Social Lending

Overview

Social lending is one of the newest and fastest growing segments in finance. Four companies are readily available online: Lending Club, Prosper, Pertuity / National Retail Fund, and Kiva. Below I describe a few differences between them. Please note that Prosper is undergoing regulatory approval for nationwide lending and is not accepting any new loans or funding. Hence their site is currently inaccessible and their program difficult to judge.

Primary Mission:

• Lending Club, Prosper, and Pertuity’s main goals are to decrease the cost of borrowing and increase the return from lending.
• Kiva’s main goal is economic development based on microfinance.

Geopraphy:

• Lending Club, Prosper, and Pertuity lend to US borrowers.
• Kiva’s focus is international small businesses or professionals. The largest amounts are lent to borrowers in Peru, Cambodia, and Tajikistan.

Who gets funded and interest rates charged:

• Lending Club and Pertuity select and approve borrowers using FICA scores. Interest rates are set accordingly. The Lending Club offers loans to consumers with good credit scores only. Interest rates range between 7.37% and 20.11%.
• Prosper is an auction and lenders bid on loans. Interest rates depend on the number and type of offers to fund these loans.
• Kiva works with local field partners who manage the loans in various countries. These partners must have microfinance experience and serve a large enough group of borrowers. It seems that borrowers do not have to pay any interest on their loans.

How to lend money and interest rates earned:

• Lending Club investors select loans they want to fund spreading their investment across multiple loans. They claim investors have earned an average net annualized return of over 9%.
• Lending for Perpuity is managed by the National Retail Fund. They claim their average interest rate is 13%, the average FICO score 760 and the average amount lent: $11,034
• Kiva currently has 7253 lending teams. Individuals can either join an existing team or create their own. The largest team is “Atheists, Agnostics, Skeptics, Freethinkers, Secular Humanists and the Non-Religious” with 4,648 members 21,492 loans and a total of $648,325 lent. The second largest group in terms of money lent is “Kiva Christians” with $470,050 lent. It is followed by “Team Obama” with $376,725 lent. Lenders do not earn any interest on their loans.

How the companies earn money or cover their costs:

• Lending Club charges a small percentage from principal and interest at the time they are paid back.
• Kiva is a non-profit organization with operations funded by donations.

Relevant links:

Lending Club – www.lendingclub.com
Prosper – www.prosper.com
Pertuity Direct – www.pertuitydirect.com
National Retail Fund – www.nationalretailfund.com
Kiva – www.kiva.org

This information is provided for informational purpose only. I am not affiliated with any of the companies. All information should be verified before making an investment decision.

---