Noba to offer p2p lending in Hungary

Peter Petrovics 3 Comments

Guest article by Peter Petrovics, co-founder of Noba

First of all, let me thank Wiseclerk for the opportunity to post this guest piece on his blog.
I am excited to announce the January launch of the first Hungarian p2p lending service:

www.noba.hu

Also, as a regular reader of Wiseclerk’s posts, I am hoping to be able to draw on the wisdom of his readership in a particular legal problem we have run into while setting up our initiative.

My name is Peter Petrovics, and I have some modest experience working with online communities, while Charlie Szabo, my partner in Noba, is an accomplished former banker. We both have been deeply interested in the entire concept of p2p lending since we first heard of it. We  started our project in our native Hungary last summer .

We opted on a dual system: one is dedicated to the P2P lending model, where we hope to see micro projects raising money through friends, family, social network and eventually anyone interested enough in the given venture.

The other section is dedicated to channel loans to the high number of people living in deep and prolonged poverty around the country. We call these “charity” loans, and this part of noba.hu is similar to Kiva.org with the difference that it is limited to Hungary. Applicants for these loans are assisted by a mentor, who is typically an NGO or social worker, in managing their loan applications and projects.

We hope, that noba.hu will not only allow a flow of funds, but will eventually create synergies between lenders and borrowers in terms of know-how, contacts, partnerships.

Both types of loans are intended to allow lenders to make real profit, hoping on the long run to attract a larger community of private and institutional lenders.

This is however the part where we run into a very tenacious obstacle: under Hungarian law, lending (on interest) is a privilege strictly reserved to banks – private individuals are allowed to give a single loan per year, the second loan would be considered as providing commercial banking services without legal authorization. This means that the people who are willing to participate in a P2P loan project as lenders are only allowed to lend the money with a 0% interest, unless these natural persons are founding registered financial institutions.

I would be grateful for any input regarding this problem. We have made some research, and found that similar regulatory restrictions have been overcome by other initiatives in the UK, the Netherlands and Germany, but I would be interested to hear any new ideas from you.

Does anybody have any idea if the whole issue could not be approached from an EU regulatory side? Could prove to be an easier path, than pursuing separate battles against the local legal systems.

Thank you for your attention, and looking forward to your comments.

Peter

Babyloan microfinance

wiseclerk 2 Comments

Launched in summer French Babyloan.org has about 1750 lenders financing peer to peer micro-loans to entrepreneurs in developing countries. I signed up yesterday when I found the service (thanks to Jean Christophe Capelli for the pointer) and helped to fund 5 loans to borrowers in Benin, Cambodia and Tajikistan. One of them is Kheav Sitha who runs a small restaurant stand at her house in Phnom Penh, Cambodia. She wants to borrow 140 Euro for 6 months.

Signing up went smoothly. I liked the user interface for selecting the loans. It features summaries of the loan detail that are shown with AJAX on the right side of the screen while moving the mouse over photos of the borrowers seeking loans on the left side. The website is in French and English, but on some points the English translation seemed to be missing. Funds are transferred in via credit card payment – I have not yet found out how they can be transferred out after the loan term ends if they are not re-lend.

Like other platforms Babyloan partners with local microfinance institutions (MFIs). The MFIs screen the borrowers and handle the payout to the borrowers – in the case of Babyloan the payout has actually taken place BEFORE the loan is placed on the platform – and the MFI takes the sum to refinance the loan.
Unlike at MyC4 lenders do not receive interest. While Kiva asks for voluntary donations to fund its operations, at Babyloan a fee of 1 Euro per 100 Euro funded is compulsory . (Minimum a lender can lend is 20 Euro).

Babyloan is backed by Acted (a NGO), Bred (a regional bank in France) and Credit Cooperatif.

The following presentation explains what Babyloan does for MFIs:

Babyloan MFI Presentation (EN)

Are Kiva and MyC4 p2p lending services?

wiseclerk 3 Comments

In this post Netbanker questions, if MyC4 and Kiva are offering p2p lending. He argues they are “not really peer-to-peer”.

Let’s have a look, if these microfinance models can fit under the definition of peer to peer lending. One aspect of p2p lending is, that the lender can select individual borrowers, which he wants to lend money to. Kiva and MyC4 offer this choice. A p2p lending platform usually allows search parameters to narrow the search for matching borrowers (e.g. by credit grade). Both have this function allowing to search by country, gender, industry and more.

