|Microloan facts: Kiva, MyC4 and MicroPlace|
|Launched||November 2005||Summer 2006||May 2006|
|Who can become a lender?||Anyone||U.S. residents only||Anyone; however, North Americans cannot make withdrawals|
|Average interest rate for lenders||Zero||2 percent||12.80%|
|Lender can request specific interest rate||No||No||Yes|
|# of borrower countries||42||29||6|
|Value of loans processed so far||$45,714,935||not available||4,805,196 Euros|
|# of loans funded||64,073||47||2577|
|Current repayment rate||98.64%||100%||91.30%|
|Current default rate||1.36%||0%||0.72|
|Current # of borrowers||310,655||not available||2899|
|Percentage of loans made to women||77.70%||not available||not available|
|Average size of loan requested by borrower||$458.36||not available||1,766 Euros|
|Average amount loaned||$132.37||$135||not available|
|Loan duration||6-12 months||not available||4-36 months|
|Current # of lenders||345,200||not available||8,378|
|* As of October 9, 2008|
By Carla Thornton
Vin Ron, a farmer, and her husband, a fisherman, struggled to feed their five children on $5 a day in Cambodia. Their fortunes changed when Vin applied for a $600 microloan from Kiva. Vin used the money to buy seeds and fertilizer to produce a bigger crop of rice and vegetables to sell to her community. She even had enough cash left over to branch out into raising piglets.
Traore Lozouhon of Cote D’ Ivoire, a small country in West Africa, applied for and received a microloan of 2000 euros from MISCOCI, a consumer union that partners with the microlender MYC4. The unschooled father of three used his loan to expand the inventory of his convenience store and attract more customers.
Felicita, a single mother of two living in Paraguay, barely made enough selling clothes in an outdoor market to keep her kids in school, so she applied for a $400 loan from Fundacion Paraguaya de Cooperation y Deserrallo, a partner of microlending broker MicroPlace. With her small loan, Felicita bought household products she now sells out of her home, saving stall rental in the market. Once she has repaid that loan, she plans on taking out a second to expand her stock to include basic foodstuffs like flour and sugar. With only a few hundred dollars loaned by sympathetic strangers, Felicita is on her way to ensuring a more stable life for her family.
Micro loan investments, big ripple effect
Until recently only financial institutions and high-income individuals could invest in microloans. In the last couple of years, microlending has made the leap to the person-to-person lending model used by sites like Prosper. Now anyone can sit down at a computer and invest in a poor microentrepreneur living halfway around the world through MyC4.com, Kiva.com or MicroPlace.com.
These three sites partner with local microfinancial institutions that find, screen and manage microentrepreneurs in their respective regions. Once a loan’s full amount has been raised through the microloan site, it’s sent to the MFI who distributes it to the borrower. The MFI then collects payments and funnels them back to the operators of the site, who repay the lenders in monthly installments.
Not a get-rich-quick scheme
With 3% interest rates at most, none of these sites will make you wealthy. Moreover, Kiva and MyC4 loans are unsecured, which means if the borrower skips you won’t get your money back. Add unpredictable fluctuations in exchange rates, and a Kiva or MyC4 microloan might seem like a bad investment no matter how much you want to do good.
In Kiva and MyC4’s favor, default rates are low compared with mainstream social lending sites’; in June, for instance, Kiva reported a default rate of only .3 percent. Plus loans are repaid within six to 12 months, compared with three years for most social lending site loans.
Kiva and MyC4 offer one major advantage over MicroPlace as a way to socially invest: you can direct your money to be loaned to an individual of your choosing.
In the end, funding a guy on Prosper with a self-inflicted credit card problem might bring a bigger return – but investing socially on one of these three sites might bring you more personal satisfaction. Here’s how they shake out.
If the name Kiva (agreement in Swahili) rings a bell, you can probably thank Oprah. When the talk show hostess/one-woman PR juggernaut gave Kiva founders Matt and Jessica Flannery her on-air blessing last year, so many lenders registered at the site that Kiva briefly ran out of microentrepreneurs to help.
Not-for-profit Kiva currently pays zero interest but this will change next year, according to Kiva’s public relations director Fiona Ramsey, who says Kiva’s partner lending institutions in the field will share part of the interest they collect, probably a nominal amount similar to MicroPlace’s 3 percent rate.
Lending money to a Kiva microentrepreneur is as easy as browsing a list and clicking on your choices to add them to a shopping cart. You can see Kiva’s entire list of applicants at once or filter based on region (43 countries in all), business type or even gender. The minimum loan amount is just $25.
Like MyC4, Kiva encourages lenders and borrowers to develop personal long-distance Internet relationships to cement the special bond being created by the microloan. When registering you have the option of creating a detailed lender profile.
