Money for the Masses

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

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.


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