I mentioned Wokai briefly in the previous post but after closer examination they deserve the full monty. Developed by 2 smart ladies (Courtney McColgan and Casey Wilson) from the US who met studying advanced Chinese at Tsinghua University.

Wokai means “I start” in Chinese and represents the entreprenuerial spirit of microfinance. It looks an amazing undertaking. With over a sixth of the world’s population the potential for domestic economic activity is enormous.

With 300,000,000 living below the poverty line and the Rural Credit Bank only servicing 25% of demand, there is clearly a large market here for small, flexible lending which is the hallmark of microfinance.

It’s another exciting addition to the microfinance and P2P stable of companies. As long term readers will know I believe strongly that P2P financing will replace traditonal banking systems within 20 years.

Who knows it may be sooner with organisations like Wokai springing forth.

Remember a time when we hoped women would take over the world and make it a better place?I picked up this story on the Girl Effect from the super Wokai crew who are focused on microfinance in China,

When I look at the breakdown of my Kiva loans I see 80% of my loans going to women. It makes sense really as they are at the providing end of the scale: food, retail, clothing, agriculture.

So this one is for the girls today

Somehow 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.

The P2P phenomenon which started with online communities and has now spread to lending money, couch surfing and music swapping has another possible application: currency exchange.

The reason I mention this is because of the highway robbery some currency exchange outlets are carrying out. To give you an example:

Last week I took a trip to Sydney. I bought some A$ at Christchurch airport through the BNZ. Their rates are always very good usually a spread of around 2-2.5%. Now that’s still pretty big but remember these rates are change maybe once a day max and the markets can be moving as much as that. I bought some US$ at 0.7929 knowing the market was actually trading at 0.7945 so i was getting an almost at market rate.

But when I arrived in Sydney I checked out the rates available at Travelex. These guys are offering outrageous prices (unfortunately they are at Auckland airport also).

Their spreads on A$ to NZ$, US$ and GBP were 20%, 15.6% and 22.4%.

Who are these guys kidding. In market vernacular I could drive a bus through that spread (more like a fleet of them).

So what to do? Well we have P2P lending now established in many commonwealth countries. So how about extending that to provide a currency service within the new distributed network.

It’s food for thought.

With rising food prices starting to kick in globally the specter of food fights is becoming a reality (hat tip to Nevil).

Riots have been seen in many countries now and food, like climate change, is starting to be seen as a national security issue.  The Philipines is facing major rice shortages which is almost unthinkable for a country where rice is a staple. It is also causing serious unrest.

Even here in New Zealand consumers are unhappy about paying 60% more for a block of cheese which has been produced down the road.

Its a difficult situation that will take some sorting out. Producers want the best prices they can get and so will sell into the international market. Subsidies continue to distort the market.

World Bank President, Robert Zoellick has suggested a move away from direct aid and an attempt to remove barriers, create local markets and improve local production.

About time! That’s what i like about Kiva which promotes empowerment and local solutions. That is the way forward. Forget about the huge projects of the 1970s and 80s which dropped so many developing nations into the debt trap. Create a level playing field and encourage local solutions.

News comes of a huge class action suit brought in Canada by a litigator called John Dempsey. Following on from John Kutyn’s (a Canadian living in NZ) paper “the Nature of Money” it takes the next step of actually calling banks to account under the law.

It’s being held up in the courts but at some point the suit must be acknowledged and heard. Its a tough one for the judges as they are being asked to rule on one of the most accepted practices in society today, namely the equivalence of “digital money” and cash in the form of notes and coins.

With the relentless advance of Peer to Peer lending systems coming online and complimentary currencies in every country it is easy to see how a major change is underway. Sure the banks may not be too concerned now but we are seeing the beginnings of a major revolution in what we know as money.