MicroPlace

=commercially-oriented microfinance initiative by eBay.

URL = https://www.microplace.com/

Interview

Interview of founder Tracey Pettengill Turner in NextBillion.net:

Q: How do you address the concern that the MicroPlace securities model creates one more intermediary between borrowers and their much needed microloans? What is the advantage of the securities model over P2P that outweighs this extra middleman?

Actually, there will be the same number of players in either model. As we grow,

MicroPlace will offer investments in diversified microfinance funds and in specific microfinance institutions. Investors can choose depending on how diversified a portfolio is desired. The real differences between our marketplace and P2P services lay elsewhere. In setting out to create MicroPlace, I spent a lot of time thinking about the emerging P2P businesses and came to the following conclusions:

- I think that it is about treating the working poor with dignity; not as problems, but as opportunities; not as charity cases, but as equals. Investing in the working poor (and earning a return on your investment like you would any other investment) honors them as the business people they are. At MicroPlace, we spent 2 years building the infrastructure-It's about investing. The magic of microfinance (by becoming a registered broker-dealer) necessary for everyday people to invest and earn a return.

- It's about scaling. How do we go from reaching 100 million people to reaching a billion people? We need out-of-the-box thinking that enables us to grow the industry in a step-function way. Access to capital is one part of the equation and MicroPlace enables people to invest as much as they like without limitation (of course within regulations).

-It's about sustainability. Microfinance won't succeed unless we build it in a sustainable way, which means everyone needs to earn a return from the investor in Indianapolis to the borrower in Bangladesh. Charity dollars are just not enough, even if every single charity dollar was given to microfinance organizations. We need people to start thinking about microfinance with their investment wallets, not their charitable wallets. Then we'll really see the power of microfinance!

Discussion

How is MicroPlace different from Kiva's peer to peer lending

P2P Lending News [1]:

"[t]he big difference between MicroPlace and Kiva...is that loans will be securitized (and therefore potentially trade-able), and lenders will earn interest. Unlike Kiva, lenders on MicroPlace invest in microfinance by purchasing securities. Funds generated by these sales are then invested in microfinance institutions around the world. MFIs, in turn, solicit clients, make loans and collect payments - they do their normal day-to-day business.

Once client payments are in, the institutional investors receive their loan (plus interest) who can then pay back their investors - people who purchased those original securities. It's not as simple a model as Kiva's, but its differences are very important.

First of all, Kiva is a non-profit. As Matt and Jessica Flannery have explained, it's very difficult to become a SEC-registered broker/dealer - even more difficult when you're running Kiva from your living room on the nights and weekends. (See pages 37-38 of the Innovations article for Matt's take on this decision.) MicroPlace, on the other hand, had the institutional and financial backing of EBay, allowing it to go through the complex regulatory application process and to put up the necessary money for the SEC to sign off. Upshot: Kiva wanted to be for-profit, but had to stay a NGO because it was a regulatory nightmare to register with the SEC. As a result, lenders on Kiva only receive their loans back - without interest. MicroPlace, as a broker/dealer, can pay interest to lenders - thanks to its ability to navigate the aforementioned regulatory maze.

Secondly, MicroPlace adds a level of intermediation that Kiva doesn't have. With Kiva, lenders provide capital to MFIs, who then lend to clients. MicroPlace is a market for microfinance securities, not just requests for loans. Sure, it takes away some of the intimacy, but for the microfinance industry, it's a big step. Securitizing loans helps diversify risk, and allows microfinance investors to reach into the second and third tier MFIs that are having a hard time raising non-donor money.

Are Kiva and MicroPlace competitors? Yes and no. On the one hand, they compete for lenders and have similar models. (Side note - this competition could get bad if the mainstream media screws up the story here. The differences between Kiva and MicroPlace are important, but subtle. Fingers crossed.)

On the other hand, Kiva is filling an unmet need in terms of providing a direct, peer-to-peer portal on which lenders and borrowers can connect. MicroPlace, meanwhile, is more businesslike - it offers a portal where profit-conscious investors can get involved in microfinance without totally compromising on rate of return." (http://p2plendingnews.com/2007/08/29/ebays-microplace-readies-for-launch/)