Bigcarrots.com wants to bring business and lenders together. Peculiar name, isn’t it? Images from Bugs Bunny cartoons floated on my mind. Positive indeed – but not at all related to finance.
Bigcarrots applies the concept of peer to peer lending to funding companies. Lenders can lend in chunks of 25 GBP, and a company can apply for unsecured loans of up to 25,000 GBP for 3 to 36 months loan terms. Lenders even have the possibility to exit early by reselling portfolios on a reseller platform.
The level of information provided on the website is low, the FAQ is short. For example their is no description how the risk assessment of applying companies is done by Bigcarrots. The About section gives little information on the background of Bigcarrots. I used the contact form to ask for more information, but did not receive an answer.
I finished reading “Innovation and the Future Proof Bank” (available at Amazon.com, Amazon UK and Amazon.de). The author James Gardner publishes the Bankervision blog, which I am a long time reader of.
Gardner defines categories of incremental, revolutionary and breakthrough innovations and further differentiates between disruptive and sustaining innovation. The book discusses innovation theories and models. Many examples and case studies are given. While the topic is innovation in banks, I felt that much of it applies to innovation in large companies that are incumbents in other industries, too.
An innovation team will evolve through 5 capacity stages: Inventing, Championing, Managing, Futurecasting and Venturing.
Gardner propagates Futurecasting as a method to assess trends from a strategic perspective. By building scenarios the innovator creates descriptive images of possible future impact of trends in combination with the banks approach on it.
Gardner uses p2p lending as an example in many chapters. E.g. in chapter 4.4 he creates analysis possible scenarios in a futurecast on p2p lending.
If you want to understand why so many banks currently ignore p2p lending as a trend the book offers some interesting arguments. However the other example often cited, Paypal, shows what happens, if banks wait too long without reacting.
The book contains a wealth of information, thoughts and examples. Too much to cope with in this short review. I enjoyed reading it and highly recommend this book to anyone interest in fostering innovation, the innovation process and how banks could react to an ever faster changing business environment.
Buy your copy at Amazon.com, Amazon UK or Amazon.de.
Last week I published a short overview on the new p2p microfinance service Zidisha.org. Now Julia Kurnia, Director and Founder of Zidisha.org answers my questions.
P2P-Banking.com: What is Zidisha about?
Julia Kurnia: Zidisha uses internet and mobile phone technology to connect entrepreneurs in the world’s most isolated, impoverished areas with the international P2P lending market. Zidisha supplies the key services needed to overcome the geographic barrier between lenders and borrowers – local credit history verification, low-cost electronic money transfers, independent tracking of borrower performance history – then gets out of the way and lets lenders and entrepreneurs interact directly. Zidisha’s philosophy is similar to that of eBay, which really advanced the opportunities of small entrepreneurs in the US by supplying a regulated venue in which business growth is limited only by entrepreneurs’ own creativity and track record of responsible conduct.
P2P lending has vast untapped potential to open up better economic opportunities for motivated people in low-income countries. Africa in particular is home to a growing class of entrepreneurs who, while economically disadvantaged, are computer-literate and have verifiable credit histories with local microfinance institutions – all of which can be tapped to supply many of the communication and record-keeping services traditionally performed by local banks and microfinance institutions. Zidisha is designed to serve this type of borrower. In this sense, it is complementary to services such as Kiva and MyC4, which allow more marginalized borrowers without computer access to fund loans via local intermediary microfinance organizations.
P2P-Banking.com: How do African Entrepreneurs react to the possibility of posting a loan application online and getting it funded by strangers?
Julia Kurnia: I think this is best answered by Ms. Ndeye Sarr, a lady in West Africa who single-handedly supports a family of five sewing clothing by hand. She is raising a loan on Zidisha to buy an electronic sewing machine, which will allow her to meet client demand faster and grow her business to where she can support her household comfortably and keep her kids in school through college. Last week Ms. Sarr stopped by a local cybercafé to check on the progress of her loan application and upload some photos of the traditional clothing she produces, and she posted the following comment:
“I have just visited the Zidisha website, and see that the lenders are still continuing to support me, so that I can really start up a proper business activity. I would like to thank all those who are helping to finance my enterprise. I’m so happy to see that people on the other side of the world are willing to lend a hand to those who do not have the resources to earn their own honest living.“ (translated from the original French) Read the rest of this entry »
In e-mail newsletter sent to its users on January 20th the operator of Polish peer-to-peer lending site Monetto.pl informed that the website will be accessible only until the end of February. Lenders are urged to update the loan contracts and to change the number of bank account set up for repayments. Monetto will no longer intermediate in processing repayments and loans should be repaid to lenders’ accounts directly.
