Archive for the ‘social lending’ Category
Our industry is beginning to be noticed in the traditional financial mainstream press.
What do you do when your bank’s gone away? Get by with a little help from your friends, naturally. Peer-to-peer lending – which lets friends and complete strangers lend small amounts of money to each other over the internet – has enjoyed a surge of interest in recent months as banks have cut back on lending, often even to creditworthy customers.
Written by amwatts
December 9, 2008 at 5:08 pm
Interesting interview with Tadatoshi Senoo, CEO of Maneo – a social lending company in Japan. He worked with MUFJ, the largest bank is Japan, and afterwards decided to set off on this venture. The interview focusses on the hardships of setting up such a company.
Social lending takes root in Japan | Japan Today
What does the company offer?
Our company provides an online social network for individual borrowers and lenders where they can find each other. Borrowers auction their conditions, including interest rate, and lenders who offer the best conditions can lend money to them. Lenders can consider whether it is a good investment from disclosed information about borrowers. But both sides cannot reveal personal information and we do not allow them to physically meet each other as a safety measure.
How does the system work?
In legal terms, our company lends money to borrowers and lenders invest on pecuniary claim to us as a fund. Although this system is theoretically complicated, the process for borrowers and lenders is very simple.
Niall Ferguson [Laurence A. Tisch Professor of History at Harvard University and a Senior Fellow of the Hoover Institution at Stanford, and the author of The War of the World: Twentieth-Century Conflict and the Descent of the West.] offers analysis and conclusions on the world of financial services, and the historic lead up to the current financial crisis.
Wall Street Lays Another Egg | Vanity Fair
The author charts the emergence of an abstract, even absurd world—call it Planet Finance—where mathematical models ignored both history and human nature, and value had no meaning.
Its a long piece and worth the read for those interested. He speaks of systemic issues and highlights one in particular – the obscure world of derivatives, which amount to over $400 trillion around the world. This amount is significant, when compared to world GDP of $49 trillion, or the combined stock markets’ value of $51 trillion. [note: 1 trillion = 1,000 billion]
All this to display the runaway value in a financial market that surprisingly few understand, and which is hidden behind a complex mathematical formula developed in the late 90’s. The results of this formula drove the derivatives market.
The result of the belief in this formula, developed by Nobel prize winners, was as Ferguson goes on, that normal lending practices and risk assessment were replaced by computer models based on the formula. Thus we saw securitized sub-prime mortgages magically transitioned into AA commercial paper, and sold off around the world.
If ever there was a time to bring back transparency of information between borrowers and lenders, that time has come. While mathematics will always play a part, the relationship between lenders and borrowers is more than mathematics.
For borrowers transparency allows them to be assessed on their merits, and the right balance of information about them. For lenders transparency offers the insight and information to get back to basic risk assessment, and to provide appropriate to the right borrowers.
Here is a link to a recent thought-provoking article from VentureBeat journalist, Chris Morrison, entitled "Will "social capital" be the next big industry to emerge?"
His central example in the piece is the emerging field of "Microcredit" and specifically the work of Nobel Prize winning Mohamed Yunus. I especially like Morrison’s quote on this defining nature of the success of these emerging models:
"Contrast that to aid organizations that have spent hundreds of years providing selective handouts — with little result. In just three years, microfinancing by both non- and for-profit organizations has taken flight, with a huge effect. The key was simply adding old-fashioned capitalism and a business model to charity."
The founders of CommunityLend have been greatly influenced, as they develop the social lending model, by the amazing work of Yunus and others challenging the rules in the world of microcredit. We thought it fitting to provide a shout out.
Written by amwatts
October 30, 2008 at 7:44 pm
We were fortunate enough to have the opportunity to speak and provide a demo of our lending system a the SIT annual user conference in Markham yesterday. The audience comprised a broad group of banks, credit unions, and technology providers.
Patrick Lannigan who organised the event introduced us following an overview of their strategy.
Then on to our presentation …
and live system demo …
Written by amwatts
October 28, 2008 at 4:11 pm
It’s been a strange month for the financial services industry as a whole and the burgeoning industry of Social Lending is no exception.
These last few weeks have seen a number of major announcements in the Social Lending space including the following:
– Zopa US announced that it has restructured its operation in the US in collaboration with their credit union partners.
– LendingClub announced it is reopening its US business following its successful registration with the SEC and with the innovative addition of a secondary trading market for their loans.
– Prosper announced that it is closing to new Lenders in order to register promissory notes with the SEC similar to the process just undertaken by LendingClub.
– Zopa UK announced their best month ever, with borrower volumes more than doubling as a result of the credit crunch.
So, how does one sort out all of these announcements? Is it, as TechCrunch and the New York Times have recently suggested, that the international “credit crunch” is adversely affecting social lending platforms in the same way as it is adversely affecting more traditional lending? If this was true, then the Zopa UK announcement of drastically increased volume and the LendingClub announcement of asuccessful registration with the SEC would seem quite out of place.
As insiders in the new, exciting and entirely human industry of social lending, we at CommunityLend see these announcements in a very positive light. We see them as a sign of the maturation of this young industry. In social lending’s early days a few years ago, most of the companies who launched their services had very little, if any, regulatory approval by the traditional financial services or securities regulators. And yet, the core of the business is to create a new asset class for investors and a new lending channel for borrowers. As time has progressed and these services have shown a significant and expanding audience of folks interested in using them, the appropriateness of regulation has been accepted. We embarked on regulatory consultation early and understand the need very directly.
The result is what we are seeing with the Prosper and LendingClub announcements and, to a certain degree, what we are seeing with the Zopa US announcement. (As we interpret it, the Zopa US model was really a compromise market entry by Zopa due specifically to their attempts to deal proactively with the relevant US regulations.)
We at CommunityLend believe that this phase of traditional regulatory compliance is a necessary evolution for the social lending industry in these troubled economic times. We also believe that it will make us even stronger and more appealing to customers by making us more disciplined in our approach to the very serious business of managing people’s money and of helping people to get access to much needed capital at a reasonable price.
Lending Club have come out of their quiet period with an astounding announcement for themselves and social lending.
Today, we’re delighted to announce that we have completed this process and are now available to both borrowers and lenders. We believe that this SEC registration is a major step forward for the Lending Club community and social lending in general, as it helps establish the space as a investment alternative to the traditional debt instruments and credit products offered by large financial institutions.
Much of this remains to be digested, but the immediately obviously novel parts are:
- Partnership with FOLIOfn Investments, Inc.,
- On the trading platform, lenders who become customers of FOLIOfn will be able to put notes up for sale in the event they need liquidity before the completed term of a note.
Clearly social lending is undergoing consequential changes and shifts that will determine ultimate viability, and LendingClub are leading the current next wave with securities regulation under their belt and apparently unlimited access to lenders and borrowers.