P2P Finance

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P2P Finance = generally refers to person to person lending without the intervention of banks.

Examples are Zopa and Prosper. Kiva is a P2P-version of microfinance.


By Melanie Swan at http://www.melanieswan.com/social_finance.html

"Online lending marketplaces like Prosper and Zopa are taking advantage of social networking to virtually aggregate lenders to fund loans, a model which could replace traditional financial institutions. This new “eBay of loans” concept is the biggest breakthrough in credit products since junk bonds. The ease and immediacy of obtaining sizeable web loans, essentially “Get Money Now!” cannot be overstated.

Lender capital can be directed to specific loans based on recipient profile attributes (geographical, gender-specific, political, economic, race, ideological, commercial affiliation, alumni, etc.), for example, lending to African American single mother Katrina-displaced entrepreneurs or libertarian vegan senior citizens in Vermont or NRA member males in Oklahoma; any and every affinity profile is supported." (http://www.melanieswan.com/social_finance.html)

From the P2P Weblog at http://www.p2p-weblog.com/50226711/p2p_lending_overview.php

"P2P lending is a new application for P2P services and technology. It directly connects and provides benefits to individual lenders and borrowers. P2P lending bypasses banks and other formal financial institution. It's often called Social Lending, since part of its appeal is the person to person nature of the service.

P2P lending services are not financial institutions. They do not guarantee loans or rates. They are an exchange or intermediary that facilitates the matching of lenders and borrowers and the transfer of funds and payments.

The service may include social networking features, such as photos, borrower Q&A, friends, borrower recommendations, community groups, and listing sharing. Loans are generally small, typically $1,000 to $25,000 and spread out over many lenders who can loan as little as $50." (http://www.p2p-weblog.com/50226711/p2p_lending_overview.php)


Hans Schuhmacher:

"Concise definition: Intermediation of capital from private individuals

  • Application for technology cooperation : Admission of investment from private individuals

for businesses, joint ventures and projects. Investments from private individuals/retail investors are suitable for equity finance for SMEs in threshold and developing countries. Volume approx. 10.00 EUR – 50.000 EUR.

  • Achievement potential : Admission of investment from private individuals can extend

available capital and involve these investors with technology cooperation. Possible positive side effects are spread of awareness and growing support of technology cooperation which may in turn lead to improvements of framework conditions for climatefriendly business.

  • Prerequisites for effectiveness: Assessments of credit, validity, also assessments of

business models, feasibility analyses on site, creation of adequate infrastructures. When appropriate, collaboration with organisations on site which provide these assessments. Online platforms for coordination and information exchange. It should be possible for the investors to choose a company or a project that was assessed and rated. Ratings by professional organisations should be complemented by ratings provided by the investors based on their experiences with the borrower. Thus, trust can be established like in social networks (web 2.0). Legal and juridical frameworks have to be clarified, for example regarding taxation and liabilities.

  • Practical experiences: Excepting very few examples like Kiva, Peer-to-Peer finance is up

to now practically restricted to industrialised countries. In music business experience with Mezzanine finance (www.SellaBand.com)

  • Possible correlations : Peer-to-Peer finance can be combined with microcredit

(exemplified by Kiva), but also with Mezzanine Finance."

(Source: Climate Justice as Business Case: Innovative Business Models for the Transfers of Climate-Friendly Technologies. By Hans Schuhmacher, with support from Julio Lambing et al. European Business Council for Sustainable Energy. Preliminary English version. 06 December 2009 [1]

How it Works

Detailed description via P2P Lending


Hans Schuhmacher:

"Peer-to-Peer finance is a novel approach to intermediate credit between private individuals by employing modern communications technology. Credit intermediation is a service provided by companies that transact assessments of credit.

Examples in industrialised countries are Zopa (Great Britain) and Prosper (USA).11 This instrument may facilitate company financing for SMEs in the global South. Private individuals may act as investors.

In industrialised countries, it is relatively easy for individual private investors to obtain the necessary informations about potential borrowers. In case of default, there are conventional means of response. Differences regarding legal, juridical and infrastructural framework conditions bring about initial difficulties for financing companies in the global South using this instrument. But admission of investment from private individuals can extend available capital and involve these investors with technology cooperation. Possible positive side effects are spread of awareness and growing support of technology cooperation which may in turn lead to improvements of framework conditions for climate-friendly business.

