Internet subtracts banks from lending equation

In Britain, where Zopa’s service involves direct loans between people with lenders bearing the risk, the “bad debt” rate is so low it rounds down to zero.

Prosper, created by E-Loan founder Chris Larsen, lets lenders spread money among borrowers whose individual loans end up financed by an array of people.

Prosper charges borrowers a one to two percent closing fee and lenders pay the Web site from zero to one percent of the outstanding principle annually to maintain accounts.

If a Prosper borrower fails to pay back a loan the default is reported to credit agencies and eventually sold to collection agencies. The default rate on Prosper loans is a meager three percent.

Prosper lenders are shying away from debt in the subprime category and the number of borrowers considered prime is climbing, according to company spokeswoman Tiffany Fox.

“As credit is becoming tighter in the broader markets for even people with good credit, Prosper is becoming an attractive alternative,” Fox told AFP.

“There is definitely the creation of a new asset class for lenders. Eventually, people will have real estate, bond, stock and their people-to-people portfolio.”

Kiva’s model is philanthropic, letting investors of modest means back entrepreneurs in the developing world with interest-free loans.

The San Francisco organization plans to offer nominal interest rates next year to attract more capital.

“Not all of us can afford to open a school in South Africa like Bill Gates can but they can afford to lend someone US$25,” Ramsey said.

“There is something about knowing what your money is used for. Something magical happens in that person-to-person connection.”

Kiva investors lend an average of US$100 in US$25 or US$50 increments. The typical Kiva loan is approximately US$600 and there are US$16.5 million in outstanding loans.

Virgin Money is sticking with the CircleLending model of managing loans between family members.

“When I first started out in the record business, and was struggling to get by, my Aunt Joyce was kind enough to give me a small loan,” Branson wrote in a letter posted at the Virgin Money Web site.

“That loan kept the Virgin Records recording studio afloat. Many years, and many business ventures later, I still have her to thank. So, obviously, loans between family and friends are very close to my heart.”

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