Every Saturday I bring you the latest news from the world of peer to peer lending. These are the best of the news articles and blog posts from around the web that I shared on Twitter this past week.
We have an interesting collection of articles this week. It was sad to see that CommunityLend, the Canadian p2p lender, is closing down their operation and focusing on their direct financing arm. I think p2p lending in small economies like Canada is challenging because it will be even harder (than in the U.S.) to achieve a critical mass of investors and borrowers in order to turn a profit.
I also want to highlight the article on The Truth About Cars. This one is a bit disturbing because the author is suggesting that unscrupulous borrowers can get a free car by taking out a loan with a p2p lender like Lending Club. My take on this is that while technically true, if someone is planning on defaulting on a car loan, most likely something would have happened in their credit history that would preclude them from being approved for a loan. I thought it was a bit irresponsible for a blog to suggest such a thing but I thought we should all know about it. Have a great weekend.
Pinch That Penny – Does Lending Club Advocate the Martingale System?
Compass Principles – Crowdfunding – A Promising Innovation for Improving Access to Financial Services
Wiseclerk – Ratesetter Adds More P2P Lending Choices
CommunityLend blog – Onwards and Upwards …
Brave New Life – Lending Club Update: February 2012
Interest.com – Peer-to-peer lending offers double-digit returns with some work, risk
The Truth About Cars – Can Lending Club = Free Car?
Finance Product Reviews – Prosper Peer To Peer Lending Program Review
Plugged in Finance – My Net Annual Return on Lending Club Account Up from 9.5% in 2010 to 11.0% in 2011
I’m guessing that Canadians will be agitated to hear that they’re a “small economy”. They are after all the 10th or 11th largest in the world depending on source.
@Peter, I think most credit history (including bankruptcy) are removed from one’s credit score after 7 years. So for someone who doesn’t really care about their credit score they may attempt this. Obviously, this is fraud and if someone does attempt this and fraud can be proven they are in for much more serious consequences than a repossessed car. My thoughts are that most anyone who does try this would fail at securing a loan in the first place as they probably haven’t cared much about their credit history heretofore. I also don’t view it as irresponsible for a blog to mention this aspect of p2p lending. I’m fairly certain that some “thief, degenerate, lowlife, schmuck and parasite of the modern world” has already thought of it.
@Dan, According to the CIA, Canada is number 15 (https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html?countryName=Canada&countryCode=ca®ionCode=noa&rank=15#ca). Of course, the UK is only slightly larger than Canada, and they have multiple p2p platforms from which to choose (with 3 that seem at least somewhat successful).
The market in Canada is certainly smaller than say the US or UK market but there were other significant factors. These made the market available to P2P in Canada very small, and more expensive to get to scale than we could manage at this time.
Having said that, we learned a lot about the industry and had the opportunity to work with some smart aoftware developers to create some awesome applications.
re: Does Lending Club Advocate the Martingale System?
Neither Propser nor LC advocate the Martingale system. They merely advocate what most financially savvy people advocate: diversification. The more diversified a portfolio the closer its return is to the overall return. In statistics, it is called regression to the mean. While the Martingale system also regresses to the mean, the mean for the Martingale system is ALWAYS zero. We are seeing both Prosper and LC having positive returns overall. If they were both achieving -10% returns, I’m fairly certain that no one (or almost no one) with over 800 Notes would see a positive return.
Thanks for including us.
Roy S………..You didn’t look at the list closely enough. The CIA ranks the EU as an actual country, which is ridiculous. So adjusting for that it “estimates” Canada at #14. The IMF & the World Bank estimates at #10 & #11.
@Dan/@Roy, My point with saying Canada is small is really only comparing it to the U.S. where it is less than one-tenth the size. That much we can agree on.
And good point about the fraud piece. Of course, one would have to prove that a borrower knowingly took out a loan with the intention of never paying it back – and that might be tough to prove.
@Colin, Thanks for chiming in, it is good to hear it from the source. In case people don’t know Colin Henderson is the Chief Operating Officer at CommunityLend. I think you are alluding to regulatory factors which seem to hit p2p lending hard is just about every country with the possible exception of the UK. Best of luck to you.
Based on the Plugged in Finance article, it mentions that my NAR on LC does not factor in loans I’ve sold on FolioFN (nor its fees)?? Can anyone confirm this? I’ve sold a few of my late notes on there for discounted pricing, and I figured LC’s NAR was smart enough to take this into consideration.
If it doesnt, whats the best way to go about in calculate my true return?
Thanks for the inclusion!
@Danny S – XIRR function in xcel (or other spreadsheet package). Peter’s written about this topic before, I can’t remember the other options, but XIRR is what most people use.
@Danny S, Yes proceeds from loans sold on FolioFN are not included in your NAR numbers. It really looks at the principal and interest rates of the loans that are currently in your portfolio.
As Lou points out the best way to calculate your return for any historical period is through the XIRR() function in Excel. You should check out this article about calculating returns (XIRR is number 5):
http://www.sociallending.net/investing-lending/five-ways-to-measure-your-p2p-lending-roi/
Also note that FolioFN will not mail you a 1099-B
They also won’t let you download a CVS, Excel or any other spreadsheet file.
You get to download a PDF and manual type every note you sold, when you sold it, cost basis, procedes.
Just doing my taxes this year and Folio SUCKS because of the inability to import your 1099-B.
@Charlie – The tip that was given to me is to just open the year end summary and cut and paste the whole thing into Excel.
That worked for LC…. I have not tried that for Folio. Thanks Flyp!
@Charlie, You could also try a free tool like this one:
http://www.pdftoexcelonline.com/
I have used this occasionally and while it is not perfect it certainly beats typing everything in.
Thank you Peter, Thank you Flyp!