My Toastmasters club has some impressive members. Paul Barsch is one of them. He's at MarketingProfs.com. Here's some of what he had to say about Microfinance:
Besides Wall Street bankers, the poor of the world need access to financial liguidity too. But loaning money to individuals lacking credit history and formal employment can be a dicey proposition. Indeed, pitching financial services to people in the rural hinterlands takes effort, patience, and a tolerance for risk. It also takes marketing—but perhaps not in the way you might think.
Read more.
Sense of humor or Pink Floyd fan?
Click here or on the title of this post to see a video/photo montage in Las Vegas set to Pink Floyd's Money.
Friday, December 4, 2009
Wednesday, December 2, 2009
Payments Are Being Reinvested
When I venture into my back office at Prosper.com I can take a closer look at my activity by clicking on "View Detail". This is what it looks like:
Dear Charles,
You were a winning bidder on:
The funds in the amount of your bid have been returned to your Prosper account and made available for further bidding.
Regards,
Prosper
Available to bid: $0.00
View Detail
We can see that I have zero dollars available to bid as I have bid using my entire deposit of $550.00 and the 67 cents interest that I've already been paid. When I click on View Detail I see this:
Cash Summary
| Total deposits: | $550.00 | |
| Total withdrawals: | - | $0.00 |
| Cash used to purchase notes: | - | $507.16 |
| Payments received: | + | $28.27 |
| Cash balance: | = | $71.11 |
| Prosper winning bids: | $71.11 | |
| Available to bid: | $0.00 |
The first section above shows that I have used $507.16 to purchase notes. I have received $28.27 back from borrowers, which includes one borrower who paid off his note right away. I believe I received $26.06 within a couple weeks of having my $26.00 bid accepted. The other $2.25 includes both principal and interest. Also, I have $71.11 bid on 2 remaining loans that are currently pending review. My experience so far is that about 15% of the "pending review" loans result in an email like this:
Dear Charles,
You were a winning bidder on:
Listing number: XXXXXXHowever, this listing was cancelled during a pre-funding review for one or more of the following reasons:
Listing created: Sample Date 8:14 AM
- The borrower's identity could not be verified.
- The borrower did not comply with Prosper Marketplace policies.
The funds in the amount of your bid have been returned to your Prosper account and made available for further bidding.
Regards,
Prosper
I am sure that some people will judge this result in a negative light as perhaps a waste of time or time that their money is not earning the interest rate they would like.
However, I like the fact that Prosper is so careful all the way through the process. Even after all the bidding is over, they are looking out for the interest of the lenders by making sure the borrower meets their standards. Frankly, I am surprised that borrowers try and do this without having all their ducks in a row.
While Prosper doesn't prevent borrowers from using the money for a different purpose than the one they represent as the truth, it's clear that they have more than one level of safeguards to help the lenders. I like their rating system, too, which includes their estimate of the possibility of loss for similar loans.
However, I like the fact that Prosper is so careful all the way through the process. Even after all the bidding is over, they are looking out for the interest of the lenders by making sure the borrower meets their standards. Frankly, I am surprised that borrowers try and do this without having all their ducks in a row.
While Prosper doesn't prevent borrowers from using the money for a different purpose than the one they represent as the truth, it's clear that they have more than one level of safeguards to help the lenders. I like their rating system, too, which includes their estimate of the possibility of loss for similar loans.
Performance Summary
| Payments received: | $28.27 | |
| Principal paid off: | - | $27.61 |
| Payments in excess of principal: | = | $0.67 |
| Principal charge-offs: | - | $0.00 |
| Gain/loss to date: | = | $0.67 |
You can see in the section above that I have no charge-offs at this point. I hope it never happens, but hopefully you can see that even with one or two charge-offs, a lender can achieve a favorable return on their money.
Note Status Summary
| Principal value of active notes: | $479.55 |
| Total active notes: | 19 View |
| Current: | 19 View |
| Past due (1-30 days): | 0 View |
| Past due (31+ days): | 0 View |
| Payoff in progress: | 0 View |
| Total charged-off notes: | 0 View |
| Total notes paid in full: | 1 View |
| Total notes sold: | 0 View |
In section 3 above it shows 19 active notes so I could have 21 active notes soon if both notes pending review receive final approval. I think 21 borrowers is a great way to NOT have all your eggs in one basket.
