The Revolution of Peer to Peer Lending in Microfinance
European Microfinance Network Annual ConferenceMilan, June 2009
Laura Foschi, EtimosMargaux Gouté, BabyloanJulia Sandoval, Babyloan
Outline
1. P2P today (north/south)2. Babyloan Case Study3. Etimos Case Study4. P2P (north/north)
Outline – P2P Today (n/s)
1. Definition2. Existing Models
- Kiva- MyC4- Microplace- Babyloan
3. Platform comparison
P2P Today – intro
Definition
Existing Models
This growth in online lending
and investment platforms
presents an opportunity and a
challenge for MFIs intent on
tapping the potential of online
lenders or investors.
- CGAP
May 2009
P2P Today – Kiva
May 2009
P2P Today - MyC4
May 2009
P2P Today – Microplace
May 2009
P2P Today – Babyloan
May 2009
P2P Today – Comparing platforms Kiva MyC4 Microplace BBL
Yr established 2005 2006 2007 2008Based in USA Denmark USA FranceIdentity Non profit For profit For profit Social businessModel P2P P2P bidding Online brokerage P2PIntermediary MFI Providers Security issuers,
MFIsMFI
% interest earned by investor
0 0-25; 11.7 avg 1-6 0
Loans enabled 47 million $ 8,600,000€ 38,200 $ 240,200€Target enterprise
micro MSME micro micro
Max loan size 1,500$ 100,000€ - 1,500€Business model
Donations, interest revenue
Transaction fee to SME
Fees Transaction fee to investor, MFI
management fee, interest revenue
Platform fees to MFI
0 3% 2,5%
Additional fees to MFI
- Provider fees -
Currency $ Eur, DC EurRepayment to Intermediary
Monthly Monthly Monthly
Repayment to Investor
End of loan term Monthly End of loan term
Added Value Positive publicity Training providers and entrepreneurs as part of a grants
and donations programme
Positive publicity
Currency Risk MFI, investor Investor MFICredit Risk MFI, investor Investor Security issuer MFI
P2P Today – Benefits
Additional credit line: opportunity to diversify funding and increase OLB
Low cost compared with commercial loans
Enhanced funder credibility by adding an international funder on the balance sheet
Open to small and big MFIs with minimum eligibility criteria
Enhanced international reputation: Marketing
Risks: Funder stability, reputation, operational and management expertise, regulatory risks
Complexity of issues due to number of lenders and investors
Costs: Foreign exchange risks, reporting requirements, operational and cost implications
Managing unpredictable shifts in funding
Customer privacy and consumer protection issues
P2P Today – Limitations
Outline – Case Study
1. Babyloan background2. Mechanism3. Selection Process
Case Study – Babyloan
BackgroundBabyloan is the first French peer-to-peer microcredit lending website managed by the social business ABC Microfinance based in Paris. We provide a source of low-cost refinancing by leveraging the internet to channel interest-free funds from people in Europe to our MFI Partners. Small and medium-sized MFIs can benefit from our minimum eligibility criteria and low-cost refinancing to increase their OLB and grow.
HistoryBabyloan was launched in September 2008 by 2 social entrepreneurs, Arnaud Poissonnier and Aurelie Duthoit. Our founding partners include the French NGO ACTED, and banks BRED, Credit Cooperatif.
MissionTo become a leader in refinancing small and medium-sized MFIs by leveraging the power of the internet so that they may grow, and thereby participate in the fight against poverty.
May 2009
A project by:
Case Study - Babyloan key figures
Key Figures (05/2009)6 MFI Partners in 6 countries222,000 euros loans raised online 765 projects funded3,320 internet lenders
Current PartnersOXUS Microfinance – TajikistanChamroeun – CambodiaFINADEV – BeninSEDA – VietnamCEPESIU – EcuadorICDC – Philippines
Objectives 2008 – 2013100,000 internet lenders25,000 microcredit clientsRefinance 14 million euros worth of loans for MFIs
Current MFI Partners
May 2009
Case Study - Babyloan Project page
Case Study - Babyloan Lender page
May 2009
Online Payment
Monthly money transferReports
Internet Lender
Entrepreneur
Microcredit
Recovermoney
Repayment + interest
MFI
Internet Platform
Case Study – Mechansim
Case Study – Selection process
Babyloan Selection Process
1. MFI submits application2. Selection Committee analyses application and
provides a recommendation3. Due diligence in the field (if necessary)4. Advisory Committee makes final decision5. Contract signed between MFI and ABC MF
Outline – Etimos
1. Etimos background2. Field application3. Future P2P prospects
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Ecuador Case Study : CEPESIU
Babyloan’s partner since March 2009
7,000 euros lent22 micro-entrepreneurs financedAdvantages and constraints
Argentina Case Study
Etimos Field application
Babyloan Italy
Limitations / Perspectives
Etimos Future P2P prospects
Outline – P2P north/north
1. Existing models2. Explaining the gap in P2P
solidarity microlending 3. French case study
P2P n/n – Existing Models
Note: Due to regulatory constraints, many ‘For profit’ P2P lending sites have ceasedoperations in the US and Europe; however, a few platforms remain operating & are growing (e.g. LendingClub)
P2P n/n - Existing Models
August 2008: US$164 million in loans had been transacted on Prosper. Nearly US$45 million had been arranged by Zopa UK and, as of July 2008, US$5.4 million on Smava (source: USAID)
P2P n/n – Comparing platforms
Lendingclub
Prosper Smava Zopa UK Cashare
Yr established
2007 2005 2007 2005 2008
Based in USA USA Germany UK SwitzerlandModel P2P Auction P2P
AuctionP2P Auction P2P “silent” auction
in UK; credit Union partnership in US
P2P Auction
Interest for borrowers
7,37% (A1) to 20,11
(G5)
Variable (Av
14,5%)
Variable Variable Variable
How it is defined
fixed by credit score and credit
history
Bidding / Credit grade
Fixed by borrower/
Accepted by lender
Lenders set their interest rate
thresholds acc to loan term and risk
rating
Bidding
Loan Size 1000-25 000 1000 –25 000
500-10 000 10-25 000 pounds Av 6600
Loan usage All All All All AllDefault Risk Lender Lender Lender Lender Lender
P2P n/n – Characteristics
No field intermediary, no monitoringBorrower doesn’t benefit from adviceMore risky for the lenderBut interesting interest rate and information on credit history and credit score of the borrower
Investor earns interest
Loan product not limited to business loans
Source: USAID
P2P n/n – Absence in P2P solidarity microlending
There is a notable absence in P2P solidarity microlending despite the large demand (exacerbated by the financial crisis)
How to address this? Need a country-specific response:
- Microfinance institute (NGO, cooperative, bank etc.)- Source of financing- Additional needs- Constraints to financing
P2P n/n – Solidarity Microlending in France
Babyloan / ADIE
ADIE(non profit organisation)
Source of financing: ADIE can only access loans from banks(Article 511.6 of the Monetary and Financial Code)
Babyloan and ADIE have proposed a change in the law to allow ADIE to access loans from other legal identities (individuals and enterprises)
Conclusion
New possibilities with online platforms
Considerations in P2P online microlending
Potential in Europe