P2P-Banking.com

Prosper.com is actively promoting it's marketplace to hedge funds.

Prosper is America’s largest peer-to-peer marketplace with over 600,000 members,” stated Kirk Inglis, CFO of Prosper. “As credit markets experience unprecedented changes, institutional lenders, including hedge funds, are using Prosper to diversify portfolio returns without the lack of transparency and fees associated with structured consumer debt products.

(via ProsperousLand)

Another recent Prosper related topic was the concern raised by lenders that in select states Prosper stops any collection activities on small loans, if the borrower sends a Cease-and-Desist letter (the example given is a 2,500 US$ loan in Texas). The author of the blog post argues that the risks for lenders rise, if this example really shows overall practise.

Moreover, they won't pursue legal action to recover small loans. So all small loans are now risky since the borrower has an easy method to halt payment, collections and legal proceedings. Prosper simply seems unwilling to go after small borrowers.

Finally, even for larger loans, it seems unsafe to lend, since Prosper will only sue in select states. I don't recall Prosper saying anything about selective enforcement in my many lender agreements, but before I put another penny into Prosper, you can be damn sure I will ask them what states they will take legal action in and what the minimum loan amount is for which they will sue.

CBS recently featured Prosper and Lendingclub under the headline "Beating the financial giants at their own game".

German p2p lending service Smava.de launched one year ago. Since the launch of Smava 393 loans were funded for a total loan volume of about 1.7 million Euro (approx. 2.6 million US$).

Lender's viewpoint

In a february survey 33% of lenders answered to be very satisfied with Smava and 63% were satisfied. 48% said their ROI met expectations while 19% said it exceeded expectations.

So far a 7% ROI is realistic. Only 3 loans have defaulted and 11 are (less then 30 days) late. In the past Smava cured the majority of late loans. The Anleger-Pool mechanism spreads the losses of a default across all loans of a credit grade. Therefore when 1 in 100 loans in credit grade X defaults, the lenders invested in the defaulted loan still receive 99% of the principal, while for lenders in the current loans returns are lowered by 1%.

Technically and on the process level Smava functions as promised.

Borrower's viewpoint

Provided the borrower has a credit grade of at least 'H' (95% of the German population have credit grades between 'A' and 'H' so about 5% are excluded) and he has a sufficient income, chances for obtaining a loan through Smava are good. About two third of the listings were funded. The fee of 1% of the loan amount that Smava charges borrowers is low.

Marketplace development

Smava's growth has picked up in the last month (see chart).

(Source: smava loan stats, Wiseclerk.com, 03-21-08)

So far Smava has not reached a broad appeal. While press release state 25,000 registered users, only 650 have invested money and roughly 450 wrote a loan listing. Looking at the distribution of lenders by amount invested, the top 50 Smava lenders funded about 700,000 Euro (or about 40% of total loan volume). Currently lenders are limited to a maximum of 25,000 Euro investment.

Attracting new borrowers has been the bottleneck for Smava's growth so far. An increase of money supply by lenders with no matching demacnd increase led to slightly falling average interest rates in the last weeks (see chart). Before rates increased, especially for credit grade 'F' caused by sharpened risk awareness following several late payments.

 
(Source: smava loan statistic, Wiseclerk.com, 03-21-08)

Smava charges borrowers a fee of 1% of the loan amount. There are no fees for lenders. Total revenue of Smava in the first year therefore was 17,000 Euro (1% von 1.7 million Euro). Prosper, Lendingclub and Zopa have much bigger p2p lending volumes per year. Boober's loan volume in the Netherlands is about the same size as Smava's but in a market with only one fifth the size (by inhabitants). First priority of Smava must be to accelerate growth.

Guus Drijver, director of Dutch p2p lending service Boober.nl, will leave the company on April 1st. The new director Ilse Smulders cited different opinions on how to further develop the company as cause for the departure.
According to unconfirmed blog sources, Boober failed to reach the forecast numbers in 2007.

Unrelated: Recently Boober searched to fill the position 'Financial Manager'.

Kiva.org, which allows everybody to help funding microloans to entrepreneurs in developing countries, will achieve the milestone of 25 million US$ loan volumn within the next two days.

Launched 2005 the amazing growth curve can be seen on this Kiva stats page. The growth accelerated in 2007 driven by major media coverage. Up to now more then 260,000 individual lenders have funded more than 37,000 loans in 42 countries.
The current default rate is only 0.11%. While Kiva lenders do not receive interest, borrowers pay interest to the local Kiva Field partners (microfinance institutions).

Kiva, founded by Matt and Jessica Flannery (picture), is  a non-profit which currently has 16 employees paid by optional 10% lenders can donate on top of loans. Apart from them many volunteers aid the Kiva cause.

A February 2006 survey showed that Kiva donors were evenly distributed between 25 and 60. Slightly over half were males, and 65% made more than $50,000 a year. But a $25 cap on individual donations is causing the demographics to spread; more older, younger, and less-well-off people are signing up. Kiva has about 15,000 to 20,000 visitors a day coming to the site now.

While lenders may withdraw funds via Paypal upon repayment, 90% decide to reinvest the money into new loans.

(Picture courtesy Kiva.org)

As there is no Zopa loan statistics site, it is not possible to track the Zopa growth daily. You have to wait for the instances where Zopa announces milestones.

