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peer-to-peer lending

Page history last edited by Brian D Butler 11 years, 3 months ago

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Table of Contents:


 

 

 

 

 

News Highlights:

 

 

 

Peer-to-peer lending

 

 

Peer-to-peer lending is a means by which borrowers and lenders may transact business without the traditional intermediaries, such as banks. It can also be known as Social Lending.

 

Various Business Models

 

 

 

An enabling technology for peer-to-peer lending has been the internet, where peer-to-peer lending appears in two primary variations: an "online marketplace" model and a "family and friend" model.

 

Market place model

The marketplace model of peer-to-peer lending on the internet enables peer lenders to locate peer borrowers and vice-versa. This model connects borrowers with lenders through an auction-like process in which the lender willing to provide the lowest interest rate "wins" the borrower's loan. The marketplace process may include other intermediaries who package and resell the loans. , but the loans are ultimately sold to individuals or pools of individuals.

 

New ventures are seeking to blend traditional practices with new scale economies via online marketplaces. The marketplace serves many functions. Most notably it facilitates bringing borrowers and lenders together. Furthermore, it simplifies what might otherwise be a cumbersome process to properly document and service the resulting loans.

 

 

 

Family and Friend model

The "family and friend" model forgoes the auction-like process entirely and concentrates on borrowers and lenders who already know each other, as with two friends or business colleagues formalizing a personal loan. Whereas the primary benefit of the marketplace model is the "match making" aspect, the family and friend model emphasizes online collaboration, loan formalization and servicing.

Secured people to people lending

 

In this model, lender gives money to the borrower against the strength fo the collateral given by borrower. Advantage of this type of model, is that the capital and interest of the lender is secured to the extent of the realisable value of the collateral. Dis-intermediator provides risk management as per the terms and condition agreed between lender and the borrower. At this point of time there is only one site which is exploring this option being http://www.my-lending.com

 

Unsecured people to people lending

 

In this model, lender gives money to the borrower on the credit rating of the borrower. Lender runs the risk of the capital and interest in case of failure on the part of the borrower. Two variants has evolved in this space.

 

Pooled Lending - where the lender lends the money to a pool of borrower having the similar credit rating. In this model the risk of capital and interest for the lender is to the extent of defaulters in the pool. Risk of capital and interest of the lender is reduced to large extent. http://www.zopa.com

 

Direct Lending - Where the lender lends money to a borrower on the basis of credit rating. In this model the risk of capital and interest for the lender is to the extent of borrowers default. http://www.prosper.com

 

 

Student lending

student loan many students are taking out loans to pay off college debt

 

 

 

 

 

Risks

 

The risk was that without the benefit of diversification, when something went awry the entire community could suffer.

 

Lending through banks has benefited from scale and diversity. By pooling the available money supply and lending it out again, the impact of any one default would be trivial in light of the timely payment of the vast majority of the notes. The downside to this model is that it has introduced greater transaction overhead and removed community loyalty from the equation.

 

It is hoped not only that these new markets will be more efficient by removing the bank as middleman, but that factors leading to default can be mitigated by reintroducing a social component to the mix.

 

 

Dis-intermediation (remove the intermediaries)

 

With the growth of internet technologies new business models evolved to remove the intermediaries like

 

 

* Employment portals - get employee's and employer's together

* auction portals - get buyer's and seller's together

 

Natural extension of these was the people to people lending or peer to peer lending. In principle two models have evolved in the P2P space being secured P2P and unsecured P2P.

 

 

Main Competitors

 

Prosper (USA, China coming soon)

Zopa (UK, Italy, USA coming soon)

Kiva (global charity)

Lending Club (USA)

CircleLending (USA)

GlobeFunder (USA-Global)

C4-World (global charity)

 

BatoAmigo (Mexico)

Boober (Netherlands)

CommunityLend (Canada)

Duck9 (USA)

Fairrates (Denmark)

Ireloans (Ireland)

Kiva (USA)

Lendary.com (Canada)

Peermint.com (Canada)

Smava (Germany)

 

 

 

 

 

Corporate Structure

 

 

 

 

 

 

 

External Links

 

 

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