Microplace: Securitised Microfinance
May 1st, 2008Somehow I haven’t heard about Microplace but it’s an exciting addition the the expanding world of P2P lending and microfinance. It is different to Kiva because you invest in a security (like a bond) for a fixed term, usually 2-4 years and you receive a return, although minimal 1.5-3%. As I understand it the big issue is getting registered with the Securities and Exchange Commission. Microplace is backed by eBay which certainly helped whereas Kiva was a start up and was forced into going the non-profit route.
It’s great to have two companies to compare and contrast.
Kiva is more personal. I choose who I want to lend to and can received feedback and updated information on how the borrower is getting on. This is really important as it builds a web of social capital.
With Microplace you are buying a package of loans and so you don’t have that personal contact. Also there is the issue of return. I think it’s good you can get a return on your loan as long as it does not influence the rate being paid by the eventual borrower.
So you could actually lend to the same borrower through either Kiva or Microplace but somehow Microplace can get you a small return on your money. I’ll be digging further to see how they do this. So far they have been very helpful and open.
In a way the securitisation approach is not much different from mortgage backed securities where people invest in a package of mortgages. Of course we all know what’s happened with those. However i would stress this is completely different in that all the loans are unsecured anyway. It’s also important to note that default rates on microfinance are a mere 1-3%.
When we cut out the banks and go direct we enable relationships of trust to be built. This allows the traditional aspects of social relationships to take place. No one cares if you default to the bank but to default to other people can bring personal shame and other social fallout.
These 2 companies are blazing a trail for the rest of the finance industry. P2P finance could well be the next big thing.
Tags: banking, credit, debt, finance, innovation, kiva, microfinance, microplace, money, social capital