Laura at Canadian Business tackles some of the more interesting issues within p2p lending in her article posted tonight.
This one is key.
There are kinks to work out, of course. One key question: who takes advantage of the service? Who borrows from Community Lend? And who makes money off it? Folks with top notch credit scores don’t necessarily need peer-to-peer lending. The banks already cater to them. But if Community Lend only serves those with low credit scores, chances are good that default rates will be high, and investors will be reluctant to put up their capital.
While it might be simple to suggest that Banks cater to borrowers with “top notch credit scores” I would take some issue there. Many feel in need of a better borrowing alternative, and those people are across the spectrum of credit scores, with a host of various needs. In some ways this is indicated by the reality of the average rate of 18% ~ paid on unsecured debt in Canada today.
At CommunityLend we are designing our service around borrowers with good credit records, seeking a better financial services alternative that works with their lifestyle. At the end of the day, borrowers will choose what’s best for themselves.
Anyhow, thanks to Laura for tackling some important questions, and thoughts are welcome.
1 response so far ↓
Dave // April 11, 2008 at 11:03 pm
It seems to me the ‘default rate’ doesn’t tell the full story - if those higher risk people were willing to take loans at a higher interest rate, a portfolio of their debt could still be profitable for lenders, even if a certain percentage defaulted. Just don’t put all your eggs in one basket, and do some math to determine a minimum interest rate to still make a profit overall.
I hope CommunityLend will make a lot of information available about borrowers, and more importantly, encourage them to be forthcoming with information. On IOU Central, many loan requests contained insufficient information to make good judgments. It’s almost as if people forgot they were asking strangers to trust them with their money. It would have been cool if there was some medium where borrowers and lenders could communicate their expectations of one another…
Great to see you CommunityLend guys moving forward. Best regards,
Dave.
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