Cows, Kiva, and Prosper.Com: How Disintermediation and the Internet are Changing Microfinance
Community Development Investment Review
Volume 3, Issue 2, 2007
This article appeared in the Federal Reserve Bank of San Francisco's Community Development Investment Review. It explores the effects of disintermediation and the internet in microfinance, and touches on Prosper's use of both.
Excerpt:
Prosper.com has sought to bring this financial technology to bear in small loans. Prosper.
com is an online auction place for personal loans. It is not microfinance per se, but combines
elements of consumer finance, social investing, and microfinance with an online market
place. Prosper.com allows individual borrowers to post online their request for a loan with
a proposed interest rate. Lenders in turn can shop on Prosper.com and bid to fund loans.
As with a loan syndication, lenders may spread their risk by buying small parts of multiple
small loans, such that a dozen or more lenders may fund a single loan. Lenders can bid down
the offer rates on loans and receive updates to see if they have been outbid. Prosper.com
facilitates the transaction for a 1–2 percent fee by providing basic credit information on the
potential borrower (for example, credit score, home-ownership status, debt-to-income ratio).
It also provides faces to the lenders by giving them space to share a photo and tell their story.
Prosper.com has excelled in creating a true "people-to-people lending marketplace" in which
the best borrowers get the best rates. The highest-rated borrowers pay slightly less than 10
percent on average, and it is not uncommon to see rates as low as 7 percent.
Author
Tillman Bruett
Alternative Credit Technologies
