iGrin – First p2p lending site in Australia launched

Earlier this month the first Australian p2p lending service iGrin.com.au quietly launched. Here is what Phil Hopper, iGrin's CEO told me, when I contacted him about iGrin's goals: 'We set out with the intention of being Australia's first and best P2P banking community. To date we have intentionally kept a low profile whilst we have gone about proving our business model and ensuring compliance with the Australian regulatory environment. The team behind iGrin has predominantly come from the banking industry and brings with it a wealth of product development, technology and lending experience. We have been impressed with the advances made in P2P lending overseas and are looking forward to applying these to the local Australian market and enabling everyday Australians to get great rates and great returns.'

Browsing the site, the main parameters are:

  • Borrower fees are 1% (for AA to D credit grades) or 2% (HR) or 90 AUS$ (whichever is greater) 
  • Lender fees are 0.5 to 1.5% annual loan servicing fee (depending on credit grade)
  • Loans are possible for amounts from 2000 to 25000 AUS$ (approx 22000 US$)
  • Lenders can invest from as little as 100 AUS$ to a maximum of 25000 AUS$
  • There is a bididng process, where the borrower sets the initial (maximum) interest rate he is will to pay and lenders bid down the rate (like at Prosper.com) 
  • Currently all loans are for a term of 3 years
  • The way the Australian credit rating works, simply appling (whether successful or not) for a loan may impact one's credit grade

A feature that differs from other p2p lending platforms is the 'Member direct loan' iGrin offers:

A service that iGrin provides to allow members to offer a loan direct to an individual. We will then undertake all of the transfer of funds and ongoing payments on behalf of the members. This is a great way for family or friends who wish to lend money to each other to have a third party (iGrin) manage all of the repayments and transfer of funds on their behalf. A formal contract is put in place between the two parties. It can also be a great way for someone to improve his or her credit rating. 

While a family and friends loan is possible on other p2p lending services too, it is noteworthy that iGrin charges lower fees for Member direct loans than for normal loans.

Excerpts of answers to other questions I asked Phil Hopper, CEO of iGrin.com.au:

P2P-Banking.com: Which background does the management have?

iGrin.com.au:  … The founders have over 50 years experience in Banking and Finance. The original founder and CEO is Phil Hopper who has a strong background in Banking and Technology most recently at the Commonwealth Bank of Australia and prior to that at Macquarie Bank. Continue reading

Kiva refines risk assessment

Social lending service Kiva has refined its risk assessment for participating MRIs (microfinance institutions). The changes and the mechanism are described here. Risks for Kiva lenders include Entrepreneur Risk, Fieldpartner Risk and County Risk. 

So far the default rate for Kiva has been 0.17% on a loan volume of $9.965.000 (4.4% of loans are one month late). When compared to Prosper.com default rates, that is an extremly good result. So far the MRI on Kiva with the worst performance is REDC Bulgaria, followed by an MRI that organizes loans to people in Uganda, Kenya and Tanzania.

Another interesting figure: The average time a listing is online at Kiva.org until it is fully funded is 1.24 days.

So far all my Kiva loans are repaying on schedule.

German Smava opens to lower credit grades

The German site for social lending Smava.de today allowed borrowers of the lower credit grades G and H to participate. Previously only borrowers of credit grades A through F could participate. According to information published by Smava, 80% of the German population have credit grades in the range A-F, while credit grade G accounts for 10% and credit grade H accounts for 5% of the population.

This move is contrary to the development at Prosper.com which started with a very broad range of credit grades and only later restricted borrower access tighter.

However Smava, so far has experienced not one late payment. Three payment cycles have been completed with 100% of borrowers paying on time.

Other changes at the Smava site today included a lower minimum bid of 250 Euro (down from 500 Euro) and a higher interest rate ceiling (maximum interest rate 18%; up from 15%).

Prosper to enter Japan and Asia

Prosper.com announced in a press release, that Prosper will expand into Japan and other Asian markets (countries were not disclosed). Excerpt from Prosper press release:

Prosper and SBI Holdings to Establish Prosper in Japan and Other Asian Countries

San Francisco – August 6, 2007 – Prosper (www.prosper.com), America’s first people-to-people lending marketplace, and SBI Holdings, Inc., a holding company for SBI Group, the financial innovation leader of Japan, today announced an agreement to form a joint venture to facilitate the launch of Prosper in Japan and explore other Asian markets.

“As Prosper takes the first step toward expanding to Japan, we’re confident SBI is the optimal partner to navigate the regulatory landscape and successfully launch and operate the Prosper marketplace in the region,” said Chris Larsen, co-founder and Chief Executive Officer of Prosper.

“With over $78 million in funded loans and more than 360,000 members, Prosper is the leading person-to-person lending marketplace,” said Hayato Kameta, incoming Chief Executive Officer of the joint venture. “SBI Group’s experience and resources in both the Internet and financial sectors, combined with the vision and infrastructure of Prosper, makes this joint venture well positioned to develop and execute a business plan which meets the regulatory and business environment in Japan and other Asian countries.”

