Thursday, February 14, 2008

Person-To-Person Lending: not just for Americans anymore...

I've read a fair bit online about Prosper, the popular American person-to-person lending community, and I've been wondering when we would see this sort of thing in Canada. For months, I've been checking in on the CommunityLend project, which looks promising, but has yet to provide any concrete launch plans.

This week, Canada got its first person-to-person lending platform, with the launch of IOU Central. Like Prosper, IOU Central allows users to lend or borrow funds. Users can request a loan of $1,000-$25,000, or bid on loans in increments of $25-$25,000. As I understand it, 40 users could bid $50 each to fund a $2,000 loan, or a single user could fund the entire loan. The ability to diversify across multiple loans provides a nice protection against default.

An interesting point is that, although IOU Central is not insured by CDIC, they keep member deposits at a CDIC-insured bank, effectively providing "CDIC pass through insurance". This is similar to the indirect FDIC insurance enjoyed by PayPal members. My first thought on reading this was, "Holy smoke, they insure the loans!" However, I soon realized that it's only your unlent deposits that are insured; once you've funded a loan, you're at the mercy of the borrower.

This service is brand new, so I'm a long way from actually trying it out. However, I'll be very interested to see what kind of reaction this gets, and what happens when CommunityLend finally comes on the scene.

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