Review of My P2P Lending Predictions For 2011

wiseclerk 1 Comment

In January 2011 I wrote down my predictions for p2p lending trends in 2011. Now let’s see how far I was off. The black text is my original prediction, with the review added in green and yellow.

Advent of whitelabel providers (probability 100%)
Okay let’s start this with a safe bet. In 2011 there will be 1-2 companies offering a solution that can be branded and used by p2p lending services and / or p2p microfinance sites. The interesting question here is how the acceptance by potential customers will be. My guess is that it will be slow selling until the companies have set the first pilot customer live.
While there are now whitelabel providers, their business seems to have been very slow in 2011. It seems that the first areas where we will see some activity is possibly p2p equity. As for conventional p2p lending – the companies supplying solutions have become more sophisticated and at least one as adopted their price model. It is now more a revenue sharing deal rather than a big upfront payment, that most startups could struggle with.

Introduction of a p2p financed ‘credit card’ (probability very low)
I envision a p2p lending service where the borrower does not get a loan in one full amount initially but can access liquidity on demand (within a predefined credit line). From the funding side this would work somewhat like lenders investing in Ratesetter’s rolling monthly loans. On the borrower side the customer could either request an additional payout via a web-interface or more sophisticated the service could issue a branded credit card / debit card for that purpose, enabling the customer to access cash instantly on an ATM.
This concept has very interesting advantages as it allows the p2p lending service to build a durable relationship to the borrowers. And for the borrowers it offers the potential of lower rates on short term debt than the high rates credit cards typically carry.
Like the idea and want to discuss/develop it further? Self-promotion plug: You can hire me as a consultant.
Has not happened.

A bank will acquire an existing p2p lending service (probability <25%)
Carried over from last year – did not happen
2011 might see a bank (or other financial institution) buying a running p2p lending service.
Buying will be much faster, cheaper and risk-less than if the bank tries to build a new service.
Largest Italian private Bank bought at least a part. Continue reading →

Kiva Enters Direct P2P Microfinance

wiseclerk 5 Comments

Kiva Zip is an experimental site facilitating direct p2p microfinance loans without any intermediaries. The original Kiva model relies on MFIs (microfinance institutions) which locally validate borrower request and disburse the money and collect the repayments.

Kiva Zip eliminates the intermediaries directly connecting lender and borrower in person to person microlending. This will reduce interest rates for the borrowers (which during the initial testing phase of Kiva Zip pay 0% interest). The use of direct electronic and/or mobile payments further reduce the costs of the loan transactions.

On the other hand Kiva expects that these loans carry increased risks for lenders. Continue reading →

Interview: 2 Years Zidisha – Part II

wiseclerk 2 Comments

Read part one of the interview first

This is the second part of an interview with Julia Kurnia, Director and Founder of Zidisha Microfinance.

Does the Euro crisis in any way impact Zidisha’s business?

The Euro is the home currency of many of our lenders. To the extent that the Euro crisis causes it to depreciate against the US dollar (in which Zidisha account balances are denominated) and against the borrowers’ currencies in which loan values are fixed, it will increase financial returns when these funds are converted back to Euros.
That said, lending with Zidisha is intended to be a philanthropic activity, and most of our members seek to generate social benefits in a way that is financially sustainable. Zidisha loans typically allow economically disadvantaged households to expand their cash businesses to the point where incomes are increased by 150% to 200%. The additional cash is very often invested in the children’s education – both by providing sufficient living income so that teenagers do not need to drop out of school to support their families, and by covering the costs of continued schooling. The return to society from this kind of investment in education of the next generation of the rural poor in developing countries is impossible to quantify. This will continue to be true regardless of currency fluctuations.

A week ago Zidisha got a new design. What is new?

Our new design reflects feedback from the Zidisha community, and the growth of our organization. We opted for a clean, modern style and an uncluttered, simple layout that is in keeping with our values of directness and transparency. The new site is more effortless to navigate, easier to learn and read about Zidisha entrepreneurs, and simpler than ever to make a loan. We’ve also included more social media buttons so that visitors can conveniently share Zidisha with friends and family, and connect with us via Facebook and Twitter.

Zidisha is doing direct p2p lending. Do you think it is likely that there will be a substantial shift from indirect p2p lending (like Kiva does) to a direct model without MFIs in the future?
Yes, I think that is the future of online microlending. As Zidisha has proven that the concept is viable, I’m sure that we will inspire many similar initiatives. I expect to see other organizations – both new start-ups and established platforms – experiment with direct P2P lending across the international wealth divide. This will be a welcome development, generating positive social impact beyond the reach of our organization, valuable learning opportunities for P2P lending and microfinance practitioners, and useful variety for our clients. Continue reading →

How to Become a Shareholder of Crowdcube

wiseclerk 6 Comments

Yesterday I invested a small amount and will become a shareholder of Crowdcube Ltd., which runs the British p2p equity marketplace Crowdcube.com (see earlier articles about Crowdcube). Crowdcube is currently using it’s own platform to raise 300,000 GBP (approx. 470K US$) for a stake of 9% in the company.

If you decide quick, you can become a shareholder of Crowdcub too (minimum investment is 10 GBP). For UK residents investments of over 500 GBP mean they are eligible for a 30% income tax rebate under the EIS scheme. At the time of this writing the pitch is 54% funded and it looks like it will fully fund within the next days.

Crowdcube provides a slide presentation and a forecast. The forecast is a bit sketchy with some figures being debatable in my view but overall I think Crowdcube is a promising venture for the following reasons:

  1. The founders achieved quite a lot in the short time since launch
  2. Good marketing angle. New pitches might allow them to uphold high PR resonance (at least locally and industry sector specific). With luck and craftsmanship they might achieve equal marketing spin in p2p equity as Kickstarter has achieved in crowdfunding
  3. I expect p2p equity in UK to get a boost by rising tax reliefs (50% !) under new SEIS scheme (see yesterday’s post)
  4. Crowdcube, if growing fast, might reach a level where (for UK) it profits from network effect. However the pitch is missing competitor analysis and strategies to deal with them.
  5. Good revenue/cost ratio. With less (technical) complexity than say Zopa or Ratesetter (but much higher risk for investors in pitches)
  6. Should they succeed in creating a secondary market that is not awkward/clumsy in the future, then that will heighten the attractiveness for investors as it offers liquidity for the investments

I am fairly optimistic that the influx of pitches won’t be a problem. It is hard to gauge how the funding success percentage of these will be as that depends on the quality of pitches. The single biggest threat to Crowdcube’s business model in my view is the prossibility of one of the companies funded at the market place failing big time and leaving very unsatisfied investors.

I plan to post further reviews of the progress (naturally I won’t share any confidential data made available to shareholders).