Maneo Introduces Guaranteed P2P Loan

Maneo introduces guaranteed p2p lending in Japan. On the new “G-Loan” the lender does not need to worry any more about defaults. Minimum investment is only 10,000 JPY (approx. 100 US$). The loans are guaranteed by Orix Credit Corporation which entered into a partnership with Maneo.

The downside is that on “G-Loans” the lender only receives 1.5% interest.

The borrower pays a fixed interest rate, which is set depending on his credit grade:

Borrowers now have the option of selecting a standard loan or a G-Loan. Selecting maneo’s standard loan gives borrowers the opportunity to lower their interest expense if sufficient lenders bid on their loans. In contrast, interest rates on G-Loans are fixed at 7.0%, 8.0%, 9.5%, 11.0% and 12.0% depending on the borrower’s credit rating. According to Tadatoshi Senoo, CEO of maneo, “We believe borrowers who select G-Loans will have an easier time attracting funds from lenders thanks to the guaranty by Orix Credit, and that the liquidity of maneo’s online social lending marketplace will increase significantly as a result, making borrowing at maneo even more attractive.”

In my view the choice whether it is a guaranteed loan or not should not be the borrower’s, but only for the lender to choose when bidding.

With an interest rate of only 1.5% the only merit of this model for lenders is that he can not lose money when bidding on a guaranteed loan. – guarantee a microloan to small entrepreneur in India

Californian non-profit United Prosperity developed a new twist to social lending – it is a peer to peer guarantee website. Instead of lending money directly and thus needing to transfer it internationally the “social guarantor” provides a cash collateral. This enables the small entrepreneur in the developing country to get a loan from a local bank, which he otherwise would be unable to obtain.

Bhalchander Vishwanath, founder and CEO of United Prosperity answered my questions on the new service. What makes the guarantee model better then other lending models (e.g. Kiva or MyC4)?

Bhalchander Vishwanath:

  1. Maximum impact: Due to United Prosperity’s innovative guarantee model which involves risk sharing with the bank, $1 in guarantee by the social guarantor could lead to $2 to $5 in loan to the borrower thus maximizing their dollar’s impact.
  2. Local linkages: Our guarantee facilitates the creation of local linkages between domestic banks, MFIs and poor entrepreneurs. In the course of repaying the loan, both the entrepreneur and the MFIs develop credit histories that will enable them to access more funds at a later date with a lower guarantee percentage, or even without a guarantee. MFIs also get to form relationships with banks and offer other products like savings, insurance, money transfer etc. through the bank.
  3. No foreign exchange risk: Since the loans from Bank to MFI and MFI to entrepreneur are in local currency, there is no foreign exchange risk involved. Most of the smaller MFIs do not have forex hedging capability and our model overcomes that.
  4. Reduced interest: Our guarantee reduces the interest the bank will charge the MFI since the bank’s risk is lower. Some of the interest benefits get passed on to the borrower.
  5. Scalability:  There is enough money available in the developing countries. Our guarantee frees up those funds. It  utilizes capital available effectively and in the long term it is a more scalable model.
  6. Manages risk better: We get the additional benefit of monitoring of the loan by the bank which is not available with other person to person models. How does “$1 in guarantee by the social guarantor could lead to $2 to $5 in loans” work? What determines the applicable ratio?

Bhalchander Vishwanath: The ratio is dependent on several factors. These include the MFI’s or borrower’s prior credit history with the bank or other banks, various banks internal guidelines, their focus on lending to Microfinance institutions and so on. For example for a given MFI we have seen two different banks asking for different guarantee  percentages. Does the Guarantor earn any interest?

Bhalchander Vishwanath: Guarantors do not earn any interest on their guarantees for two reasons:

  1. It is legally complex.
  2. We see ourselves as a ‘social business’. Nobel Laureate Mohammad Yunus states that a social business is ‘designed to be both self-sustaining and to maximize social returns’. We have only one objective: to combat global poverty. As a result, we do not provide any financial returns or interest to our social guarantors and hope to attract social guarantors who share our objective. Does the Guarantor actually have to pay money into an account, or does this only occur if the borrower fails to pay back the loan?

Bhalchander Vishwanath: The guarantee we offer to banks is a cash secured guarantee. Thus the guarantor has to pay the money upfront. Once the loan is paid back, the money can be withdrawn. Continue reading