Archive

Archive for the ‘peer to peer lending’ Category

My predictions for Peer to Peer lending 2013: where we will be in a years time!

January 14, 2013 Leave a comment

The year 2012 was an amazing one for Peer to Peer lending. We saw a significant interest from the UK and US governments in using it as a tool to rebuild their economies and helping small business get more capital. We also saw a 40% increase in the number of sites launched as well as move towards the mainstream for users of P2P as a source of funding.
What will 2013 bring as far as this exciting space is concerned? Here are my 4 predictions…(Start the drum roll!)

1. Mainstream finance NOW wants a piece of the pie

This already started towards the end of 2012:  Zopa http://uk.zopa.com/ , the largest and first lender in the UK received an undisclosed sum of new Venture Capital funding from the UK Private bank Rothschild. This was unthinkable just a few years ago: the whole idea of Peer to Peer lending is to get rid of the mainstream banks but now in a twist of events these very same banks have caught up on the importance of this sector and want a piece of the action! My view is that they should stay away from it: Peer to Peer lending  is all about giving the power of finance back to the man on the street: Zopa accepting this new funding round from Rothschild just throws this idea back in the bin! My assumption is that as Zopa has never really been a profitable company despite funding almost  260 Million in loans within the last 8 years, they simple needed cash in their coffers and decided not to bite the hand that feeds them!

2. Government involvement gets more structured,  regulation is on the way!

2012 saw the passing of the law on Crowdfunding in the US called the Jobs Act, this year will see this law turned into regulation when the SEC introduces the specifics regarding how the crowdfunding and Peer to Peer lending sector in the US will be regulated. This is a very exciting development as it means that equity crowdfunding which allows start-ups to raise capital in exchange for equity in their companies will become available to sophisticated investors as a new asset class. It may even become a new investment option for Pension funds. In the UK; th government has already indicated that it loves the whole idea of P2P lending by giving Zopa and Funding circle https://www.fundingcircle.com 20Million pounds each to help them reach more small businesses that need funding that the banks are not prepared to give. The new regulatory authority in the UK; The Prudential regulation Authority (PRA) has already indicated that it has P2P lending in its sights and will introduce rules and regulations mostly to give comfort to lenders and borrowers in the sector. This has been welcomed by the major UK peer to Peer lenders through the Peer to Peer lending association http://www.p2pfinanceassociation.org.uk/ as they want more regulation so that they can reach more doubting Thomases who believe that the current light touch regime in the UK may mean that their rights are not protected. I will keep you posted on this one!

3. P2P will really become the new asset class for borrowers and lenders

I have been writing on this issue for the past 3 years wondering if P2P will ever be confirmed as the new asset class after cash, bonds, property, stocks and commodities. If the current ridiculously low rate of interest remain on savings accounts then this will be inevitable. Zopa boasts rate of 5.4% on funds lent on their site compared to a miserable 1.5% on savings accounts for the same amount with mainstream banks!  After factoring in the risks involved it definitely makes financial sense and lots of investors will start to see this in 2013!

4. The rise of Peer to Peer leasing and other variations of P2P lending

There has been a huge growth in offshoots of the Peer to Peer lending model such as peer-to-peer leasing where instead of loans, investors put money towards leases. There has also been an increase in the number of portals now offering invoice factoring. This is a form of lending whereby companies get a cash advance for the value of their current invoices by selling the value of their current invoices to a their party financier. Whilst factoring has been in existence just as long as mainstream finance, what is new is that factoring will use the online portal method that Peer to Peer lending has made famous by allowing companies to upload their factoring needs online and looking for third-party investors to provide financing based on their outstanding invoices. This is a very interesting development that means that small and medium-sized businesses have another new source of funding to build their balance sheets. WATCH this space!!!

 

 

Advertisements

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

August 27, 2012 Leave a comment

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.

would you knowingly pay 4000% in interest for a loan?

March 23, 2011 1 comment

Most of you would probably answer the above question with a resounding ‘NO WAY!’ 4000% does sounds like quite a rip-off interest rate for a loan but you would be very surprised to learn that  over 100,000 people a month in the UK have been paying this level of interest when they sign-up for pay-day loans with new lending site, Wonga https://www.wonga.com/ .The site lends funds to people who do not have enough liquidity to tide them over until they receive their paychecks at the end of the month and require money for funding consumer needs. They say that they process over 100,000 loans a month since they were established. All borrowers need to do is sign-up, provide their details for a credit check , request for a maximum of 400 pounds and within 15 minutes they are able to receive the funds they need in their bank accounts. I am not sure if most borrowers are actually aware of the effective annual rate of interest that they are paying as something tells me that anyone seeing the 4000% interest rate tag would rather call up their mate or family member and borrow money from them instead!! 