Today Zopa - in an announcement to celebrate it's third birthday, said:

Since we launched in March 2005, £20 million in unsecured personal loans have been arranged at Zopa in the UK. More recently growth has been boosted by the global credit crunch which is driving unprecedented demand for P2P personal loans as banks become less competitive and tighten their lending criteria. All of this has also pushed up returns to Zopa lenders to an all time high.

At the current exchange rate that is approx. 40 million US$.

P2P lending service Zopa - already present in the US, the UK and Italy announced it will launch in Japan.

Zopa Japan will be led by Chairman Takashi Yoneda and Managing Director Tatsuya Kuboi, both highly experienced and distinguished technology-based financial services professionals. Zopa Japan further strengthens Zopa´s position as the leader in its field. Zopa will continue its track record of firsts, as it will be the first social finance offering in Japan.

Takashi Yoneda, Zopa Japan´s Chairman, says: "We are very pleased to be part of the expanding Zopa worldwide operations, and we look forward to offering innovative financial solutions for the Japanese market. We will draw from the Zopa´s experience across the globe and introduce a social lending platform that is tailored for the Japanese culture and regulatory environment

Zopa tomorrow celebrates it's third birthday - it launched in March 2005 in the UK market. 

Other sources: Techcrunch UK

German p2p lending service Smava.de yesterday introduced an optional insurance for borrowers. Borrowers can take out an insurance together with their loan. In the case of death, disability or unemployment (through no fault of one's own), the insurance will pay the repayments. To offer the residual debt insurance (see a definition of residual debt insurance), Smava partnered with an insurance company. The costs for the insurance paid by the borrower are:

• death hazard only: approx. 0.5% of loan amount
• death and disability: approx. 2.5% of loan amount
• all three: approx 4.7% of loan amount

It will be interesting to see how many borrowers are willing to opt in to the insurance.

Lenders profit because this lowers the default risk. Unfortunately at the moment lenders can not on a borrower's loan listing whether the borrower selected insurance or not.
11 months after launch defaults at Smava are still rare. Only 3 of 368 loans have defaulted and only 2 are currently late. A chart shows the development of the Smava interest rates since start.

A very interesting study that mainly concentrates on donations covers aspects of social lending too. Among the 24 online philantrophy markets examined are Kiva and MyC4. The study gives great advice what users (donors and lenders) expect from the market (the service) as functionality.

The study comments on Kiva:

Kiva’s entire business model was, from the start, faced with seemingly insurmountable logistical issues. From verifying the legitimacy of entrepreneurs’ claims straight through to delivering repayments to investors. In addition the challenges of distance, cost, and time were considerable. By partnering with carefully-selected microfinance institutions (MFI) already working in a particular area, however, Kiva has been able to overcome all of these hurdles. … And each MFI’s reputation as an accountable, socially responsible organisation must be unimpeachable with Kiva or another highly regarded organisation such as the US Peace Corps. Partnering with MFIs also overcomes the communication issues encountered working with small businesspeople in developing countries. Whereas very few small business owners in developing countries have Internet access or English language skills, all of the MFIs must have these in order to work with Kiva. This compromise enables individual stories from entrepreneurs, relayed by MFIs, to reach investors both before a loan is disbursed and after its effects are felt. Though loan repayments have been generally taken as a ‘proxy for success’ in the MFI industry, it is these personal stories, says Kiva’s Ben Elberger, which are
most important to most of its donors: ‘The lenders are more interested in the qualitative results than the quantitative…They are more interested in learning what happened to the entrepreneur than they are in getting their money back.’ Thus, the information provided by Kiva’s partners in each of their business’s journals is very rarely financially detailed; rather, it tells the story of how the loan will (or has) impacted on the day to day life of the business owner.

What does the future hold for Kiva? One of its primary goals has become strengthening their partner MFIs, helping them reach a more sustainable financial position so that fluctuations in funds received from Kiva will not impact their overall ability to lend. It is also developing an internal reporting system, but identifying common indicators for MFI and businesses has been extremely difficult, and it is unsure that such a framework is even possible. The biggest variable for the future, it says, is to what degree the public’s moral attention to sustainability and development will last.

MyC4 is given as example for the useful integration of Web 2.0 technologies to create an interactive market.

While a long read (over 50 pages without appendix) I believe it to be interesting for all p2p lending services especially the product development and marketing managers.

Download the study

Today the Quebec security regulator in a press release commented on the action taken against IOU Central:

At the request of the Autorité des marchés financiers (AMF), the Bureau de décision et de révision en valeurs mobilières (BDRVM) issued an order on February 27, 2008 against IOU Central Inc. ("IOU") to cease any activity, directly, indirectly or by Internet, in respect of a transaction in a form of investment governed by the Securities Act (the "Act"), including any activity as a securities dealer. The BDRVM also ordered Philippe Marleau and all directors, officers, employees, representatives and mandataries of IOU to cease any activity in respect of a transaction in securities in a form of investment governed by the Act for and on behalf of IOU, including any activity as a securities dealer.

…

For the protection of investors, the AMF stressed that it was imperative that the BDRVM issue this decision without a prior hearing since IOU continued to operate its website.
The Autorité des marchés financiers (AMF) is the regulatory and oversight body for Québec’s financial sector.

More background on Microlending.ca. The link to the Toronto Star article there did not work. I believe this is the correct link.