US

Changes at Prosper

wiseclerk

Prosper.com applied several changes as described in this announcement. Some of the changes were expected as plans had been known, some were surprises.

Portfolio plans

Portfolio plans allow the lender to automatically build a conservative, balanced, moderate or agressive portfolio. That means the lender no longer picks individual loans to bid on but chooses to invest in a plan. The feature is implemented based on Prosper's standing orders. The difference is that it uses standing orders predefined by Prosper, not by the lender. Prosper shows "estimated returns" for each portfolio – currently ranging from 8.37 to 11.06 percent.
Comment: Lendingclub introduced this concept earlier on. Lenders are currently examining and debating on which rationale Prosper did build the standing orders behind the portfolios.

Estimated ROI is shown in listings

Prosper now shows the estimated return on each listing, including predictions for defaults and costs for the servicing fee. The default estimate is now based on Prosper's own data (past performance) rather then Experian data.

Comment: This display does improve lender information especially for unexperienced lenders.

Ended listings hidden (surprise!)

Prosper now hides all data of expired listings. Continue reading →

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 

 

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.

Why US credit unions partner with Zopa for US launch

wiseclerk 2 Comments

The philosophy of credit unions is members helping members. Credit unions can easily embrace the peer-to-peer lending concept. Why should they do it? As creditunionmagazine.com suggest Zopa is an innovation that can help credit unions with their image – they can get hip again.

The roles will be shared in this win-win partnership. Borrowers will be members of the credit unions, whereas Zopa lenders will provide the money. The big advantage for Zopa lenders could be that a possible business model is that the lender lends to the Credit union which gives a CD to the lender. The podcast suggest that there will be no default risk for the lender. Credit unions see it as a good customer acquistion strategy.

The credit risk or loss of your principal investment would not apply in the US model. So what would happen is. Most everyones familiar with going onto Ebay. You can either bid on the item and take a risk on what you pay for it. Or you can do a buy it now type option. With a fixed rate CD you would get a buy it now option which would still be market leading rates or you can do a process which I call a variable rate CD with the credit risk spread out amongst borrowers and if a few people go into default maybe you do not get as high a rate, it goes down a little bit but still much better than the market rate. That adds some excitement to the product offering as as well.

Addison Avenue Federal Credit union has signed a letter of intent with a peer to peer lending service. "We see (person-to-person lending) pretty closely aligned with the credit union mission and as a way of attracting new members," says CEO Benson Porter.

More related sources: 1, 2 

Occupations with lowest defaults

wiseclerk

Prosper.com noted in it's September lending market survey that the occupations with the lowest defaults on Prosper are:

    1)   Computer Programmer  0.96%
    2)   Civil Service  1.48%
    3)   Analyst  1.63%
    4)   Mechanical Engineer  1.67%
    5)   Electrical Engineer  1.85%

Lowest default rates by state are:

    1)   Minnesota  0.00%
    2)   Ohio  0.65%
    3)   New Jersey  0.99%
    4)   Colorado  1.40%
    5)   New York  1.56%

Of these only for New Jersey and New York there is a obvious explanation – the average interest rates for loans in these states are low due to the state lending limits. This means in these states more loans with good credit grades were founded – reducing the risk.