Tim Hassett, Obtaining Funds from New Financial Instruments and Mechanisms for Commercial and Emerging MFIs: From Funds to the Web
INDIRECT PERSON TOPERSON (P2P) PLATFORMS Tim Hassett VP Kiva
Overview• Crowd Funding has Arrived• Crowd Funding Microfinance• Indirect P2P Market• Global Impact of Indirect P2P Market• Advantages & Disadvantages with Platforms• Future of Indirect P2P Market• Questions to Consider
Crowd Funding has ArrivedRaising large amounts of social capital through small sums from many people• Network for Good has raised over $500M• Direct P2P has raised over $500M • Zopa • Prosper • Lending Club• Indirect P2P has raised over $250M
Crowd Funding Microfinance“Person to Person Lending, Is Financial Democracy a Click Away?” USAID Sept 2008• Direct – Borrower posts loans directly to platform• Indirect – Borrower is posted by a Field Partner• Microplace – Notes from Issuers Sold
Connected Capital Photo Credit: Connecting Dotz
Different Models From Survey of 24 InstitutionsFinancial Returns for Lenders – 20 provide no return to lenders – MyC4 is largest platform offering returnsRegional Focus – 11 are global (Kiva) & 13 regional (Wokai)Specialized Loan Products – 6 specialize in certain loan products • Vittana for Student Loans • Energy in Common for Green Energy Loans
Different Models From Survey of 24 Platforms Borrower Risk Yes No Deki Babyloan Energy in Common MicroWorld Good Return United Prosperity Yes Kiva Xetic MyC4Partner Risk Vittana Lend for Peace Rang De (proportions of defaults covered by a Zafen Contingency Fund) No
Global Impact of PlatformsProvide early capital to help Field Partners scale – Tier 2-4 MFIs – Risk Transfer allows for product innovation that may not be possible with commercial capitalStimulate product innovation – Risk Tolerant and Low Cost Capital – Vittana and Energy In CommonEducation Vehicle for Lenders – Connection Caring Engagement
Advantages & DisadvantagesAdvantages Disadvantages• Attractive Source of Funding • Foreign Currency Loans – Low cost – 9 of 24 Platforms lend in – Risk Transfer foreign currency• Public Relations and ability • Higher Operating Costs to share best practices • Challenges to Borrower• Ability to innovate when Privacy borrower risk is transferred • Liquidity Concerns to lenders – Many Platforms require monthly repayments
Future Evolution of SectorLarger SME Loans – Able to finance the “missing middle”Insurance Products – Risk Transfer already entails credit insurance – Crop or Business Interruption Insurance could be appealing to lendersIndividual Development Accounts – Lenders could match savings after pre-determined criteria were achieved
Questions• How large will this market sector grow in the future?• Does differentiation among platforms add benefit for MFIs or does it create confusion?• Should there be an accreditation of Indirect P2P Platforms? – Protecting Lenders – Providing information to Field Partners
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