P2P Microfinance: Difference between revisions

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===Original Kiva mislabeled as P2P microfinance===


An example of erroneous reporting see below, since Kiva does use intermediaries.


For the debate on Kiva and p2p, see our entry on [[Kiva]]
Here is how the regular Kiva system, which is not p2p, really works:
 
URL = http://www.worldchanging.com/archives/003664.html
 
'''"A new microfinance group, Kiva, intends to take a different course: they've built the world's first peer-to-peer, distributed microloan website."'''
 
'''Kiva's first country of focus is Uganda''', where the Internet is available even in poor rural areas. Lenders may loan money through kiva.org, which lists businesses in need of funding and provides background on the entrepreneur starting the enterprise. Individuals may makes loans in increments as small as $25, and can expect to receive repayment, without interest, at the end of the loan term, which typically runs between six and 12 months. Since Kiva's source of capital is charitably-minded individuals, it is able to provide more flexible loan terms than traditional financial institutions.  To date Kiva has funded 13 small enterprises in Uganda, including a livestock business, a medicine shop, several produce businesses, a fish monger and a clothing reseller. Two of the entrepreneurs have already repaid their loans in full. The enterprises Kiva is working with are asking for loans averaging $500, and the average lender is loaning between $25 and $100. Kiva was founded by Matthew and Jessica Flannery, a California couple who have lived in central Africa; Jessica Flannery worked for the Village Enterprise Fund, a non-profit which has granted seed money to Kiva. They argue that a one-to-one process is inherently more transparent than contributing to a charity or NGO, which then redistributes the donations; just as important, making a direct microloan gives the lender a greater sense of engagement than would an indirect donation. Individual lenders can select precisely which business receives the loan, and will in turn receive regular updates on the start-up's progress:
 
Throughout the duration of loan repayment, as a lender, you will be sent regular (usually every month) email updates about the progress of your sponsored business' progress. Updates include things like: information on loan repayment progress; photos of the entrepreneur and perhaps the new capital equipment they've been able to purchase because of the loan; narratives on business growth; anecdotes about the entrepreneur's family improving their standard of living; news about local seasons or current events that might affect your sponsored business; and more. Content comes from our staff as well as from the recipients themselves (via our staff ).
 
Remember, these are loans, not charitable donations. 100% of the loan amount goes to the selected business; so far, no businesses have defaulted on their credit. Because these are loans, the "same" money can have a socially beneficial effect over and over again. A $50 loan, once repaid, can be immediately loaned out again, helping another start-up. Over time, multiple new businesses can receive microcredit support from a single initial loan. "
 
The introduction by Worldchanging commentators show the peer to peer ethos at work, in their rejection of NGO-mediated microloans:
 
"But the notion of do-good institutions doling out money to recipients has something of a 20th century character. While there are open-source models for microfinance, they generally seem to be intended to assist the creation of more microcredit NGOs."
 
[[Kiva]] is at http://www.kiva.org/index.php ; Open-source based software support for microfinance projects, at http://www.mifos.org/
 
 
Here is how the system really works:


Sander Van Damme:
Sander Van Damme:
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borrowers, their performance and how the loans impact the people's lives on the internet
borrowers, their performance and how the loans impact the people's lives on the internet
portal."
portal."
(https://www.zidisha.org/editables/news_docs/Louvain.pdf)
=Discussion=
==The Future of Peer to Peer Microfinance==
Sander Van Damme:
“It remains hard to tell how peer to peer microfinance will evolve; Zidisha is only a small
website which currently only has a very local impact. However, given the current success of
altruistic platforms such as Kiva, able to finance $231 million in loans since its launch in
2005, it is clear a big potential for such websites exists. The only constraints to growth that
remain are the current small portfolio of prospecting borrowers and the limited geographic
focus. The platform is currently working on this second point by offering new applications
from Indonesia and Burkina Faso. Furthermore, the growth of mobile banking is an important
factor for the operational model of getting the money to the most remote borrowers in rural
areas.
As discussed above, Zidisha presents itself as a clear model for real peer to peer microfinance,
based on computer-literate entrepreneurs with credit history and philanthropically motivated
lenders. We can foresee more such platforms to develop as mobile banking becomes more
widespread, and see it as a logical evolution in line with developments which the Irish Loan
Funds and the English Friendly Societies also experienced: as microfinance institutions
develop a credit history in developing markets, others will be able to profit from this and take
away their most successful clients. Of course the platform is very young and only very few
loans have currently been repaid, it remains therefore to be seen how lenders will react when
loans default and their money is lost. We foresee this to be a very important test for the
platform and urge further research to keep track of this evolution and its possible implications.”
(https://www.zidisha.org/editables/news_docs/Louvain.pdf)
(https://www.zidisha.org/editables/news_docs/Louvain.pdf)


Latest revision as of 13:06, 6 March 2012

Person to person microlending.


Status

  • "P2P microfinance service Milaap.org reports the milestone of 10 million indian rupees (approx 190,000 US$) lent in 18 months with a repayment rate of 100% so far." [1]

Examples

Kiva Zip

"Kiva Zip is an experimental site facilitating direct p2p microfinance loans without any intermediaries. The original Kiva model relies on MFIs (microfinance institutions) which locally validate borrower request and disburse the money and collect the repayments.

