Today Sobralaen.ee, the first Estonian p2p lending service, has launched.
Sõbralaen’s borrowers fill in a loan application for up to 15,000 EEK (approx. 1,200 US$), specify the loan length (up to 2 years), maximum interest rate and sign the loan application. This application will start an auction, during which Sõbralaen’s investors can bid for the right to invest in that loan. When making a bid, Sõbralaen’s investors specify how much they are willing to invest and how high interest rate they are looking to earn. The investment amount can be between 100 and 15,000 EEK. Before making the investment, the investors can see the borrower’s credit score, history of previous Sõbralaen transactions and also personal details. Investors also have the possibility to ask various questions from the borrower. In the end of the auction, the system will automatically pick the best bids and combine them into one loan. Sõbralaen’s system will thereafter manage the rest of the loan process from the payment of loan to debt collection.
Estonians are fast in adapting new internet technologies. This is reflected in the process of Sobralaen’s sign-up, too. Users identification is done at the moment of sign-up electronically. This is possible, because users can only sign up using a government issued ID-card (currently 80% of Estonians had an active ID card – but only 20% make use of its functionalities so far) and a smart card reader or Mobile-ID. Furthermore banking transactions and court documents are signed with digital signatures.
Sobralaen was founded by Pärtel Tomberg, Mikhel Tasa and Martin Rask.
I was invited to test-drive the platform in summer 2008 while it was still under development. The usability was good and I liked the detailed FAQs that explained everything to the point.
Sobralaen has some unusual elements, that I have not seen on other peer-to-peer lending platforms before:
- In case of a late payment the lender has different options on how to proceed. The lender can automatically start legal action via court or use an collection agency. I was surprised to learn that the route via court is the fastest and cheapest way in Estonia The court makes a decision within 21 days regarding the debt. The fee is 1% of the amount in question, minimum 250 EEK. The borrower has to compensate the lenders this sum in case he/she has been found guilty..
- While generally lenders and borrowers identities are not shown, lenders that have invested in a funded loan are shown the identity of their borrower.
- Very short auction length are possible (e.g. one or two days)
- Every winning lender in the auction gets the interest rate he asked for. The borrower pays the weighted average interest rate.
- The platform is bilingual in Estonian and English. Asked about the reason for this Pärtel Tomberg told P2P-Banking.com that Estonia has a large Russian-speaking minority that does not speak Estonian. I do wonder, if the Russians speak English (and several documents are in Estonian only).
- Sobralaen does not take any fees from lenders or borrowers (apart from small transaction based fees to cover external costs). While this is sure great to encourage growth, this can not be a sustainable business model. The company states: “Sõbralaen gets its income only from its sponsors … Furthermore, Sõbralaen doesn’t spend any money on advertising. This is done on the firm belief that a good product markets itself.“. But maybe Sobralaen is built speculating on achieving an exit sale with profit after it is established.
One hurdle is, that Estonia is a small country with only 1.3 million inhabitants. There is the risk that this market is to small to establish an active p2p lending platform.
(*Photo credit: Maurice)