Peer to Peer Lending

Our recent event focused on two different models of online platforms that enable individuals to invest in microfinance. The revolutionary nature of retail investing platforms is difficult to overestimate. For a long time the only way for an individual to invest in economic development was via a more sophisticated structure, such as a large size private placement transaction, or through charitable donations that might or might not be applied directly to the poverty alleviation cause in the area of interest or concern to the donor. Aside from issues of portfolio allocation and due diligence, there just weren't that many investment opportunities available unless the investor was actively seeking them and had unusual access to opportunities. Most financial advisors still do not have poverty alleviation related investments in their inventory at any given time. This is a new area. Enabling not only ultra wealthy individuals to invest in poverty alleviation has been one of the most significant advancements in the industry lately. We were thrilled to hear that $100 can change someone's life. It is even more inspiring that the average person now has the opportunity to be more directly involved in being agents of change, even if the person has a small amount to invest, which reduces barriers to entry.

Microplace and Kiva explained their business models and shared their insights on the industry and its future. The core difference between two models makes me curious. Each targets the average American, but through a different model. When one compares (a) the personal connection experience of selecting an individual borrower to make funds available for, to whom a loan through a microfinance institution would be made with (b) an investment in notes issued by Calvert (or another entity) through an SEC - cleared, due diligence performed structure: Does one or the other model have more capability to advance the industry further?
The economist in me says: our investment pockets are larger than our charity pockets, but it's important to recognize that we as a society have a lot of educational work to do. Aside from a relatively small group of those who have been converted for life when they learnt of the transformative power of microfinance, most people still think microfinance is "small loans, whatever that means...if I "give" you 100K, is that microfinance?"....There is definitely room for both models of retail investing. Time will tell us whether one model has the power to attract more investors and transform the way we see investing in the better world .....
I look forward to hearing your thoughts.