The Revolution of Peer to Peer Lending in Microfinance

European Microfinance Network Annual ConferenceMilan, June 2009

Laura Foschi, EtimosMargaux Gouté, BabyloanJulia Sandoval, Babyloan

Outline

1. P2P today (north/south)2. Babyloan Case Study3. Etimos Case Study4. P2P (north/north)

Outline – P2P Today (n/s)

1. Definition2. Existing Models

- Kiva- MyC4- Microplace- Babyloan

3. Platform comparison

P2P Today – intro

Definition

Existing Models

This growth in online lending

and investment platforms

presents an opportunity and a

challenge for MFIs intent on

tapping the potential of online

lenders or investors.

- CGAP

May 2009

P2P Today – Kiva

May 2009

P2P Today - MyC4

May 2009

P2P Today – Microplace

May 2009

P2P Today – Babyloan

May 2009

P2P Today – Comparing platforms Kiva MyC4 Microplace BBL

Yr established 2005 2006 2007 2008Based in USA Denmark USA FranceIdentity Non profit For profit For profit Social businessModel P2P P2P bidding Online brokerage P2PIntermediary MFI Providers Security issuers,

MFIsMFI

% interest earned by investor

0 0-25; 11.7 avg 1-6 0

Loans enabled 47 million $ 8,600,000€ 38,200 $ 240,200€Target enterprise

micro MSME micro micro

Max loan size 1,500$ 100,000€ - 1,500€Business model

Donations, interest revenue

Transaction fee to SME

Fees Transaction fee to investor, MFI

management fee, interest revenue

Platform fees to MFI

0 3% 2,5%

Additional fees to MFI

- Provider fees -

Currency $ Eur, DC EurRepayment to Intermediary

Monthly Monthly Monthly

Repayment to Investor

End of loan term Monthly End of loan term

Added Value Positive publicity Training providers and entrepreneurs as part of a grants

and donations programme

Positive publicity

Currency Risk MFI, investor Investor MFICredit Risk MFI, investor Investor Security issuer MFI

P2P Today – Benefits

Additional credit line: opportunity to diversify funding and increase OLB

Low cost compared with commercial loans

Enhanced funder credibility by adding an international funder on the balance sheet

Open to small and big MFIs with minimum eligibility criteria

Enhanced international reputation: Marketing

Risks: Funder stability, reputation, operational and management expertise, regulatory risks

Complexity of issues due to number of lenders and investors

Costs: Foreign exchange risks, reporting requirements, operational and cost implications

Managing unpredictable shifts in funding

Customer privacy and consumer protection issues

P2P Today – Limitations

Outline – Case Study

1. Babyloan background2. Mechanism3. Selection Process

Case Study – Babyloan

BackgroundBabyloan is the first French peer-to-peer microcredit lending website managed by the social business ABC Microfinance based in Paris. We provide a source of low-cost refinancing by leveraging the internet to channel interest-free funds from people in Europe to our MFI Partners. Small and medium-sized MFIs can benefit from our minimum eligibility criteria and low-cost refinancing to increase their OLB and grow.

HistoryBabyloan was launched in September 2008 by 2 social entrepreneurs, Arnaud Poissonnier and Aurelie Duthoit. Our founding partners include the French NGO ACTED, and banks BRED, Credit Cooperatif.

MissionTo become a leader in refinancing small and medium-sized MFIs by leveraging the power of the internet so that they may grow, and thereby participate in the fight against poverty.

May 2009

A project by:

Case Study - Babyloan key figures

Key Figures (05/2009)6 MFI Partners in 6 countries222,000 euros loans raised online 765 projects funded3,320 internet lenders

Current PartnersOXUS Microfinance – TajikistanChamroeun – CambodiaFINADEV – BeninSEDA – VietnamCEPESIU – EcuadorICDC – Philippines

Objectives 2008 – 2013100,000 internet lenders25,000 microcredit clientsRefinance 14 million euros worth of loans for MFIs

Current MFI Partners

May 2009

Case Study - Babyloan Project page

Case Study - Babyloan Lender page

May 2009

Online Payment

Monthly money transferReports

Internet Lender

Entrepreneur

Microcredit

Recovermoney

Repayment + interest

MFI

Internet Platform

Case Study – Mechansim

Case Study – Selection process

Babyloan Selection Process

1. MFI submits application2. Selection Committee analyses application and

provides a recommendation3. Due diligence in the field (if necessary)4. Advisory Committee makes final decision5. Contract signed between MFI and ABC MF

Outline – Etimos

1. Etimos background2. Field application3. Future P2P prospects

Etimos Background

Ecuador Case Study : CEPESIU

Babyloan’s partner since March 2009

7,000 euros lent22 micro-entrepreneurs financedAdvantages and constraints

Argentina Case Study

Etimos Field application

Babyloan Italy

Limitations / Perspectives

Etimos Future P2P prospects

Outline – P2P north/north

1. Existing models2. Explaining the gap in P2P

solidarity microlending 3. French case study

P2P n/n – Existing Models

Note: Due to regulatory constraints, many ‘For profit’ P2P lending sites have ceasedoperations in the US and Europe; however, a few platforms remain operating & are growing (e.g. LendingClub)

P2P n/n - Existing Models

August 2008: US$164 million in loans had been transacted on Prosper. Nearly US$45 million had been arranged by Zopa UK and, as of July 2008, US$5.4 million on Smava (source: USAID)

P2P n/n – Comparing platforms

Lendingclub

Prosper Smava Zopa UK Cashare

Yr established

2007 2005 2007 2005 2008

Based in USA USA Germany UK SwitzerlandModel P2P Auction P2P

AuctionP2P Auction P2P “silent” auction

in UK; credit Union partnership in US

P2P Auction

Interest for borrowers

7,37% (A1) to 20,11

(G5)

Variable (Av

14,5%)

Variable Variable Variable

How it is defined

fixed by credit score and credit

history

Bidding / Credit grade

Fixed by borrower/

Accepted by lender

Lenders set their interest rate

thresholds acc to loan term and risk

rating

Bidding

Loan Size 1000-25 000 1000 –25 000

500-10 000 10-25 000 pounds Av 6600

Loan usage All All All All AllDefault Risk Lender Lender Lender Lender Lender

P2P n/n – Characteristics

No field intermediary, no monitoringBorrower doesn’t benefit from adviceMore risky for the lenderBut interesting interest rate and information on credit history and credit score of the borrower

Investor earns interest

Loan product not limited to business loans

Source: USAID

P2P n/n – Absence in P2P solidarity microlending

There is a notable absence in P2P solidarity microlending despite the large demand (exacerbated by the financial crisis)

How to address this? Need a country-specific response:

- Microfinance institute (NGO, cooperative, bank etc.)- Source of financing- Additional needs- Constraints to financing

P2P n/n – Solidarity Microlending in France

Babyloan / ADIE

ADIE(non profit organisation)

Source of financing: ADIE can only access loans from banks(Article 511.6 of the Monetary and Financial Code)

Babyloan and ADIE have proposed a change in the law to allow ADIE to access loans from other legal identities (individuals and enterprises)

Conclusion

New possibilities with online platforms

Considerations in P2P online microlending

Potential in Europe