Wonga  seems to be very successful and all its lending capital is provided by a venture capital firm that has been backing it since it was established. The CEO of the firm confirms that the reason for their success is that ‘people now realise that they no longer need the services of a retail bank’. Although the interest rates seem quite exploitative, I would say that most borrowers on the site would probably not qualify for loans from a retail bank due to their poor credit history which means that Wonga is probably the only choice they have left.  Watch this space there will definitely be competitors wishing to replicate Wonga’s success in this market sector!

do you really want to fight poverty? try girl power

February 10, 2011 1 comment

I read an interesting article last night from Nancy Gibb (Essay, Time magazine, February 14) talking about the best way to fight poverty: her idea is girl power, i.e invest in young women/girls in developing countries and you have the perfect recipe for economic development. She calls this the silent revolution not the noisy ones we have seen lately in the North of Africa and presents statistics such as the fact that in sub-saharan Africa, only 1 in 5 girls make it to secondary school, half are married by the time they are 18 and girls under 15 are 5 times more likely to die giving birth. It is extremely thought-provoking that helping out women can make the impact as it is generally accepted that when women earn money they reinvest 90% of it back into their families (compared with men who reinvest just 30%). This is the thought process behind the soon to be launched peer-to-peer microfinance lending site Inuka.org. Inuka means ‘to rise up” in Swahili and the online platform will geared solely to lending to women owned businesses in sub-saharan Africa. The uniqueness of this model is that the lending will be done to women’s groups rather than individual women, and it will give the chance to social investors across Europe to help make a difference by investing in women. And this wont be charity as charity has been proven many times over to increase depency and not create real wealth and development. This exciting venture is set to take off in just a few weeks and is a partnership with myAzimia.org,(http://www.myazimia.org/) keep a watch on www.inuka.org

crowdsourcing goes to hollywood!

February 9, 2011 Leave a comment

It wasn’t going to take long for this to happen, with the crowdfunding revolution moving at the current crazy pace: the first crowdfunding movie will be shown at the Sundance festival this year and is the culmination of about 40,000 hours of footage from random people around the world who wanted to share a piece of their lives with Hollywood. The film is called ‘Life in a day’  and follows a documentary form with all the footage compiled from YouTube; 4,500 video clips were sent in from 190 countries round the world showing things as varied as women in Africa pounding Cassava lunchtime to a little American boy’s reluctance to be part of a family video project about his mom’s fight with cancer. The film’s completely arbitrary nature and the fact that it will be shown at the pre-eminent Sundance festival just goes to show how quickly crowdsourcing has come of age. Thousands of people around the world have been a part of this film and each them had a unique story to tell and share. For sure we are going to see more of this type of collaboration in future!
 myAzimia’s software platform can help you get your crowdfunding/crowdsourcing platform off to a great start, check out our site..http://www.myazimia.org/

my one and only new years resolution: lend to my friends!!!

January 4, 2011 Leave a comment

I personally stopped believing in new years resolution at the age of about 12! I realised that it was just a way to make starting the year even harder and more unpleasant.. but having said that, one thing that I think should feature in new years resolutions should you decide to have any this year are:..’.I will join the online lending revolution at a website near me!’ Crowdfunding and peer-to-peer lending have had huge growth in 2010 with higher levels of lending and borrowing expected for 2011…if you have a business you’d like to start and need capital go to Kickstarter.com and see your funding dream come true without losing any of the equity in your business..Or if you an investor tired of getting lacklustre returns from your savings account or brokerage account, check out the crowdfunding sites and see what kind of improved return you can get . If you have strong philanthropic intentions but don’t know how to fulfill them, go to an online P2P lending portal (kiva, babyloan, myC4) and select a small business to fund and feel good about it! Whatever it is you decide to do, let 2011 be your crowdfunding year, a year when you recognise how unimportant the banks and venture capital institutions will eventually become and the power of social networks in helping build up small business…happy new year to you!!!

crowdsourcing or private equity in sheep’s clothing?

December 30, 2010 Leave a comment

I have been following the crowdsourcing revolution with a very keen eye for the past year and its developement has been outstanding. Crowdsourcing is simply using the power of  the internet to harness capital for small businesses, but  simultaneously have a social impact. The people who invest in these businesses do not receive any equity in the business and simply provide the capital that is repaid. The aim of crowdsourcing is to remove the barriers to launching that most small businesses tend to go through at the seed capital stage which in many instances is not attractive for angel investors or private equity or venture capitalists. Kickstarter(https://www.kickstarter.com) is a fantastic example of this revolution, the platform funds creative people who wish to launch their own businesses. I have however just come across a site that calls itself a crowdfunding platform but on further scrutiny looks to me like  another angel investor/ venture capital platform. The crowdsourcing label has been used to get traffic to the site but I was really disappointed with it: small businesses have to pay 100 dollars to submit their proposals, the site is stuffy and stiff and exactly what I would expect from a private equity house, they are Microvest ventures (http://www.microventures.com/) and I am sure what they are doing os noble in some way but this does not fit the crowdsourcing tag at all!