Person-to-person lending

Person-to-person lending (or peer-to-peer finance) provides a way for person-to-person lending of limited funds. The risk is spread by requiring a good number of lenders for each loan. Some of the borrowers cannot go the "traditional" route, as banks will not extend credit to them, some hope to receive a better rate through peer-to-peer finance. Historical references are given to these circles of lending/borrowing in local settings with the participants knowing each other fairly well, although in my mind this is a significant difference as for the impersonal nature of the Internet, where you likely will not have a personal relationship with the other party. The concept is somewhat similar to microlending, which is has more of a charity angle, but offers fairly high repayment rate. The two companies noted are Prosper in the US and Zopa currently in UK, but coming to US. As per Information Week the charge-off rate for Zopa is only 0.05%, which is significantly lower than predicted, and also significantly lower than charge off rate for credit cards. The other interesting number from the article is the average return of 7%, which is below the average return in the stock market, making the concept somewhat less desirable (considering that these are unsecured loans).
There is also Kiva, offering market based lending for small business in the developing world.

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