A possible argument against classifying MyC4 and Kiva as p2p lending companies is the fact that they use local microfinance institutions as intermediaries acting between lender and borrower and charging fees. That is true, but several other p2p lending services (e.g. Prosper, Lending Club and Smava) use banks as intermediaries (for legal reasons).

So where exactly is the divide seperating MyC4 and Kiva from other p2p lending services. They differ especially on the factor that:

  1. Borrowers can not sign up themselves (so one side is really offline); borrowers are selected and screened by the MFIs
  2. Business model
  3. Lenders receive no interest at Kiva
  4. Lenders and borrowers do not reside in the same country.

I still think that MyC4 and Kiva can be defined as p2p lending services. With Microplace the case is different, because no individual borrowers can be identified; therefore Microplace could be excluded form p2p lending (Microplace states that it is not a p2p lending site).

(Photo credit: Stig Nygaard)

Prosper files amended S1-registration statement with the SEC

wiseclerk

Prosper.com yesterday announced it’s new registration filing.

The SEC filing follows an earlier one from last year that apparently did not succeed. Some speculation on the reasons Prosper’s first filing was ill-fated are on Fred93’s blog.

According to the filing, the class action lawsuit against Prosper reported previously on this blog, is currently the only class action lawsuit by lenders stated in the filing.

The sections on ‘Government regulation’ (page 73) and ‘Risks Relating to Compliance and Regulation’ (page 32) state numerous other legal risks the Prosper business model might face in the future.

For the year 2007 the filing reports that Prosper marketplace incurred a net loss of 11.8 million US$ – but still had more than 20 million US$ in cash or cash equivalents on Dec. 31st, 2007.

The following quote shows that in many attempted listings Prosper was not able to verify the income of the borrowers:

For example between September 1, 2007 and August 31, 2008, we verified employment and income for only approximately 22.6% of borrowers. …

Of the borrowers undergoing income verification for the period from September 1, 2007 to August 31, 2008:

+ approximately 56.7% provided us with satisfactory responses and received a borrower loan;
+ approximately 37.7% did not provide satisfactory responses, or did not respond, and their listings were cancelled; and
+ approximately 5.9% either withdrew their listings, or failed to receive bids totaling the amount of their requested loan.

On a side note: The document also discloses that Prosper bought the Prosper.com domain in 2006 for a price of 603,659 US$ (page F-14), of which 320,000 was payed in cash.

Prosper faces class action lawsuit; pays 1M US$ in fines to states

wiseclerk 6 Comments

The SEC cease and desist order against Prosper offered the legal arguments on a plate, now the first class action lawsuit filed against Prosper Marketplace Inc. uses the SEC filing as exhibit A to state it’s case. Regarding numbers and affected lenders the lawsuit by The Rosen Law Firm, New York, states

“…As of October, 2008 approx. $21.7 million of loan notes purchased by Class Action members have become worthless because the borrowers did not pay the loans to Prosper. Additional loan notes will become worthless as more loans are charged off as uncollectible.
…
there are tens of thousands, and perhaps hundreds of thousands of, loan note purchasers that are class action members…”

Prosper is required to file a written response within 30 days. The first court date is set for May 1st, 2009.

On the same issue – selling unregistered securities – but in an otherwise unrelated case Prosper agreed to pay a 1 million US$ fine in a settlement to the states to avoid individual states suing against Prosper. More information on that in the press release of the North American Securities Administrators Association (NASAA).
This is somewhat surprising to me as Prosper did obtain licenses in over 25 states and conducted lending under those, before it switched to the model using the WebBank. (see ‘Prosper riding the state-by-state roller coaster‘ and ‘Prosper goes national with 36 percent max interest rate‘). The same states that granted the licenses now wanting to sue Prosper?

Last week Zopa’s CEO Giles Andrews commented that regulation issue were the reason why Zopa did not use it’s UK model when it entered the US market.

While Lending Club has completed SEC registration and therefore is in compliance with the rules of the SEC, it might still face some risks. An article of the Oregonian on the NASAA settlement states:

“Oregon regulators also are investigating 40billion.com, owned by Atlanta-based 3 Guys in a Garage, and is currently reviewing a registration request by Sunnyvale, Calif.-based Lending Club, Anselm said.”