Monetto was one of the early entrants to Polish social lending market. The company was financially backed by venture capital fund IIF. From the beginning the market was plagued by the influx of unfair borrowers, partly due to the insufficient verification procedures. Lukasz Banach, CEO of Prender Ltd. – the company behind Monetto project, reflected in the interview for finnovation.pl in September 2009, that what attracted crooks might be higher (than on other P2P lending markets in Poland) initial limit of loan amount. He also said: “In USA, UK (also Germany) there are central, accessible and trustworthy databases of credit history. As long as there is no such thing in Poland, I don’t believe that social lending will be successful here. When this barrier is removed, the percentage of bad debts on P2P markets will fall down significantly. ”
Things started to get worse in the end of 2008, when VC investor decided to stop financing the project. Since January of 2009 Monetto was in “coma” – there were no new loan listings, repayments were forwarded to lenders infrequently and there were significant problems with customer service. The investors made an effort to sell the service (although it was never announced officially) but no interested buyer was found.
The announcement is viewed by many as the last act of the drama which lasted far too long. In few articles that were published in press, the negative consequences for the credibility of social lending model in Poland are stressed. In other opinions there is a little bit of optimistic tone – failure of Monetto shows that market weeds out the weaker and less secure players.
Based on her experience in founding SEM Fund, Kiva’s oldest filed partner in Senegal, Julia Kurnia believes there is a vast untapped potential for p2p lending in microfinance.
To tap it she launched Zidisha.org, a non-profit that makes two changes in the process. First: There are no intermediaries. Lenders lend directly to computer literate entrepreneurs in Africa (currently Senegal and Kenya). Second: Only entrepreneurs with a credit history that have in the past paid back a loan by a bank or a financial institution successfully are eligible (this is verified).
Julia Kurnia told P2P-Banking.com:
Lending through local intermediary microfinance organizations creates high costs for borrowers (Kiva borrowers pay an average of 35.25% in interest to Kiva field partners, according to the Kiva website statistics). Outsourcing loan management to local intermediaries also puts P2P platforms at risk of pyramid schemes, in which unscrupulous partners use funds disbursed for new loans to mask embezzlement of repayments due to lenders. Kiva and MyC4 did very well when they operated at small scale, but as time passed and they added large numbers of partners, the cost of controlling intermediary fraud ballooned and may make their models unsustainable at a large scale.
Lenders at Zidisha upload money via Paypal (fees apply) and then can browse listings, written by the entrepreneurs themselves. Lenders do get paid interest, whoever “the principal purpose of Zidisha’s lenders in funding loans is to help finance these entrepreneurs, and not to make a profitable investment.” according to the FAQ. During bidding lenders can underbid each other with the result of the entrepreneur profiting from a sinking interest rate.
I am looking forward to use Zidisha. I plan to publish an interview with Julia Kurnia next week. If you have a question you want asked you are invited to email it to me or post it as comment below.
Today, when I funded 2 more Kiva loans, I stumbled across the profile of Laurent D, from Belgium, who has funded 23,079 Kiva loans in the last 3 years. On his profile he states “I love the idea of helping people reach their financial independence”. Well said. And I bow to the dedication of making that many loans.
This got me wondering if there are lenders with even larger portfolio’s funded? There isn’t any information on this in the Kiva stats section.
Update: After using queries at Kivadata.org, it looks to me, that LaurentD actually is the lender, who did the most loans on Kiva, with Good Dogg, from the US, following second with 17,077 loans.
P2P Lending is mostly anonymous and loans are unsecured. To make the risks of lending to a stranger acceptable for lenders, p2p lending services had to provide models for the lenders to judge the dimension of the risk of not getting paid back.
The initial estimation of the risk-level could not come from the platform itself as it had no track record and could not build a model that “calculated” the level of risk involved for the lender. The consistent consequence was that nearly all p2p lenders relied on established third party providers for credit history data and credit scores. Prosper for example showed Experian data on default levels to be expected depending on credit grade.