Kiva Zip eliminates the intermediaries directly connecting lender and borrower in person to person microlending. This will reduce interest rates for the borrowers (which during the initial testing phase of Kiva Zip pay 0% interest). The use of direct electronic and/or mobile payments further reduce the costs of the loan transactions." (http://www.wiseclerk.com/group-news/servicesmicrofinance/kiva-zip-enters-direct-p2p-microfinance/)



Here is how the regular Kiva system, which is not p2p, really works:

Sander Van Damme:

"The system is quite simple: Kiva is in contact with several field partners all over the world which are currently funding microfinance projects but lack the funding to scale up and reach more customers. Kiva then looks for individuals in developed countries that want to provide interest-free loans to these institutions and help them reach their social goals. Lenders select projects online that they want to refinance. This means the loans have already been disbursed to micro-entrepreneurs and the choice of funding is therefore not made by the lender but rather by the field partner itself. Kiva sends these funds to the microfinance institutions who can subsequently lend these funds to other borrowers; the lenders' payback however depends on the projects they have chosen and whether or not these entrepreneurs perform well. In return for this free loan, the field partner puts information about the borrowers, their performance and how the loans impact the people's lives on the internet portal." (https://www.zidisha.org/editables/news_docs/Louvain.pdf)


Discussion

The Future of Peer to Peer Microfinance

Sander Van Damme:

“It remains hard to tell how peer to peer microfinance will evolve; Zidisha is only a small website which currently only has a very local impact. However, given the current success of altruistic platforms such as Kiva, able to finance $231 million in loans since its launch in 2005, it is clear a big potential for such websites exists. The only constraints to growth that remain are the current small portfolio of prospecting borrowers and the limited geographic focus. The platform is currently working on this second point by offering new applications from Indonesia and Burkina Faso. Furthermore, the growth of mobile banking is an important factor for the operational model of getting the money to the most remote borrowers in rural areas.

As discussed above, Zidisha presents itself as a clear model for real peer to peer microfinance, based on computer-literate entrepreneurs with credit history and philanthropically motivated lenders. We can foresee more such platforms to develop as mobile banking becomes more widespread, and see it as a logical evolution in line with developments which the Irish Loan Funds and the English Friendly Societies also experienced: as microfinance institutions develop a credit history in developing markets, others will be able to profit from this and take away their most successful clients. Of course the platform is very young and only very few loans have currently been repaid, it remains therefore to be seen how lenders will react when loans default and their money is lost. We foresee this to be a very important test for the platform and urge further research to keep track of this evolution and its possible implications.” (https://www.zidisha.org/editables/news_docs/Louvain.pdf)

History

See about the prehistory of (p2p?) microfinance: Irish Loan Funds

Directory

Recommendations by Kevin Kelly in Cool Tools

(I'm not sure these are actually 'p2p' microfinance - mb)

Kevin Kelly at http://www.kk.org/cooltools/archives/001484.php:

"there are many other outfits that offer individuals (like us) ways to leverage as little as fifty dollars via micro-finance programs online. Unleashing compounding good is only a few clicks away. Make a loan, or outright grant, using your credit card, or even PayPal.

Grameen Foundation

Inspried by the original Grameen Bank in Bangladesh. Minimum contribution, $100. One of their projects is Village Phone -- cell phones that women buy on loans and then can rent to others for income. "The Village Phone program in Uganda, the first of GF's efforts to replicate the pay phone program outside Bangladesh, continued exceeding expectations in 2005. More than 3,500 microfinance clients have bought and now operate a Village Phone as "Village Phone operators." Besides the boost to operators' incomes, the program is creating a national telecommunications network. Of Uganda's 56 districts, 53 now have at least one Village Phone operator. Often, Village Phone is the first local telephone that villagers have. Having a quick means to communicate has contributed to higher levels of productivity, savings, and safety for entire communities."

http://www.grameenfoundation.org/get_involved/


Namaste Direct

This is one of the most direct person-to-person micro-lending programs. When you give to Namaste Direct, you are informed of the person who receives your loan, how they used the money, and their progress. ND can also arrange a visit to the lendee -- this will turn your loan into a life-changing experience for you as well. But because of this directness the giving area is limited -- currently to Mexico and Guatemala. No minimum contribution.

http://namaste-direct.org/


FINCA Village Banking

FINCA makes loans directly to the poorest villages. They aim their lending to 10-50 neighbors who come together to form a village banking group, and who in turn decide who should get what and how much. FINCA specializes in small loan amounts ($50-$500) for the very poorest. The minimum contribution to their program is $50. While a few hundred dollars is powerful, with only $5,000 you can start a whole village bank for micro-loans, thereby compounding the power of micro-finance to an entire small community.

http://www.villagebanking.org/donate-vbsponsor.htm


Unitus

Minimum contribution, $100. Since they accept PayPal, I found this program really easy to contribute to. (Get with it, others!) Unitus, like Accion below, funds other local micro-finance programs, rather than direct loans to individuals. "Unitus seeks to identify highest-potential emerging MFIs (Micro-Finance Institutions) and help them to achieve exponential growth."

http://www.unitus.com/sections/involved/involved_cu_main.asp


Accion

Accion is an umbrella institution providing technical assistant to local micro-lending institutions. Minimum contribution, $50."ACCION is leading the effort to make micro-lending financially self-sustaining. Micro-lending programs have the potential to cover their own costs. The interest each borrower pays helps to finance the cost of lending to another. In most poverty alleviation efforts, every person helped brings the program closer to its financial limits. Successful micro-lending programs, on the other hand, generate more resources with each individual they help. As a result, well-managed micro-lending programs generate more income than they spend. Once they become economically viable financial institutions, they have the ability to access a virtually unlimited source of lending capital - the billions of dollars invested in the world's financial markets. Several of ACCION's partners have already made the transition from nonprofit, charity-dependent organizations to banks or other regulated financial institutions."

https://www.accion.org/involve_make_a_donation_form.asp


More Information

Kevin Kelly also discusses others on his blog:

Tricke Up, http://www.kk.org/cooltools/archives/000229.php

Opportunity Int'l, http://www.kk.org/cooltools/archives/000230.php

Heifer, his favorite, at http://www.kk.org/cooltools/archives/000231.php

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