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Posted this because having heard of P2P lending before, I had no idea that it had grown to such a large ( scale and scope ) industry. The most recent exposure

by dtien 8y ago

Posted this because having heard of P2P lending before, I had no idea that it had grown to such a large ( scale and scope ) industry. The most recent exposure I've had to P2P lending or microloans is probably Kiva's more charitable based business model. But these new companies are certainly not in that space, as some are charging up to 20% on interest!? Who's taking loans at that level, and who's funding it at that level on this type of trust system?? That had me intrigued, so doing more research, this article goes in depth on the various types of lenders, the borrowers as well as their motivations, and the collaterals involved: https://www.accaglobal.com/content/dam/ACCA_Global/Technical/manage/ea-china-p2p-lending.pdf https://www.accaglobal.com/content/dam/ACCA_Global/Technical... And some top US based companies at the moment: https://www.forbes.com/sites/oliviergarret/2017/01/29/the-4-best-p2p-lending-platforms-for-investors-in-2017-detailed-analysis/#7ccacc1252ab https://www.forbes.com/sites/oliviergarret/2017/01/29/the-4-... Still haven't read enough to form a solid opinion, but it is an intriguing space. I definitely see the value in providing capital and easier access to capital to people who probably never had the opportunity, but the space seems ripe for fraud, manipulation, high defaults, etc.

xjia 8y ago
> 20% on interest Based on what I know, a large portion of the loans have very small amount and short duration. For instance, people want to borrow 1000 CNY for a month and pay back 1020 afterwards. That's already 2% per month. EDIT: The reasons they need such loans are more complicated. Some needs money for emergency. Some uses the money to buy stock/cryptocurrencies... EDIT2: P2P platforms typically take money from the deep pockets and subdivide into tiny loans. They earn the interest rate difference (e.g. 20% from users vs 15% to capital providers). > high defaults Empirically the default rate is very low. People pay back on time if you call or just text them. Honestly if they don't pay, it's totally fine, and the P2P platforms just don't care, because they earn so much money...
- geon 8y ago
  And some are just really bad at managing their personal economy. There is a popular edutainment show here in Sweden about people in difficult economic situations, and at least half of them have taken 15-20 % interest loans for luxury consumption, like vacations and hand bags. It's a freak show.
  - jimmyspice 8y ago
    what's the show called?
  - pembrook 8y ago
    Isn't Sweden also famous for having 100 year mortgages?
  - curuinor 8y ago
    Is that kind of thing going to get an actual random sample of people in difficult economic situations?
- gruez 8y ago
  > Some uses the money to buy stock/cryptocurrencies... I dont know what's sadder: remortgaging your house to buy crypto, or borrowing from loansharks to buy crypto.
  - r00fus 8y ago
    Probably the latter. There's a reason they're called loansharks. Although if it's from a startup P2P lender it's not clear there's an actual risk of getting your legs broken because you don't pay Vito back in time.
- dtien 8y ago
  So according to that accaglobal.com article that I linked ( focused on Chinese P2P industry ): Why are they borrowing: 51%: to accumulate credit worthiness 20%: meet basic needs 9%: fund major purchases of consumer durables So seems to cover some of your anecdotal experience of the space. I understand the P2P business spreading out the risk by subdividing large investments from lenders into these various risk pools, but from a lender's perspective I can't imagine the return is worth it on one of these platforms. I'd imagine the P2P platform itself would take a large cut probably with initial borrowing costs, plus a percentage of any interest rate payback. Just seems like there'd be much better ROI in other investments than this type of lending ( as a lender ). Though, I'm sure the P2P businesses are making a nice profit by fleecing these types of borrowers at every step.
- walshemj 8y ago
  From experience with zopa in the UK any individual p2p investor doesn't led the full amount of any single loan. In my case (just checked) its split up between 150 loans so any default isn't critical
Xixi 8y ago
If you Google around you will see that the interests rates charged by Kiva (or rather Kiva local partners, the ones actually handling the loans) can be pretty high [1]. But keep in mind that interest rates should always be compared to inflation. Lots of developing countries have inflation >10%. [1] https://en.wikipedia.org/wiki/Kiva_(organization)#Interest_rates https://en.wikipedia.org/wiki/Kiva_(organization)#Interest_r...
- blanderman 8y ago
  You also need to compare their rates to what else is available in those markets. The loan terms might be bad but they're better than the other bad options, so at least it's pushing things in the right direction.
aphextron 8y ago
>But these new companies are certainly not in that space, as some are charging up to 20% on interest!? Who's taking loans at that level, and who's funding it at that level on this type of trust system?? That's cute. LendUp is charging upwards of 900% APR on short term loans [0]. Usury is nothing new, but until the "disruptive" tech economy picked it up, it had been mostly regulated and outlawed. Turns out fleecing poor people for everything they have is profitable enough for people to not care. [0] https://www.lendup.com/rates-and-notices https://www.lendup.com/rates-and-notices
- dtien 8y ago
  900%!!! I stand corrected. Definitely the more I'm reading the more these new models are predatory rather than assistive like the Kiva model.
majani 8y ago
a Nigerian founder in this space wrote a blog post explaining the high interest rates: https://medium.com/@ngozi/fundraising-fantasies-c611c2e46808 https://medium.com/@ngozi/fundraising-fantasies-c611c2e46808

