Cashare Plans To Use Digital Signatures in P2P Lending Process

In Switzerland P2P Lending Service Cashare announced that it plans to be one of the web service pioneering the use of SuisseID a digital signature. Documents signed with this digital signature are as binding as a conventional signature on paper.

Opportunities for P2P Lending

Several European countries (e.g. Italy, Spain, Germany, Belgium) have enacted laws that equate digital signatures with conventional signatures.

P2P Lending can use digital signatures to

  • validate the identity (and depending on the signature card the address) of users
  • automate processes that otherwise would require a signature on paper and enable paperless process chains.

Does P2P Lending Work for Microfinance? Lessons from Zidisha Inc.

Guest article, by Julia Kurnia, Director Zidisha Inc.

Entrepreneurs in low-income countries often face a dilemma: their business activities don’t earn enough to support their families, but they lack the investment capital needed to make the businesses more profitable. Restrictive political and economic conditions and geographic remoteness make it expensive for local banks to lend to small business owners. Some of these borrowers are serviced by microfinance institutions, but individual business expansion loans often carry prohibitive collateral and interest requirements due to microfinance institutions’ high administrative costs. So the businesses don’t grow, and the families they support remain impoverished.

Charitable microlending platforms such as Kiva.org and MyC4.com aim to improve disadvantaged entrepreneurs’ access to capital by providing platforms for microfinance institutions to raise subsidized loans directly from web users in wealthy countries, on the assumption that the high cost of financial services in developing countries is due to the organizations’ limited access to affordable lending capital. Yet this solution does not address another crucial barrier to affordable financial services for small business owners in developing countries: the high cost-to-revenue ratio inherent in small loans offered in marginalized geographic areas. The average Kiva field partner institution must charge borrowers more than 30% interest on loans financed at zero interest by Kiva lenders. Even at these rates, most microfinance institutions simply cannot afford to extend services to the remote rural areas where access to financial services makes the greatest impact on people’s opportunities for economic advancement.

It is generally assumed that such high interest rates are a necessary cost of lending to entrepreneurs in isolated and impoverished areas. In the classic microfinance model championed by Nobel laureate Muhammad Yunus in the 1970s, loan officers go on the road to collect repayments in person from borrowers, who are required to attend training sessions and participate in compulsory savings exercises in order to ensure responsible conduct. Even today, most local microfinance institutions which raise capital from Kiva or MyC4 are based along this model, with loan officers visiting borrowers at their businesses and communicating with lenders on their behalf. It is assumed that the borrowers not only lack the necessary computer skills to communicate with lenders themselves, but also that they cannot be trusted to repay loans, as residents of wealthy countries do, without constant visits by loan officers.

Zidisha Microfinance is a nonprofit microlending platform that operates on very different assumptions. First of all, there are no local intermediaries: instead, the entrepreneurs themselves post loan applications on the website and communicate directly with lenders via Facebook-style profile pages as their business investments grow. To make this possible, Zidisha taps into the growing population of computer-literate, but still economically disadvantaged, small business owners and explosive growth of internet access that have transformed developing countries in recent years. Borrowers access the Zidisha website from cheap cybercafés, old laptops donated to local charities and schools, and even the internet-capable smart phones which have begun to proliferate in even the poorest locations, often with one handset being shared by an entire village. Current Zidisha borrowers assist new applicants with navigating the website, and enlist the help of younger tech-savvy relatives when needed. New client orientations and technical assistance is also provided by Zidisha’s Client Relationship Managers, young adults from the United States and Europe who relocate to the borrowers’ countries and liaise with borrowers on a volunteer basis. Continue reading

P2P Start-ups: Finding an Opportunity in the Midst of a Lingering Recession

The global recession or what has come to be known as the ‘great recession’ –in direct reference to the 1930s era Great Depression-has been with us unbelievably for the last 3 and a half years. It doesn’t seem like it does it? Many had predicted that it would turn out to be a ‘W’ or maybe a ‘U shaped or even a ‘double dip’ recovery by now, with most commentators assuming that we would most likely have seen its tail end with a year or two. Most- if not all of them- have been proved embarrassingly wrong! Countries such as the UK, US, Spain, Ireland, Hungary, Portugal –the list goes one and on and on and on- are still counting the cost of the recession in terms of lost jobs, productivity and in some cases, sovereign default! Recovery it seems, whatever alphabet sounds sexy, W or U shaped –is still yet to be seen in many cases.

Looking at the effects of the recession from the microfinance industry perspective however is what makes very interesting reading. Microfinance as such, is an industry that is curiously not correlated directly to the mainstream financial markets. Continue reading

Banks Need to Understand Their Customer’s Needs Better – FAST

I just finished reading Bank 2.0 by Brett King. If I would work in middle-management of a bank – any bank – then I would be scared now, because the book clearly shows that banks are changing to slow. Or they simply deny that the world around them is evolving faster and faster and still try to continue business as it used to be.

Banks still spend too much time trying to solve the wrong questions like how to design branches or think about channel distribution. What they need to understand is that a customized solution fitted to the needs the customer has right now is needed.

If bank management does not foster innovations quickly they will lose contact to the customer. Banking function will continue but the interface to the customers might in future be held by p2p payment providers, p2p lending services, telcos, aggregators or other non-banking “insurgents”.

The book is filled with ample examples and observations from the authors work experience in banking. Available at Amazon US, Amazon UK and Amazon DE.

Fairplace – P2P Lending in Brazil

Fairplace.com.br recently launched the first p2p lending service in Brazil. With approx. 190 million inhabitants Brazil could prove an interesting market for peer to peer lending. While financial institutions are the most common source for loans, consumers face lots of paperwork and high interest.

Founder Eldes Matiuzzo knows that, for he worked 14 years for Unibanco. He says user response since the launch is promising with about 25 registrations per day.

Each loan application undergoes risk assessment (Fairplace uses Seresa Experian Data) and only about 20 percent of applications are approved.

Loan requests are listed for a 14 day auction. Borrowers pay fees only if the loan is successfully funded. Fees listed are 5% for one year loans and 8 percent for two year loans. There are additional fees for credit assessment and each repayment installment. Lenders are charged 2% of each repayment (repaid principal + interest).

Currently the average interest rate at Fairplace is 2.99 percent per month, which is much lower than the average for the Brazilian market.

Kokos Issues Prepaid Card, Adds SMS Loans

Polish P2P lending market Kokos.pl announced today a new product – SMS loans coupled with prepaid MasterCard PayPass card. The product is targeted at borrowers who do not want to set up regular listing, but need quick “liquidity injection”.

The procedure of applying for SMS loan looks as follows:

  • Borrower receives prepaid card by post,
  • Enters the card’s account number and his verified cell phone number in his profile,
  • Whenever the user wants to borrow money, he sends a text message with the required amount and keyword (“pozycz” – borrow) to number 7550,
  • Kokos.pl sets up an 48 hours long auction on behalf of the borrower,
  • When the auction is fully funded, the borrower’s prepaid card is topped up immediately and he gets SMS notification.

The terms of SMS loan contracts are predefined. The amount is 500, 1000, 2000 or 3000 PLN, interest rate is locked at 20% p.a. (interest rate cap enforced by Polish anti-usury law) and the duration of loan is limited to 12 months.

The prepaid MasterCard  is issued by Bank BZ WBK  (owned in 70% by Allied Irish Bank). It is equipped with PayPass technology enabling contactless transactions at the point of sale.