Admission of investment from private individuals may in many cases suffice as equity finance for SMEs in the global South. The creation of special online platforms for matchmaking between potential investors and potential borrowers is recommendable. Without credit assessment on site, however, Peer-to-Peer finance (or allocation of venture capital) is not workable. Generally, investors will have to rely on local expertise. In any case it should be examined which infrastructure on site can provide valid assessments. Cooperations with MIFIs, NGOs or IFC offices are conceivable. An auspicious example is the „Small and Medium Enterprises Rating Agency" in India, the first of this kind. Such ratings can be complemented by rating options for investors comparable to those in social networks."



Zopa (Zone of Possible Agreement): the new company is an amalgam of a number of business philosophies. It is where eBay meets credit unions by way of easyJet, the peer-to-peer movement and Betfair. You can lend up to £25,000 through Zopa and your money is divided among 50 borrowers (who have already been screened to ensure they have good credit ratings) to minimise risks of default. (http://www.guardian.co.uk/economicdispatch/story/0,12498,1435623,00.html}

Zopa is at http://www.zopa.com/ZopaWeb/.


The new kid on the block, in the U.S. is Prosper.com. There is an interesting discussion on Omydhyar Net about the potential for charitable giving of Prosper-based lending groups, as well as of the market-driven practices, at http://www.omidyar.net/group/foodchain/news/124/

By Melanie Swan

Melanie Swan explains more at http://www.melanieswan.com/social_finance.html

"Prosper loans are unsecured, and have a $25,000 maximum amount ($4,000 average) and a three-year term. The interest rate is set by lenders bidding down from the borrower’s maximum acceptable rate. Borrowers list their loans for free, agreeing to have their credit ratings posted publicly (an interesting proof of utility triumphing over privacy in transparency matters). If the loan is funded, Prosper takes 1% of the proceeds from the borrower and 0.5% per year of the average balance from the lender, substantially shrinking the 10% spread in traditional bank lending and borrowing. Borrower defaults are reported to credit bureaus and a collection agency is hired but lenders main default risk strategy is diversification and small investment amounts ($50 minimum). As of October 2006, approximately $15 million has been borrowed on the Prosper platform.

Groups are a feature of the Prosper marketplace, in hopes of stimulating low default rates through social pressure like the Grameen Bank and other micro-finance models, but Prosper’s groups are bit more like multi-level marketing than full affinity financial communities in their current implementation." (http://www.melanieswan.com/social_finance.html)

By P2P Weblog

"Prosper launched in September 2006 and is based in San Francisco. The P2P lender has 200,000 members and has funded over $40 million in loans.

Prosper features developer tools to allow other companies to build on their lending platform. They invite its use for academic research, investment analysis, and even start-ups. An API is provided as a WSDL based web-service for ad-hoc querying of the Prosper Marketplace. Proper also provides Data Export for a complete snapshot of all listings, bids, user profiles, groups and loans ever created on Prosper

Prosper collects a one-time 1% or 2% fee on funded loans from borrowers and a 0.5% or 1.0% annual loan servicing fee from lenders.

CEO and co-founder Chris Larsen was the CEO and Founder of E-LOAN. Prosper has raised $20 million from Accel Partners, Benchmark Capital, Fidelity Ventures, and Omidyar Network." (http://www.p2p-weblog.com/50226711/p2p_lender_profile_prosper.php)

More Information

An analysis of the first nime months of Prosper, good for $20m in loans, at http://futurememes.blogspot.com/2006/11/p2p-finance-does-it-work.html


The infoliberalism project presents a (mathematically sophisticated) solution to make a complete P2P finance and money system that will be both secure and self-sufficient, with anonymous members only know by some peers, with no need either of official information (like official identity), nor of any legally enforceable contract, so that it can work without any consideration of the members'nationality or location in the world (provided there is internet access).

More Information

See the related entries on

  1. Social Finance
  2. Affinity Markets
  3. Peer to Peer Exchanges
  4. P2P Exchange Infrastructure Projects

Here's a 115 page analysis of the history of social lending, with Zopa as case study, at http://www.socialfuturesobservatory.co.uk/pdf_download/internetbasedsociallending.pdf

A directory of Social Lending initiatives is maintained here at http://www.wikiservice.at/fractal/wikidev.cgi?EN/BarCampBank/BankAndFinanceWatch

Lendstats.com: the leading source for independent verification and analysis of the numbers hawked by P2P Lending sites