FIB - Scams 101

Microlending

Posted By: Mel. White
Date: Monday, July 16, 2007, at 11:29 a.m.(pst)

Being the curious sort, my ears perked when I heard an NPR segment a few weeks ago on "microlending"... where someone lends a small amount of money ($25-$200, usually) to a person or business. Often these businesses are in very poor parts of the world and the loan rates are staggering... beyond what a poor person can afford.

You, the investor-microlender get your money back from the business... but no interest. For those of you interested in this, the BEST place to get involved (they take Paypal) is Kiva:
http://www.kiva.org

But, suppose you wanted to see a bit of return for your investment. As it turns out, there is a site where you can become part of a lending group and you do receive a payment that includes interest for the money you lend. The site is "Prosper", which hooks up lenders and borrowers (and includes a banking system (Wells Fargo Bank is the place where Prosper's accounts are kept) and a bidding system.

You, as a lender, can lend $50 and up to someone. Interest return rates on your loan can be up to 28% (people with very bad credit are willing to pay this.) If that rate seems high, note that many are suffering under "payday loans"... loan sharks who charge up to 60% interest... and they're desperate to get out from under that crushing burden.

Here's a transcript of NPR's show on peer-to-peer microlending and the Prosper site itself:
http://marketplace.publicradio.org/shows/2007/07/04/PM200707043.html

A word of warning about Prosper... it take FOREVER to get set up (unlike Kiva, which accepts Paypal). Figure on 3-4 days to get your information and bank account vetted, and another 3 days for each money transfer from your account to the Prosper holding account (yes, even when you bank with Wells Fargo, as I do.)

You won't get rich as a microlender. But the loan interest rate returned to you is a lot better than the interest rate you'll get from your bank (ditto CDs) and is somewhat less risky (IF you pick the right people to lend money to) than the stock market.

Salon has a largish article about Prosper... and about some of the really heartwarming stories as well as some of the frauds on there:
http://www.salon.com/tech/feature/2006/05/22/prosper/

Profile of a successful investor -- with LOTS of warnings as well:
http://articles.moneycentral.msn.com/SavingandDebt/ManageDebt/ProsperDotComAnEbayForLoans.aspx

It's not for everyone, but I thought a few of you might find it interesting.

The British firm, Zopa (similar idea to Prosper) should hit the US later this year:
http://www.zopa.com/ZopaWeb/

P.S. Here is the Kiva loan I helped fund -- FIVE businesses plus business training for the new entrepreneurs! I'm excited about this!
http://www.kiva.org/app.php?page=businesses&action=about&id=13647

Messages In This Thread

• Microlending
  Mel. White -- Monday, July 16, 2007, at 11:29 a.m.(pst)
  • PS...
    Mel. White -- Monday, July 16, 2007, at 12:17 p.m.(pst)

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