Asked to comment on the recent developments, Loanio CEO Michael Solomon told P2P-Banking.com:
In light of recent events beyond our control, Loanio, Inc. has suspended its business so that we may begin the process of registering our promissory notes with the appropriate securities authorities and agencies. As a direct result, please be advised that effective immediately Loanio will no longer be accepting registration from lenders or borrowers and/or any new bids on loans or loan requests until further notice.
This message will be posted on the Loanio platform today.
In a SEC filing of yesterday, the SEC has ordered Prosper to cease and desist. On page two it states that
The loan notes issued by Prosper pursuant to this platform are securities and Prosper, from approximately January 2006 through October 14, 2008, violated Sections 5(a) and (c) of the Securities Act, which prohibit the offer or sale of securities without an effective registration statement or a valid exemption from registration.
From page six:
In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent Prosper’s Offer. Accordingly, it is hereby ORDERED that: Pursuant to Section 8A of the Securities Act, Respondent Prosper cease and desist from committing or causing any violations and any future violations of Sections 5(a) and (c) of the Securities Act.
So far Prosper has not commented on the situation.
Kiva today has reached the milestone of 50 million US$, doubling the loan volume in the last 8 months. I have been lending on Kiva for nearly 2 years now and so far all of my borrowers have repaid me (unlike my MyC4 borrowers). Kiva is doing a very good job in keeping defaults low.
1 loan every 32 seconds
The current – impressive – statistics for Kiva are:
Total value of all loans made through Kiva:
$50,023,035
Number of Kiva Lenders:
363,222
Number of loans that have been funded through Kiva:
70,357
Percentage of Kiva loans which have been made to women entrepreneurs:
77.96%
Number of Kiva Field Partners (microfinance institutions Kiva partners with):
93
Number of countries Kiva Field Partners are located in:
42
Current repayment rate (all partners):
98.76%
Current default rate (all partners):
1.24%
Average size of loan for funding:
$449.02
Average total amount loaned per Kiva Lender (includes reloaned funds):
$137.81
Average number of loans per Kiva Lender:
3.70
The growth is stimulated by a large, active supporter base, that comes up with creative marketing ideas. Did you know that you can build a beard to support Kiva?
If you’re a borrower seeking a loan, you will still be able to create a new loan listing, which we will endeavor to fulfill through alternative sources.
The way this works is that Prosper refers loan applicants to other lending companies. After answering a few questions, borrowers seeking a loan a channeled to Firstagain, Lendingtree, Freedomfinancialnetwork or Creditkarma (and potentially others – the mentioned ones are the ones I was shown).
Should a borrower use the services of one of the linked companies then Prosper is paid a referral fee.
However apparently not all visitors of the site seem to be redirected. Potentially members or former users with cookies are not shown these options.
One of the downsides of p2p lending service Prosper.com are high default rates. Results from collection attempts are low.
In an attempt to test alternatives to the existing collection process Prosper in January selected 66 cases of nonpaying borrowers and turned them over to the law firm Hunt & Henriques to pursue these cases in court.
Fred 93, one of the lenders on these loans researched the status of the court cases himself, dissatisfied that Prosper did not inform him on the status, which he says Prosper initially promised to do monthly.
According to Fred93’s findings, Prosper.com so far lost 6 cases and won 1 case.
Californian non-profit United Prosperity developed a new twist to social lending – it is a peer to peer guarantee website. Instead of lending money directly and thus needing to transfer it internationally the “social guarantor” provides a cash collateral. This enables the small entrepreneur in the developing country to get a loan from a local bank, which he otherwise would be unable to obtain.
Bhalchander Vishwanath, founder and CEO of United Prosperity answered my questions on the new service.
P2P-Banking.com: What makes the guarantee model better then other lending models (e.g. Kiva or MyC4)?
Bhalchander Vishwanath:
Maximum impact: Due to United Prosperity’s innovative guarantee model which involves risk sharing with the bank, $1 in guarantee by the social guarantor could lead to $2 to $5 in loan to the borrower thus maximizing their dollar’s impact.
Local linkages: Our guarantee facilitates the creation of local linkages between domestic banks, MFIs and poor entrepreneurs. In the course of repaying the loan, both the entrepreneur and the MFIs develop credit histories that will enable them to access more funds at a later date with a lower guarantee percentage, or even without a guarantee. MFIs also get to form relationships with banks and offer other products like savings, insurance, money transfer etc. through the bank.
No foreign exchange risk: Since the loans from Bank to MFI and MFI to entrepreneur are in local currency, there is no foreign exchange risk involved. Most of the smaller MFIs do not have forex hedging capability and our model overcomes that.
Reduced interest: Our guarantee reduces the interest the bank will charge the MFI since the bank’s risk is lower. Some of the interest benefits get passed on to the borrower.
Scalability: There is enough money available in the developing countries. Our guarantee frees up those funds. It utilizes capital available effectively and in the long term it is a more scalable model.
Manages risk better: We get the additional benefit of monitoring of the loan by the bank which is not available with other person to person models.
P2P-Banking.com: How does “$1 in guarantee by the social guarantor could lead to $2 to $5 in loans” work? What determines the applicable ratio?
Bhalchander Vishwanath: The ratio is dependent on several factors. These include the MFI’s or borrower’s prior credit history with the bank or other banks, various banks internal guidelines, their focus on lending to Microfinance institutions and so on. For example for a given MFI we have seen two different banks asking for different guarantee percentages.
P2P-Banking.com: Does the Guarantor earn any interest?
Bhalchander Vishwanath: Guarantors do not earn any interest on their guarantees for two reasons:
It is legally complex.
We see ourselves as a ‘social business’. Nobel Laureate Mohammad Yunus states that a social business is ‘designed to be both self-sustaining and to maximize social returns’. We have only one objective: to combat global poverty. As a result, we do not provide any financial returns or interest to our social guarantors and hope to attract social guarantors who share our objective.
P2P-Banking.com: Does the Guarantor actually have to pay money into an account, or does this only occur if the borrower fails to pay back the loan?
Bhalchander Vishwanath: The guarantee we offer to banks is a cash secured guarantee. Thus the guarantor has to pay the money upfront. Once the loan is paid back, the money can be withdrawn. Continue reading →
