P2P Lending News

It’s hard to read TechCrunch anymore without seeing MicroPlace ads claiming you can earn up to 6% on your money. The microlending outfit backed by eBay launched 18 months ago as the first online microfinance platform that provided a return to investors, and has gradually brought on higher and higher-yielding partners over time. Initial returns were in the 1-3% range, then the highest investments crept up to 5% returns. Now there is a partner offering 6% returns. Kiva, the first microfinance platform available to consumers, does not pay interest to lenders.

MicroPlace breaks down the investments available on their site into three return buckets:

• <1% return – 1 investment (Habitat for Humanity)
• 1-3% return – 77 investments
• 4-6% return – 3 investments

So with only 3 investments in the 4-6% range, MicroPlace’s investments are still heavily weighted towards a 1-3% return.

In fact, if you’re looking for a 6% return, there is only one investment. Your only option is a 45 month investment to “extremely poor” borrowers in Nicaragua. Which is not necesarily bad, except that you might expect a few other options. Not to mention that the black woman featured in the advertisement suggests a different continent altogether.

That said, a 6% return is nothing to sneeze at, especially in this economic condition, and it is exciting to see microfinance start to offer real returns to investors. Hopefully MicroPlace can continue to attract more MFIs that will make that promise of 4-6% returns more widespread.

MicroPlace, eBay‘s answer to Kiva, launched today. Through MicroPlace, investors can make microloans to the working poor in developing nations around the world.

Rather than choosing borrowers directly (as lenders on Kiva do), MicroPlace investors buy securities (complete with a prospectus) for a microfinance institution (MFI) which makes the loan to the borrowers. MicroPlace lets you see the profiles of specific borrowers, but ultimately the heart-wrenching story is just the sales pitch to a cold, hard investment vehicle. If you really wanted to offer Jose (at right) the $280 that he needs, the best you can do is offer it to his MFI and hope that he gets a portion of it.

On the plus side, MicroPlace securities pay 1-3% interest, depending on the MFI. Although this is less that you’d earn on a CD or money market fund, it’s more than you’ll make on Kiva, where lenders don’t earn interest at all.

My feelings on this site are split. On one hand, it’s hard to get excited about microfinance if you don’t know who is getting your money (there’s a reason Sally Struthers always sent you a picture of the poor child you were sponsoring). On the other hand, interest is never a bad thing. It’s nice to feel like you’re doing well (or at least doing something) by doing good.

Kevin at RateLadder has set up an account and invested some money, and seems to have had a good experience.

MicroPlace, a US-to-developing world P2P lending platform (somewhat like Kiva) is scheduled to launch some time this fall, possibly as early as September. MicroPlace will let Americans with as little as $100 make a low-interest loan to an entrepreneur in a developing nation through a microfinance institution. The big difference between MicroPlace and Kiva, which launched over two years ago and has facilitated over $10 million in loans to entrepreneurs in developing nations, is that loans will be securitized (and therefore potentially trade-able), and lenders will earn interest.

MicroPlace was started by Tracey Pettengill, who is also the co-founder of the Silicon Valley Microfinance Network and was previously CEO of 4charity, a company whose product is “Web-based software that automates the corporate philanthropy process”. Pettengill started MicroPlace back in 2005, and faced with tough regulatory challenges, convinced eBay to lend expertise and resources.

Several months later, in March of 2007, eBay’s CMO, Gary Briggs let slip that eBay had purchased MicroPlace and was lending resources to the fledgling business to get it off the ground.

Once the site launches, investors on MicroPlace will choose a microfinance institution (MFI) to lend through, designate the amount they wish to lend, and the loan will be securitized and return a modest interest rate to the investor. Interest should be in the 3% APY range.

We’ll be anxious to see how MicroPlace looks when it finally comes out, and how they differentiate themselves from frontrunner and media darling Kiva.