technology and lending experience. We have been impressed with the advances made in P2P lending overseas and are looking forward to applying these to the local Australian market and enabling everyday Australians to get great rates and great returns.'

Browsing the site, the main parameters are:

  • Borrower fees are 1% (for AA to D credit grades) or 2% (HR) or 90 AUS$ (whichever is greater) 
  • Lender fees are 0.5 to 1.5% annual loan servicing fee (depending on credit grade)
  • Loans are possible for amounts from 2000 to 25000 AUS$ (approx 22000 US$)
  • Lenders can invest from as little as 100 AUS$ to a maximum of 25000 AUS$
  • There is a bididng process, where the borrower sets the initial (maximum) interest rate he is will to pay and lenders bid down the rate (like at Prosper.com) 
  • Currently all loans are for a term of 3 years
  • The way the Australian credit rating works, simply appling (whether successful or not) for a loan may impact one's credit grade

A feature that differs from other p2p lending platforms is the 'Member direct loan' iGrin offers:

A service that iGrin provides to allow members to offer a loan direct to an individual. We will then undertake all of the transfer of funds and ongoing payments on behalf of the members. This is a great way for family or friends who wish to lend money to each other to have a third party (iGrin) manage all of the repayments and transfer of funds on their behalf. A formal contract is put in place between the two parties. It can also be a great way for someone to improve his or her credit rating. 

While a family and friends loan is possible on other p2p lending services too, it is noteworthy that iGrin charges lower fees for Member direct loans than for normal loans.

Excerpts of answers to other questions I asked Phil Hopper, CEO of iGrin.com.au:

P2P-Banking.com: Which background does the management have?

iGrin.com.au:  … The founders have over 50 years experience in Banking and Finance. The original founder and CEO is Phil Hopper who has a strong background in Banking and Technology most recently at the Commonwealth Bank of Australia and prior to that at Macquarie Bank. Continue reading →

Kiva repayment stats too high in past

wiseclerk

Matt Flannery of Kiva.org describes in a blog post which obstacles Kiva has to overcome to make accounting not a too time consuming task for the local fireld partners (MFIs). With some MFIs having over thousand loans and slow internet connection Kiva needed to find a solution that saved time.

About a year ago, we realized that many of our Field Partners were having trouble doing so.  The sheer number of page loads was making it prohibitively difficult for a Field Partner to register repayments on time, even when the actual borrower collections in the field were happening like clockwork.  Thus, we introduced "exception-based" repayments.  The idea, used widely in MFI accounting systems already, is to have regularly scheduled payment registered automatically in a system unless the loan officer marks an exception — an event signaling that something went wrong and the borrower did not pay the full amount.  Since borrowers typically repay 95% (or so) of the time, loan officers only need to register something 5% of the time. 

Kiva's first whack at exception based payments was very crude.  The feature was written by me in late '06 in between blog entries and trying to keep the site up.  Many of our Field Partners adopted the feature out of necessity and it saved them a lot of time.  However, it was very difficult to mark an exception, so most of them never did.  Thus, many of our Field Partners never mark exceptions and just repay all of their loans on time, even in the 5% case where the borrower defaults.  This creates misleadingly high repayment stats on the site and we are working to correct that. 

Kiva plans to have group loans. The post does not describe in detail, how group loans will work, but I am looking forward to examine this feature:

In addition to that, we are rolling out a number of features to further reduce the work required by our Field Partners and increase transparency.   Group Loans will go live on the site this week.  This will allow Field Partners to post up groups of up to 50 on the site as an individual loan application on the site.  Group-lending is common practice in microfinance, but was not well supported by Kiva until now. 

Also Kiva will change how currency exchange risks are handled:

we will be introducing local currency support for all of our Field Partners.  This will allow the disbursement and repayment amounts on the site more closely mirror the actual accounting books of each MFI.  This creates more transparency around financial flows.  It also paves the way for a future reality where our partners will not need to bear currency risk.   Hard currency lending has fallen out of favor in the microfinance world and we hope to soon be on the cutting edge of local currency lending.

Note that on MyC4.com for most loans the borrower has to take the currency exchange risk. Loans with small amounts are paid out in local currency, while large loans are paid out in Euro.