Kiva might not pay interest right now, but when it does, it should be one of your most attractive choices for socially responsible investments.
MyC4 explodes with potential
MyC4 currently is the least broadly appealing of the three, and not because it’s named after a plastic explosive (C4 also stands care for, according to the site). Launched in May 2006, it’s the second oldest of the three but still in beta operation and makes loans only to microentrepreneurs in six African countries.
Unlike Kiva and MicroPlace, who cater to the poorest of the poor, MyC4 helps microentrepreneurs who already have fairly well-established small businesses but need additional funds to thrive.
Currently MyC4 is not fully open to North Americans, who can invest but not withdraw money. This troublesome restriction might change in 2009, according to MyC4 representative Alette Heinrich Pramming, when MyC4 plans to expand beyond Europe.
If MyC4 does fully integrate North American investors, it could rival Prosper as an alternative social investment. It uses a Dutch auction system of loan bidding similar to Prosper’s where multiple lenders vie to fund a loan and the lowest interest rates win. However, unlike Prosper, the winning bidders receive the interest rate they bid. So if you make the final cut, bidding higher can actually pay off.
Guaranteed microloan investments for the masses
A wholly owned subsidiary of eBay, MicroPlace is the first online brokerage to let individuals invest as little as $100 to help the working poor. Currently MicroPlace’s intermediaries, who partner with the lending institutions in the target regions, help microentrepreneurs in 29 countries including the United States.
You can’t choose specific individuals to invest in at MicroPlace. Instead, you choose one of MicroPlace’s lending partners in a country or region you would like to help. Still, the site has the look and feel of a social lending site thanks to profiles of borrowers who have been helped by the lending partner and a calculator that shows how many loans on average your contribution will fund.
You can view all the investment opportunities at once or by country, level of poverty or financial return. Choosing a country takes you to a page with a short description of the region and a list of investments, each flanked by a sample borrower to give you a feel for how your investment will help. Included is the interest rate -“ up to 3 percent but usually less – and loan duration.
For those who don’t have a lot of money to invest or don’t have the time to comb mutual funds for socially responsible investments, MicroPlace makes it easy, safe and affordable to help the working poor.
Which microloan site is best for you?
If making a guaranteed profit while helping a poor working person is paramount, choose broker MicroPlace. However, if Kiva delivers on its promise next year to pay interest, it could be the best combination of profit and personalization. When MyC4 allows U.S. investors to participate we’ll be revisiting this promising microloan site as well.
So get out your pocketbook now; eager and deserving microentrepreneurs around the world await your kind assistance.
By Vivian Wagner
A general guide to person-to-person lending sites
Choosing the right social lending site depends on your needs, and what kind of borrower or lender you are. Do you have stellar credit – or not so much? Must you have the highest possible interest rate, or would you be just as happy making a smaller return in order to help a one-person business in a third-world country?
Whatever your social lending goals, there’s probably a site out there for you. To help in your search, here’s a quick overview of the major players.
Prosper.com, LendingClub.com and Loanio.com are for the most part designed for stranger-to-stranger transactions, which means almost anyone can sign up to lend or borrow. All three facilitate loans between $1,000 and $25,000 for a variety of purposes, including auto, business, debt consolidation, friends and family, home improvement, military, and student and school loans. Both charge roughly the same fees. However, the LendingClub favors lenders, whereas Prosper and Loanio are much better choices for most borrowers.
Launched in 2006, Prosper, the largest mainstream social lending site in the U.S., operates on a bidding system similar to eBay’s. Borrowers post profiles of themselves designed to attract lenders, and lenders bid on the loans, with the lowest bids winning a chance to fund the loan. Almost any borrower, no matter how shaky his or her credit history, can post a profile on the site, and if the loan isn’t funded the first time, they can try again.
Based on Facebook, LendingClub is a relative newcomer to the P2P business, but it has quickly gained a foothold since its 2007 launch. Unlike Prosper’s bidding platform, LendingClub uses proprietary software to match lenders and borrowers based on common interests. It has high standards for borrowers, who must have a minimum FICO score of 640 and a debt-to-income ratio of less than 30 percent. The site is currently in a quiet period while registering with the SEC and is not accepting new lenders, though borrowers can continue to apply for loans. The site’s relaunch date for lenders has not been announced.
October-launched Loanio might be wet behind the ears compared with Prosper, the other auction-based social lending community, but Loanio is already making waves with some intriguing new features designed to help borrowers with bad credit. One is a cosigner option. Another option releases a loan when funding reaches 35 percent, eliminating the problem many borrowers have attracting enough lenders to fund the entire amount requested.
Friends and family: Virgin Money USA
Thinking of hitting up a pal or relative for money? Then there’s only one real social lending site to consider: Virgin Money USA.