Over the time it became obvious that the actual default levels at Prosper were much higher than the expected default levels based on Experian data. We don’t actually need to argue here what led to this (be it financial development of the economy, be it that p2p lending attracted bad risks, be it a poor validation process), but the result was that since defaults were much higher than expected, lender ROIs were much lower than expected at the time of the investment.
And this is not Prosper specific. Several other p2p lending services show clear signs that default levels will (or have) surpassed the initially published percentages of defaults to be expected based on external data.
Boober failed due to default levels, on Smava levels are higher than the Schufa percentages fore-casted, same is likely for Auxmoney defaults which will be higher then Schufa and Arvato Infoscore data suggested. The one exception from the rule is Zopa UK, which successfully manages to keep defaults low, as CEO Giles Andrews rightly points out.
I always enjoy speculating what p2p lending developments might happen in the year to come and then look back in December to see how I did. I don’t dare call it forecast, because these are just my personal guesses, though in some cases it’s an educated guess based on what I know individual p2p lending services are working on at the moment.
More competition and entering more national markets (probability 100%) This is a fairly easy bet. There are many, especially European markets, where no p2p lending service is operating yet. Even accounting for the fact that laws and regulation in some national markets make it hard or impossible to establish a service, there is still plenty of room. Looking at an individual country, it is much harder to tell. I still wonder that there are no competitors to Zopa in the British market (yet).
More products (probability 100%)
Currently nearly all p2p lending platforms only offer one product: unsecured, fixed term loans. The differences are more in the details of loan funding (bidding, no bidding, markets, listings) but not in the offered product. In 2010 we will see additional products (e.g. secured loans).
A bank will acquire an existing p2p lending service (probability <25%) While last year’s prediction was that there is the first bank experimenting with p2p lending (and there was), 2010 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.
Today CommunityLend launched it’s peer-to-peer lending service in Canada. The service currently is available to residents of Ontario. Borrowers can use CommunityLend as an alternative loan source to bank loans or credit cards with the ability to set the desired interest rate themselves (CommunityLend sets minimum rates). Loan amounts range from 1,000 to 25,000 CAN$ for a loan duration of 36 months. CommunityLend is open for borrowers with a good credit rating (AA to C), which encompasses about 70% of the population.
The borrower has the option to define whether there will be an auction (competitive bidding) once the loan amount is funded, possibly getting him the advantage that the interest rate will be lowered during the auction time with lenders underbidding each other.
Due to regulation restrictions only lenders qualifying as “accredited investors” are allowed to participate as lenders. The minimum investment is 100 CAN$. Bids can be in multiples of 100 CAN$.
CommunityLend provides lenders information about borrowers to help them make decisions about lending, including; the credit categorization of the borrowers on the site (credit rating) , their assessed debt burden ( affordability rating), their assessed stability (stability rating).
CommunityLend actively steers lenders towards diversification with the rule that a lender can only bid a maximum of 10% of the amount of an individual loan and the bid maybe not more than 10% of his total overall investment.
Registration to the service is free. Borrowers pay closing fees of 1 to 2.5% percent of the loan amount depending on credit grade (minimum 75 CAN$) upon payout of the loan. Lenders pay 1% p.a. fee on the outstanding loan principal.
CommunityLend uses credit bureau data and bank account data to verify borrower identity.
The following video gives an introduction to CommunityLend:
I like the cheerful style of the website. All information is presented in an easy to navigate and easy to understand way.
Austrian p2p lending service Bankless-Life (see earlier coverage on Bankless-Life’s launch) was closed by the FMA, the authority supervising banking regulation in Austria. The FMA sent an order to Bankless-Life on Dec. 22nd, demanding it to stop arranging loans, since it lacks the necessary concessions. Today FMA issued a notice to the public, informing potential lenders that the offering of the service is not in compliance with the law.
Bankless-Life.at has published a statement on their website on planned legal steps against the order to close.
Bigcarrots.com wants to bring business and lenders together. Peculiar name, isn’t it? Images from Bugs Bunny cartoons floated on my mind. Positive indeed – but not at all related to finance.
Based on her experience in founding SEM Fund, Kiva’s oldest filed partner in Senegal, Julia Kurnia believes there is a vast untapped potential for p2p lending in microfinance.
More competition and entering more national markets (probability 100%)
Today 
Austrian p2p lending service 
