This week, the Financial Times reported that Jacob Rothschild bought into a peer-to-peer lending (P2P) company, Zopa, which allows people to lend to each other directly over the Internet. The Lending Club, a US-based P2P company, has processed more than $1 billion in loans and is preparing for an initial public offering.
Why has this sort of lending taken off? According to Rothschild, “Savers are looking for a way to get enhanced yield and at the same time, borrowers are looking for options where banks aren’t lending.” A recent post on Bloomberg noted that “Lending online became popular in China after a tightening of bank credit in 2010 following two years of stimulus spending to fight the global financial crisis.” Furthermore, the total amount that circulates as loans among friends, families and companies is $1.3 trillion – an amount equal to last year’s US budget deficit.
The upside for the lenders is that P2P can give them higher returns for their money, and for borrowers, it means that they can obtain loans more easily and quickly and potentially more cheaply. Of course, there are downsides – the market is not regulated and there are no guarantees for lenders.
In another arena that has been similarly constricted – public sector funding for the arts – Kickstarter has become a serious source of crowd funding for the arts. One of Kickstarter’s founders, Yancy Strickler, stated in The Washington Post, “It is probable Kickstarter will distribute more money this year than the NEA [US National Endowment for the Arts].” The site is also spawning other opportunities; for example, cartoonist Matt Bors, a Pulitzer finalist, recently bypassed a publisher and went to his followers directly with a campaign for his book. Bors raised enough money to publish two books.
And the crowd funding mechanism is also being used to modernize the concept of charity. For example, Watsi allows you to fund medical treatments for people in the developing world. An article on Wired notes that, “The business lists developing world individuals in need of expensive medical treatments, allowing users to fund them and receive updates on the progress. All treatments must have a high probability of success and cost less than $3,000…”
So with P2P and “crowd funding,” and in the spirit of giving this season, it may be that you or your brother can spare a dime (or maybe more).
Photo Credit: daveoratox (Flickr)