Don’s Blog

A video of the “Helsinki Complaints Choir”.  This is great–recommended for everyone.  Incredibly funny if you’ve ever lived in Finland or know much about Finnish culture/society.

I recently became aware of the world of “peer to peer financing” which is a very interesting concept and has the potential to really change the world of lending and borrowing.

I am not aware of any p2p financing web sites in Canada yet, however Prosper.com (US) and Zopa.com (UK) are already in the business and it’s probably only a matter of time before one of them expands to Canada (or a home-grown alternative springs up.)

The premise of p2p financing is to reduce the transaction costs associated with financing by allowing lenders and borrowers to interact directly with each other (with the p2p financing web site providing a minimal amount of services in the role that has traditionally been performed by bankers.)  The prospective borrower provides information about themselves (creditworthiness, what the money will go towards, how much is required, etc.) and the lenders then can decide how many they would be willing to lend to that specific borrower and at what rate of interest. 

Essentially this is loan syndication for the masses–borrowers can access capital at better than bank terms, and lenders can earn better returns by diversifying their investments across a variety of borrowers. 

However, there is one p2p financing web site that really interests me, and that is Kiva.org.  Their web site probably best describes what they do (no need for me to re-phrase it) so here it is:

We let you loan to the working poor

Kiva lets you connect with and loan money to unique small businesses in the developing world. By choosing a business on Kiva.org, you can “sponsor a business” and help the world’s working poor make great strides towards economic independence. Throughout the course of the loan (usually 6-12 months), you can receive email journal updates from the business you’ve sponsored. As loans are repaid, you get your loan money back.

At present, you won’t get rich by investing at Kiva.org.  However, it will probably be only a matter of time before these approaches merge and “Joe Investor” will be able to lend/invest money to a micro-enterprise just about anywhere in the world (wow…better than GIC rates of return plus the opportunity to do some good with your money.)