by dtien 8y ago

xjia 8y ago

> 20% on interest Based on what I know, a large portion of the loans have very small amount and short duration. For instance, people want to borrow 1000 CNY for a month and pay back 1020 afterwards. That's already 2% per month. EDIT: The reasons they need such loans are more complicated. Some needs money for emergency. Some uses the money to buy stock/cryptocurrencies... EDIT2: P2P platforms typically take money from the deep pockets and subdivide into tiny loans. They earn the interest rate difference (e.g. 20% from users vs 15% to capital providers). > high defaults Empirically the default rate is very low. People pay back on time if you call or just text them. Honestly if they don't pay, it's totally fine, and the P2P platforms just don't care, because they earn so much money...

geon 8y ago
And some are just really bad at managing their personal economy. There is a popular edutainment show here in Sweden about people in difficult economic situations, and at least half of them have taken 15-20 % interest loans for luxury consumption, like vacations and hand bags. It's a freak show.
- jimmyspice 8y ago
  what's the show called?
- pembrook 8y ago
  Isn't Sweden also famous for having 100 year mortgages?
- curuinor 8y ago
  Is that kind of thing going to get an actual random sample of people in difficult economic situations?
gruez 8y ago
> Some uses the money to buy stock/cryptocurrencies... I dont know what's sadder: remortgaging your house to buy crypto, or borrowing from loansharks to buy crypto.
- r00fus 8y ago
  Probably the latter. There's a reason they're called loansharks. Although if it's from a startup P2P lender it's not clear there's an actual risk of getting your legs broken because you don't pay Vito back in time.
dtien 8y ago
So according to that accaglobal.com article that I linked ( focused on Chinese P2P industry ): Why are they borrowing: 51%: to accumulate credit worthiness 20%: meet basic needs 9%: fund major purchases of consumer durables So seems to cover some of your anecdotal experience of the space. I understand the P2P business spreading out the risk by subdividing large investments from lenders into these various risk pools, but from a lender's perspective I can't imagine the return is worth it on one of these platforms. I'd imagine the P2P platform itself would take a large cut probably with initial borrowing costs, plus a percentage of any interest rate payback. Just seems like there'd be much better ROI in other investments than this type of lending ( as a lender ). Though, I'm sure the P2P businesses are making a nice profit by fleecing these types of borrowers at every step.
walshemj 8y ago
From experience with zopa in the UK any individual p2p investor doesn't led the full amount of any single loan. In my case (just checked) its split up between 150 loans so any default isn't critical

Xixi 8y ago

If you Google around you will see that the interests rates charged by Kiva (or rather Kiva local partners, the ones actually handling the loans) can be pretty high [1]. But keep in mind that interest rates should always be compared to inflation. Lots of developing countries have inflation >10%. [1] https://en.wikipedia.org/wiki/Kiva_(organization)#Interest_rates https://en.wikipedia.org/wiki/Kiva_(organization)#Interest_r...

blanderman 8y ago
You also need to compare their rates to what else is available in those markets. The loan terms might be bad but they're better than the other bad options, so at least it's pushing things in the right direction.

aphextron 8y ago

>But these new companies are certainly not in that space, as some are charging up to 20% on interest!? Who's taking loans at that level, and who's funding it at that level on this type of trust system?? That's cute. LendUp is charging upwards of 900% APR on short term loans [0]. Usury is nothing new, but until the "disruptive" tech economy picked it up, it had been mostly regulated and outlawed. Turns out fleecing poor people for everything they have is profitable enough for people to not care. [0] https://www.lendup.com/rates-and-notices https://www.lendup.com/rates-and-notices

dtien 8y ago
900%!!! I stand corrected. Definitely the more I'm reading the more these new models are predatory rather than assistive like the Kiva model.

majani 8y ago

a Nigerian founder in this space wrote a blog post explaining the high interest rates: https://medium.com/@ngozi/fundraising-fantasies-c611c2e46808 https://medium.com/@ngozi/fundraising-fantasies-c611c2e46808