Money for the Masses

A venue to discuss how person-to-person lending could benefit borrower, lender and our global society.

Tuesday, October 31, 2006

Baby Boomers Heart

Of the 100,000 members of, I was wondering how much Prosper (or Zopa) has focused on one particular demographic, the Baby Boomers. Here is a class of lenders that might be more than happy to participate in this medium. In a climate where pensions are drying up or disappearing altogether, layoffs are rampant and a huge amount of people are steadily moving toward retirement age without having good ways of preparing for it (read: investments) - this "new asset class" could very well become just that. According to the site a very low risk (AA borrowers default 0.20%) loan can return anywhere from 9-12% conservatively. In the current investment climate, with questions about the repercussions of the housing boom still weighing heavily we can't know how the stock or real estate market will react. At the time of writing, some of the top yielding savings options are (according to
  • For 1 Year CDs: 5.71% APY
  • Savings Accounts: 5.5% APY
  • Corporate Bond Funds: 5.32-6.28% (2 years, 30 years) according to rates published in WSJ last Friday. get the idea. Prosper offers an opportunity like no other. And now it seems like there are people catching on. With usernames like "pensioner" and over $100k invested, I'm guessing that I'm late to this piece of analysis :). A more complete accounting of What's in It for You.

Monday, October 30, 2006

More on

Thanks to Tim from for chiming in yesterday. As a brief followup to yesterday's post, I'd like to direct readers to this interview with Kiva President, Premal Shah.

There are some great tidbits in here. For example, later this year Kiva will allow lenders to earn interest on their loans which I think this is vital to keeping their lenders motivated and involved in Kiva's success.

Sunday, October 29, 2006

The Potential of a Loan

There is a heartbreaking story from the New York Times entitled, "Africa’s World of Forced Labor, in a 6-Year-Old’s Eyes" (requires a free subscription). Some noteable points from the article:
Until their servitude ends in three or four years, they are as trapped as the fish in their nets, forced to work up to 14 hours a day, seven days a week, in a trade that even adult fishermen here call punishing and, at times, dangerous.

Mr. Takyi’s boys — conscripts in a miniature labor camp, deprived of schooling, basic necessities and freedom — are part of a vast traffic in children that supports West and Central African fisheries, quarries, cocoa and rice plantations and street markets. The girls are domestic servants, bread bakers, prostitutes. The boys are field workers, cart pushers, scavengers in abandoned gem and gold mines.

The story is sadly not uncommon. And as it states in the article, it's easier that these children are given a chance to eat and work rather than starve at home. Moreover, the parents are motivated by being given $20 a year as part of the "lease". $20! More from the article:

Nearly every canoe here holds at least a few of them, some no older than 5 or 6, often supervised by a teenager. A dozen boys, interviewed in their canoes or as they sewed up ratty nets ashore, spoke of backbreaking toil, 100-hour workweeks and frequent beatings. They bore a pervasive fear of diving into the lake’s murky waters to free a tangled net, and never resurfacing.

One 10-year-old said he was sometimes so exhausted that he fell asleep as he paddled. Asked when he rested, another boy paused from his net mending, seemingly confused. “This is what you see now,” he said.

They never see the pittance they earn. The fishermen say they pay parents or relatives each December, typically on trips to the families’ villages during the December holidays.

The children’s sole comfort seems to be the shared nature of their misery, a camaraderie of lost boys who have not seen their families in years, have no say in their fate and, in some cases, were lured by false promises of schooling or a quick homecoming.

So this blog is about loans. So let's veer off from the Christian Missionary angle and revisit a thought. How desperate and horrible must the alternatives be that you could "lease" your son for $20 a year? I don't know about you but I'm feeling ridiculously guilty that my lunch at Quizno's could have paid for four months of freedom from this hell.

This isn't black & white, but these are the the worst-case scenarios that are trying to be avoided by Yunus, and some of the microfinanciers mentioned in my previous post and specifically in the New Yorker article. So what can be done? Read this. An excerpt:

FINCA founder John Hatch pioneered the Village Banking model in 1984 at Rural Development Services, a consulting firm where he worked with Rupert Scofield, the current executive director of FINCA International. Mr. Scofield had encountered a similar model during his stint in the Peace Corps working on an agricultural cooperative in the Guatemalan highlands in the early 1970s. Mr. Scofield administered $50 loans to tenant farmers and sharecroppers.

"I was very impressed by how a small amount of capital dropped into a huge surplus of underutilized labor could create a lot of value, allowing borrowers to generate a marketable surplus that could then be ploughed back into the family for better nutrition and education for the kids as well as money to buy medicine," Mr. Scofield told "What a huge rent they were able to extract from a small amount of money!"

Village Banking is a system where a group of 20 to 40 villagers receives small loans of $50 to $100. This system is predicated on a number of social and financial principles. The first principle could be considered "collective collateral," an alternative to material collateral.

"If one or two borrowers fail to repay, then the others have to pay for them," explained Mr. Scofield.

This system incentivizes the group to self-select only those villagers who are least likely to default. A single missed loan payment places the collective loan into FINCA's portfolio at risk (PAR) category, which stood at a mere two percent of their entire portfolio as of January 2003.
The story goes on to say that they are looking to turn this not-for-profit venture into an investment that will aim to return 8% a year.

If you're ready to do something, check out Sheel Mohnot's interview posted on Ryan is Hungry. Check out Kiva's website and see what you can do.

Tuesday, October 24, 2006

The Playing Field

...So your bank makes money like this. You go there and drop money into a savings account that gives you 3% APR. That money then gets loaned to someone via their bank credit card at 13% APR. The bank basically makes 10% by "arranging" this meeting. Now just use some imagination and account for all the savers a bank might have and all the "opportunities" they have in reaching people who are willing to use their credit card.

The basic premise of Prosper and Zopa is - why let the banks have all the fun? What if you eliminated the middle man and as the saver now receive double or triple what you normally get and the borrower also gets the loan at a rate better than he could ever manage with a credit card?

This is how you or I could make money. But there are those out there implementing what is known as Microfinance/Microcredit/Microloans not for themselves (necessarily) but first for the greater good. Imagine the implications of loaning a farmer $100 so that he can buy an oxen to til fields that he already owns. Instead of turning to charity (as a bank would never loan such a small amount to an impoverished person with no credit history) he now has a stake in his own future and he has the opportunity to benefit his family if not much more. This is old news now as Muhammad Yunus has now won the Nobel Peace Prize. But the players in this field are vast and notable and include the likes of the founder of eBay, Microsoft and the Google Twins. Here's a great (long) article from the latest New Yorker on these topics.

Not our ideal borrower

More to come very soon.