Known as CircleLending until airline and record industry mogul Richard Branson bought it in 2007, Virgin Money USA is one of the oldest social lending sites. Virgin Money facilitates and documents personal, business, real estate, and student loans between friends and family members. Its big plus: borrowers don’t have to qualify. Just pick up the phone and call the toll-free number or fill out an online form with terms you’ve already agreed upon with your personal lender.
Some mainstream sites, including Prosper, have friends and family sections, but the loan process isn’t much different from stranger-to-stranger lending and probably overkill for what you need. Virgin specializes in people who already have a loan amount, term and interest rate lined up with an individual they know. The fees are highish, but Virgin can make the transaction easy, convenient, and free of much of the awkwardness that usually accompanies borrowing money from your dad or best friend.
In general, social lending is at your own risk. However, for lenders desiring assurance that they won’t lose money, there are a handful of sites that offer guaranteed returns. The tradeoff? Lower interest rates or longer terms.
The student-loan site Fynanz.com offers lenders partial to full guarantees of the original loan amount, depending on the Fynanz Academic Credit Score (FACS) assigned the loan. The proprietary FACS scoring system that Fynanz uses rates loans based not just on credit scores but also on factors like the student’s GPA, course of study, school, class standing, and year of study. Loan guarantees range from 50 percent to 100 percent of the loan.
The investments ” not technically loans ” that you make through this globally-aware microfinance firm have a guaranteed, up-front interest rate, so when you send in your money you know exactly what you’ll be getting in return.
Founded in 2005 and with operations in several countries, including Italy, Japan, the U.K., and the U.S., Zopa offers U.S. investors federally-insured CDs that are used to lend money to borrowers. (In order to take out a CD, a lender must donate part of the interest to a Zopa borrower.)
Helping the Poor
If you want your money to help a grocery store owner in Afghanistan or a restaurant co-op in Africa, you might want to turn to one of the sites that specialize in microloans.
Kiva links good-willed lenders with borrowers from third-world countries who need loans to buy animals, equipment, store supplies, or other goods for their businesses. Lenders earn no interest, so it’s best to look at loans through Kiva as charitable investing. (It’s also a nice educational tool if you enjoy learning about other countries.) As your loan is paid off, you can withdraw the money through PayPal or reinvest it.
Founded in 2006 and based in Denmark, MyC4 raises capital for entrepreneurs in Africa. So far, 3,500 investors from 53 countries have loaned money to over 1,000 businesses in Kenya, the Ivory Coast, and Uganda. At this time, however, MyC4 doesn’t fully serve North American investors, who cannot withdraw money from their account once they invest it.
Founded in 2006 and owned by eBay, MicroPlace is an investment firm that looks like a social lending site. Lenders invest money through security issuers listed on the site, and these funds are then invested in specific microfinance projects. Although not a social lending site, MicroPlace highly resembles one with profiles, narratives, and photos of borrowers.
This social lending site focuses on serving institutional lenders, who partner with the site to offer borrowers competitive loans.
GlobeFunder offers what it calls “Direct-to-Consumer or D2C” loans and microfinance loans. Borrowers can borrow up to $25,000 in an unsecured loan. Lenders at the moment are limited to institutional lenders, but the company is preparing to launch an individual lender platform.
Many students are turning to private loans to fund their education, often as a supplement to governmental loans. Fynanz.com and GreenNote.com specialize in student loans. Virgin Money offers a special brand of family-backed student loan.
Fynanz offers a loan auction marketplace similar to Prosper’s. Students post profiles and request their desired loan amount. Fynanz assigns the loan a Fynanz Academic Credit Score (FACS) based on factors including the student’s GPA, course of study, and school, and then opens the listing to bids from lenders. Bids ultimately determine the interest rate.
Brand-new GreenNote, launched in June 2008, uses a students’ social network to pay for college. Students post their loan requests and then contact potential lenders – friends, family, community leaders, and anyone else in their extended social network – to help fund the loan.
As with its “family and friends” loans, Virgin’s student loans are agreements made offline between a lender and borrower and brought to the table for Virgin to document and service with automatic electronic payments. That means a student loan can be as flexible and have interest rates as low as the lender (usually mom, dad or another relative) will allow. Rates can be below market and the payment schedule flexible to the point of long deferments or complete forgiveness, at the lender’s discretion.
Virgin offers lots of helpful guidance and advice such as its “œlender blender” calculator for students using P2P loans as a supplement to scholarships, grants, and federal loans.
The Student Payback program lets students borrow from the same lender up to 10 times over the course of their studies for one servicing fee, handy for parents who would like to make multiple loans to their student over several years’ time. The downside: Virgin doesn’t service loans made up of money from more than one source. In other words, your aunts, uncles and friends can’t pitch in, too, and receive monthly individual payouts from Virgin.