An-Analysis-of-European-Online-Micro-Lending-Websi

Electroniccopyavailableat:=1518637ArvindAshta;DjamchidAssadi/CahiersduCEREN29(2009)pages147-160ISSN1768-3394-ISSN(Enligne)1778-431X147/214CahiersduCEREN29(2009):Purposeofthepaper:Withthedevelopmentofweb2.0,anewkindonlendingistakingplaceontheinternet,termedpeertopeerlendingorsociallending.InEurope,thisincludescommerciallendingwebsitessuchasZopa,smava,boober,Kokos,Monetto.Atthesametime,followingtheleadofKivaintheUS,EuropeanmicrocreditwebplatformsarecomingupincludingMyC4andBabyloaninEurope.ThepaperexamineshowthelegaldesignoftheonlinewebsitesdiffersfromthemicrocreditwebsitesinEuropeandhowthisimpactssocialperformanceissuesofthedifferentmodels.Design/Methodology/Approach:Sincethepopulationsizeofthesewebsitesisrathersmall,weuseacomparativecasestudyapproach.Thecasestudyapproachisthemostadaptedtostudyingsmallsamplesinmoredetail.Thecasestudiesarebasedonexploringofwebsitesandreviewofacademicliteratureandpressreports.Keyresults:Wefindthatalthoughweb2.0permitsplatformmodels,mostsites(commercialormicro-lending)haveretainedintermediaryrolesandhavenotpermitteddirectpeertopeercontact.Thepaperwilloutlinetheadvantagestobothborrowersandlendersinthedifferentmodelsandtheirmotivations.Challengesforexpansion,suchastrust-buildingaswellasamarketinganalysiswillalsobepresented.Impact:Thefindingswouldleadmicrofinanceinstitutionstolobbyforspecificlaws,andinvestinonlinelendingsolutionstoradicallyreduceoperatingcostsaswellastoincreaseoutreach.Value:Thisresearchwouldaddvaluetothosewhoareoperatinginorlaunchingnewonlinemicrocreditplatformstounderstandthisyoungandfastchangingmarketplace.KeyWords:onlinelending,regulation,socialperformance,microfinance1ThispaperwaspresentedattheEMN6thAnnualConference,4-5June2009,Milan,Italy.OurthankstotheBanquePopulaireduBourgogneFrancheComtéforfinancingtheMicrofinanceChairheldbyArvindAshta.Electroniccopyavailableat:=1518637ArvindAshta;DjamchidAssadi/CahiersduCEREN29(2009)pages147-160ISSN1768-3394-ISSN(Enligne)1778-431X148/214AnanalysisofEuropeanonlinemicro-lendingwebsitesIntroductionSincetheearly1970s,Microfinanceisgrowingat30%perannum,butthevastmajorityofthepoorarestillunderserved.Moreover,mostofthemarebeingservedatinterestratessignificantlyovercommerciallendingrates,owingtosmallloansizesleadingtohightransactioncosts.TheCGAP(Rosenbergetal,2009)reportsthatoperatingcostsareprobablythemainareatofurtherreducemicrofinancecosts.Inadditiontoreducingoperatingcosts,financingcostscanandarebeingreducedowingtothereductionofspreadspossiblethroughpeertopeer(P2P)onlinelending.Inaddition,onlinelendingoffersanincreasedoutreachtopeoplelivinginisolatedruralareas.Thisincreasedoutreachwouldfurtherreducebothtransactioncostsfromeconomiesofscaleandfinancingcoststhroughlargerloannegotiations.Thispaperlooksatthisrelativelynewphenomenonofonlinemicro-lendingwhichtargetsbothneedyentrepreneursandindividualslookingforsmallfinancialsolutionstotheirliquidityproblems.Kiva,anAmericancompany,startedanonlinemicro-lendingmodelin2005totargetmainlytheneedyentrepreneursinthedevelopingcountries.Thistoowasduplicated,withvariationsandadaptationsbymanyoperators.InEurope,wefindMyC4andBabyloan.However,modelsaremushroomingallovertheworld,withanumberoftheminIndiaalone.Althoughtraditionalmicrofinancehasdevelopedinpoorcountries,todaymanydevelopedcountriesarealsousingthesystemwithadaptationsbasedonlocalculturaldifferences.TheonlinelendingmovementstartedinMarch2005withaEuropeanfirmcalledZopa,UK.SincethenZopahasgonetothetheU.S.,ItalyandJapan.It'smodel,withvariations,hasalsobeencopiedandadaptedbymanyothercompetitors.Today,therearemorethanadozenfor-profitcommercialoperatorsintheonlinePeer-to-peerlendingmarket.InEuropetheseincludeoperatorssuchasZopa,smava,boober,Kokos,andMonetto.Inpoorercountries,onlinemicro-lendingmayhaveamoredifficultfuturesincemostpoorpeopleareilliterateanddonothaveaccesstoInternetviaacomputer.Insuchcountries,mobilebankingisconsideredthebestsolution.InIndia,forexample,37millionpeoplehaveaccesstoacomputerbut370millionpeoplewouldhaveaccesstoamobiletelephone.Infact,thenumberofmobileconnectionsoutstripslandlines.Therefore,outreachofmobilebankinghasgreaterpotentialthanthatofonlinemicrofinance.Asopposedtothis,indevelopedcountries,accesstocomputersisfargreaterandusingacomputertomakefinancialtransactionsisfarmorecomfortablethanpressingsmallbuttonsonatelephone.Therefore,thefutureofonlinelendingisprobablymoreimportantthanthatofmobilebankinginthedevelopedworld,especiallyEuropean,context.Perhapsthetwowillconvergeassatelliteconnectionspermitmobilewebbasedaccesstocomputers.Thepaperreviewstheleadingissueswiththemostsignificantimpactsontheentrepreneurialbusinessofpeer-to-peer(P2P)micro-lendingontheInternet.Accordingly,wewillfirststudythelegalenvironmentofthesectoranddefactoformsofintermediationadoptedbybothcommerciallendingsitesandmicro-lendingwebsitesinEurope.Secondly,wewill