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Peer to Peer lending: The emergence of a new asset class

Peer to Peer lending is fast becoming the next asset class just as stocks, bonds and cash currently are considered to be standard asset class options for investors. Although Peer to Peer lending has been on the rise for the last 7 years, it still hasn’t become what people would call a part of mainstream finance. In my view, this is just a few short years away, there are already clear indications that Peer to Peer lending, which involves regular people lending to each other without the need for a bank in between- is catching on as a mainstream idea for people’s investment portfolios.
I read an intriguing piece on this very subject on the New York times (Peer to Peer lending: what the future holds: http://bucks.blogs.nytimes.com/2011/02/04/peer-to-peer-lending-what-the-future-holds/) The article mentioned that Peer to Peer lending volumes had already hit $25.6 million in June this year on just two Peer to Peer lending platforms compared to just $12.2 million a year ago: this is an astounding 110% increase in growth in just 12 months!
To add to this, Lending club, the largest Peer to Peer lending player in the US market has indicated that almost 30% of their lenders are institutional investors. This means that Peer to Peer lending is no longer applicable to just individuals but this phenomenon is now attracting companies who wish to get a bigger bang for their buck, rather than rely on banks with their miserly interest rates for deposits or the unpredictable stock markets. The current statistics for investor returns on US Peer to Peer lending sites is at 9.5% with record low defaults rates of 2%.
On the borrower side, they also stand to benefit with loans at an average of 8% compared to almost 29% that individuals are paying on credit cards. These statistics attest to the huge appeal that Peer to Peer lending has created among both investor class and the borrower class.
As an asset class for the investor or lender, the reason why Peer to Peer lending makes so much more sense is that investors are currently experiencing volatility spikes in their stock market investments. In addition, their diversification strategies don’t always seem to work as most investment classes are now moving in tandem with each other. On top of all this, there is a clear lack of confidence in being able to reach one’s financial goals using the normal methods we used before, i.e savings, buying bonds as an institutional investor or adding certificates of deposit to your investment portfolio. The point here is that it is actually possible to triple your returns without taking additional risk through being a lender on a P2P platform.
Although Lending club, https://www.lendingclub.com/ Zopa http://uk.zopa.com/ and Prosper http://www.prosper.com/are the better known P2P lending platforms, it would be a wise decision to try some new platforms that have done well by their own right and that each loaned more than $10 million within just 3 months of their establishment: https://www.fundingcircle.com/, http://www.ratesetter.com/ and UK payday loans lender https://www.wonga.com/
In a move that signals the importance of this growth industry, support sites have come up that help users determine which sites are the best to use and which ones have the best returns by providing research and algorithms to help. They are http://lendstats.com/, http://www.sociallending.net/ and for those who need to crunch numbers before they make any kind of lending or borrowing decision http://www.nickelsteamroller.com/ is your best bet. Another ancillary service that helps provide businesses with a technology platform to set up a peer to Peer lending website is MyAzimia, http://www.myazimia.org/ a niche technology company that focuses on providing tried and tested platforms to P2P lending companies in Europe and the US.
The Peer to Peer lending industry is set to continue to grow exponentially over the next 10 years; the UK government has already set aside 100million pounds to support these companies over the next 5 years. This is because it has recognized the importance of this industry in providing a viable alternative to the mainstream banking industry which we know is riddled with governance problems. This is an industry to watch and I believe other governments will follow suit and realize its importance in due time. In the meantime, it makes sense to look at P2P as a viable alternative asset class to boost your portfolio as a lender or to get a competitive no strings attached loan as a borrower.

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