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This document discusses indirect person-to-person (P2P) lending platforms that connect individual lenders with borrowers through microfinance institutions. It notes that indirect P2P lending has raised over $250 million to date. It then describes different models of indirect P2P platforms, their global impact in providing early funding to microfinance institutions, and both the advantages and disadvantages they present. Finally, it considers how the sector may evolve in the future to provide larger loans to small and medium enterprises as well as new insurance products, and raises questions about the future growth and regulation of indirect P2P lending.
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- 1. INDIRECT PERSON TO PERSON(P2P) PLATFORMS Tim Hassett VP Kiva
- 2. Overview • • • • • • • Crowd Funding hasArrived Crowd Funding Microfinance Indirect P2P Market Global Impact of Indirect P2P Market Advantages & Disadvantages with Platforms Future of Indirect P2P Market Questions to Consider
- 3. Crowd Funding hasArrived Raising 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
- 4. Crowd Funding Microfinance “Personto 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
- 5. Connected Capital Photo Credit:Connecting Dotz
- 6. Indirect P2P Market Platform Kiva MyC4 Babyloan RangDe MyELEN TOTAL LoansFunded ($000) Q1/2011 $210,000 18,000 2,300 1,000 900 $232,200
- 7. Different Models From Surveyof 24 Institutions Financial Returns for Lenders – 20 provide no return to lenders – MyC4 is largest platform offering returns Regional 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
- 8. Different Models From Surveyof 24 Platforms Borrower Risk Yes No Partner Risk No Babyloan MicroWorld Lend for Peace Zafen Yes Deki Energy in Common Good Return Kiva MyC4 Vittana Rang De (proportions of defaults covered by a Contingency Fund) United Prosperity Xetic
- 9. Global Impact ofPlatforms Provide early capital to help Field Partners scale – Tier 2-4 MFIs – Risk Transfer allows for product innovation that may not be possible with commercial capital Stimulate product innovation – Risk Tolerant and Low Cost Capital – Vittana and Energy In Common Education Vehicle for Lenders – Connection Caring Engagement
- 10. Advantages & Disadvantages Advantages •Attractive Source of Funding – Low cost – Risk Transfer • Public Relations and ability to share best practices • Ability to innovate when borrower risk is transferred to lenders Disadvantages • Foreign Currency Loans – 9 of 24 Platforms lend in foreign currency • Higher Operating Costs • Challenges to Borrower Privacy • Liquidity Concerns – Many Platforms require monthly repayments
- 11. Future Evolution ofSector Larger 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 lenders Individual Development Accounts – Lenders could match savings after pre-determined criteria were achieved
- 12. Questions • How largewill 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