Peer to Peer Lending and Solving World Poverty
One of the most fascinating spaces for me at the moment, at least intellectually, is peer to peer lending. The best example is in England in the form of Zopa, a firm founded by ex-Egg employees. Egg was one of the first and most successful Internet only banks.
The banking industry is founded upon consumers giving their money to the banks in zero interest bearing accounts and the banks lending the same money out at whatever the rate is + a risk premium. Citibank and HSBC are two of the world’s most highly valued companies because of it (even more than Google!).
You need to maintain a branch network and have people be able to access and manage their accounts but still the margins are outstanding.
Zopa aims to kill that long-standing margin by opening up buyers and sellers of debt and allowing them to connect with each other (through Zopa). The premise being that borrowers will get lower interest rates and lenders will be able to get higher yielding ’savings’ accounts.
Zopa spreads any loan across 50 or more lenders, and so conversely each lender’s dollar is being spread across 50 or more buyers. Techcrunch has a fantastic profile of the company and in one of the comments an employee says that the average yield for a lender is 6.3% net of bad debts. The site also suggested recently that a US firm, CircleOne, would be launched soon that is essentially Zopa for America.
The Startup Journal section of the WSJ had a great piece on Pierre Omidyar investing $100m into a ‘micro-finance’ fund to be managed by Tufts University. The fund will focus on lending in the developing world and on micro-loans for as little as a few hundred dollars. It aims to get a 9% return on its money.
This is one of the best ways, in my capitalist Economist-reading opinion, of solving world poverty. Omidyar joins others like former Kleiner Perkins VC Vinod Khosla in pioneering micro-lending. These type of fishing-rod initiatives are far more effective than the fish ones of Aid money.
I am sure there is an intersection of peer to peer lending and micro-lending and a role for a company to link lenders and borrowers and provide services to ensure integrity and creidbility. I for one would put a few thousand into an account, hoping to get 5-7% on my money and knowing that it would be helping solve world poverty in the process.
[…] Ho John Lee has written largely about Prosper, but talks about the potential for sites like Zopa and Prosper to extend into microfinance (in the Grameen Bank model), or into start up financing. Niki Scevak agrees with the microfinance angle and talks about P2P lending and micro finance as being “one the of best ways…of solving world poverty.” […]