SBI Group has a market capitalization in excess of $8 billion and consists of 65 consolidated subsidiaries and 12 affiliated companies, including 9 public companies. SBI online finance business include SBI E*Trade Securities Co., Ltd., Morningstar Japan K.K. and E-LOAN as a business unit of SBI Holdings. To find out more about SBI Holdings, Inc., visit www.sbigroup.co.jp/english/.


The situation of social lending in France

Infatuation with blogs, the rise of citizen newspapers (like Rue89) [FR], the rebirth of consumer associations (Que Choisir) [FR] or equally the expansion of BarCamps (BarCampBank was born in France) change deeply the relationship between French banks and their customers.

This new ecosystem gives more power to customers. The French Internet users have more technical solutions to run mortgage simulations or to compare the different offers on a loan.

Outside of France, new online services have already appeared where online lenders and borrowers can meet. These cyberbanks or P2P Banks (peer-to-peer or people-to-people) grow their success on lower rates and quicker processes. Following Zopa in the UK and Prosper in the US, P2P Banks have expanded in Europe with Boober in the Netherlands, Smava in Germany.

The reason for this is quite simple: traditional banks give a credit only to people with an excellent solvency profile; cyberbanks on the contrary lend to borrowers with good, or even mediocre profiles. And the average default on repayment has been lower than the bank-industry, so far. How do they achieve this ? Emulating auction sites like eBay, the borrowers and lenders assign scores to each other. Thus each participant has a strong incentive to uphold his commitment in order to keep a good score and to continue being part of the system.

For the time being, the development of P2P financial services in France meets 4 main points of resistance:

1. Banking regulation

The "Code monétaire et financier" (General Principles of Bank Regulation) is straightforward: "anyone except a chartered bank can perform banking operations in a regular fashion".


Nevertheless, nothing prohibits lending from an individual to another individual. Private individuals can lend on a personal basis to relatives or friends. These friendly loans can for example take the shape of a "Tontine" (a Rotating Savings and Credit Association).

Conversely, a bank is entitled to perform an activity relating to credit between individuals. But it is difficult to foresee the context where a bank would desintermediate itself and forgo handsome commissions…

2. Fear of over-indebtedness

The State, consumer associations, and consumers themselves live in fear of over-indebtedness. If credit for real estate is well accepted, credit for consumption purposes is much less widespread.

It should be noted however that French people are generally much less in debt than other Europeans and their situation does not logically support this fear (only 40% of people under 35 use the advantage of a cash credit, against of 70% in the UK). Some observers even regret the low penetration of consumer credit in France on the ground that economic studies show that it has a positive impact on growth.

3. A credit rate market that is both regulated by the state AND ultra-competitive.

From a general standpoint, the French market is ultra-competitive and interest rates are generally lower (yes, believe it) than in other European countries (the mean rate for amortizable loans was at 6.54% during Q1 2007).

Nevertheless, interest rates compensating risks can not go over the usury rate limit, as defined [FR] by the State (for amortizable consumption loans: 8.93% effective rate for a sum over 1.524 euros). This usury rate is a strong impediment for banks that would like to lend to atypical borrowers: students with no banking history, independent workers or small entrepreneurs with irregular revenues.

Since they cannot lend at a higher interest rate, these banks are not ready to take those risks. According to a study from the French Senate, roughly 15% of the population fails to qualify for credit because of this regulation on the usury rate. Providing credit to this fringe of the population would be like going after the long tail of credit.

4. The absence of positive credit scoring

In France, only banks have access to a history of credit operations. The positive records (historic records of credit to be reimbursed by an individual) are illegal in France where only negative records (historical records on banking operation bans or payment incidents) can and must be used when according a credit. The latter are penalty records that can only be accessed by banks and those unfortunate enough to be referenced in these records!

It must also be considered that credit risks are idiosyncratic to each country (culturally and functionally different). It is then difficult for a foreign company to properly evaluate risk in the French context and offer a competitive – and profitable – product in a already over-served market. (Let's remember the failure of Egg in penetrating the French market).

Risks for the lenders under the current conditions are very significant and would justify a higher remuneration (impossible because of the regulation on usury rates), or that the new entrant company would use a statistical rating of credit risks (which would require either a commercial agreement with a French bank, or the development of a reputation scoring as yet unheard of in France).


Nevertheless, despite all these barriers, it is likely that such a service will come to life in France within the next 3 years (when the corresponding European directives have been written and agreed upon – e.g. the new SEPA regulation: Single Euro Payments Area); either introduced by national actors (existing banks or financial organizations); or by new entrants (possibly involving partnerships with banks).

Quite a conundrum, but an outcome bound to happen anyway !

Authors : Jean-Christophe Capelli [FR]; translation provided by Frederic Baud [EN]. (Jean-Christophe & Frederic are two of the BarCampBank [EN] co-founders).