Social Lending: Poor Africans pay-up, fat Americans… not so much.

Back in October of 2006 I joined Prosper as a lender, thinking it would be a great way to get a good return while doing some social good. In January of 2007 I started lending money on Kiva where the sole focus is on the social good created by these loans. At the time I wondered if I would ever see any money come back from the loans and what kind of interest rate I’d eek out on Half way through the social lending horse race, the results are trickling in and they are rather surprising.

Kiva repayments at 100% loans have no interest attached and have to be repaid in 14- 20 months, Prosper loans must be repaid in 36 months and are interest bearing, so this isnt exactly an Apples to Apples comparison. But of the 3 loans I’ve made on Kiva, to poor people in Togo without out credit scores or verifiable employment, the repayment rate is 100%.

Prosper on the other hand is a bit of a mixed bag. Of the 19 current loans I have on the system, 15 are current and 4 are in some level of distress. Three of this are more then 3 months late and are likely never to be repaid. Whats really interesting is that of the 3 delinquent loans on Prosper one is an A rated (720 – 759 FICO score) burrower and the other is AA rated (760+ fico score). According to prospers calculations I’m making roughly 19% on my loans through the site, but I’m not so sure. Of the $1,200 I’ve lent (in $50 -$100 dollar increments) I’ve netted roughly $45 in interest, which is roughly 3.6% in 18 months. While thats better then many US savings accounts its not a particularly high return relative to the risk and alternatives. I dont even get the warm and fuzzies for doing some social good, since noone ever updates their profiles after the loan closes.

While I love the idea of social lending sites like Zopa and Prosper, they lack the strong social bonds that make micro-finance projects like Kiva work. Without the social bonds the rate of repayment will be pretty low. Since most of the value that comes out of P2P sites is social and not financial, I’ll be increasing the number of loans I make on Kiva and probably decreasing my loans on Prosper.

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