| Note Acquisition Summary |
| Value of notes at acquisition: | $507.16 |
| Acquisition cost: | $507.16 |
| Premium at acquisition: | $0.00 |
| Principal paid off: | $27.61 |
| Average note yield at acquisition: | 24.11% |
In section 4 above you will see what I consider a truly excellent rate of return - 24.11%. This will not be my total rate of return as I have two loans pending at 23.29% along with two loans at Kiva.org on which I receive 0% interest.Accounting for all the interest rates on the different loans, my calculations produce a total return of 22.46% IF no borrower defaults. I recognize that this is a pretty BIG if. In my opinion, this is still pretty incredible and worth the risk. Holding the rate of return constant at 22.46%, ten years of that return would produce this:
End of year one balance = 734.76
End of year two = 899.79
EOY three = 1101.88
EOY four = 1349.36
EOY five = 1652.43
EOY six = 2023.57
EOY seven = 2478.06
EOY eight = 3034.63
EOY nine = 3716.21
EOY ten = 4550.87
I find this pretty impressive.
Just a reminder though- we are dealing with human beings. How fortunate we would be if every single borrower paid back everything on time and in full. That's not how it works in the real world, but we can see how my actual results stack up over the coming years.
Here's a quote from Kurt Vonnegut at BrainyQuote.com:
Still and all, why bother? Here's my answer. Many people need desperately to receive this message: I feel and think much as you do, care about many of the things you care about, although most people do not care about them. You are not alone.
Kurt Vonnegut
Kurt Vonnegut
Wednesday, November 18, 2009
"Here Comes The High Rate Of Return"
I was pleasantly surprised today when the first payments started coming in. Prosper works. The proof below is from my back office at Prosper.com. I made a few edits but didn't touch the amounts. Click on the title of this post to find out how you can make a good rate of return by trusting in real, live human beings.
Note Detail
| Note Summary |
| Title: | Loan #----- | Note #----- | | ||
| Original loan: | $2,000 @ 35.00% 36 month loan | Origination date: | Oct-28-2009 |
| Note share: | $25.00 | Principal balance: | $24.25 |
| Payment status: | Current | ||
| Note Purchase History |
Date | Buyer | Balance | Price @ Yield | Net rec'd |
|---|---|---|---|---|
| Oct-28-2009 | ME | $25.00 | $25.00 @ 34.00% | $1.12 |
| Payment History | View: Borrower payments |
| Payment number | Post date | Type | Status | Total paid | Prosper fees | Late fees | Interest | Principal | Principal balance |
|---|---|---|---|---|---|---|---|---|---|
| ----- | Nov-13-2009 | Manual | Paid | $1.13 | - | - | $0.38 | $0.75 | $24.25 |
Friday, November 13, 2009
"Borrow Money At Better Interest Rates"
While this blog is focused on encouraging people to loan money to real, live human beings in order to:
*be of help to your fellow humans &
*achieve a respectable return,
this post is to remind you that if you need to borrow money, you're probably better off appealing to real people instead of corporations. This is especially true if your credit is in the range of pretty good to great, though my guess is that if you are willing how to learn the skill of choosing your words to appeal to your audience, you can get a good rate even if you don't have great credit. By the way, when I say "choosing your words" I don't mean that you should say something untrue. If you are willing to do the work it takes to learn how to speak to the people you want to reach, you will likely be rewarded with a lower interest rate.
Because Prosper.com uses a bidding process to both fund your loan to 100% within a certain time frame and then lower the rate as more people bid with lower acceptable minimums, if you get more lenders involved in the process it's very highly likely that your rate will go down. Another factor in lowering your rate is the amount you are borrowing. When the minimum bid allowed is $25, it's obviously easier to fund a loan for $2000 than it is to fund a loan for $13,000. It stands to reason that if you know some people who might not loan you $1000 each, you can probably easily get them to join Prosper.com and be part of the group who loans you mostly $25 or $50 or $100 each. Many people feel much more comfortable because there is a legal contract.
While I have only participated as a lender on Prosper.com and Kiva.org and have not been a borrower on these sites, I think you'll agree that the advice I've given sounds logical if your goal is to lower your interest rate. As I gain experience with Prosper I will be able to give concrete examples of what I am talking about here. For now, you can click on the title of this post to read more about borrowing money at Prosper. You can also contact me if you would like to pay me to help you get better results when using Prosper as a borrower.
*be of help to your fellow humans &
*achieve a respectable return,
this post is to remind you that if you need to borrow money, you're probably better off appealing to real people instead of corporations. This is especially true if your credit is in the range of pretty good to great, though my guess is that if you are willing how to learn the skill of choosing your words to appeal to your audience, you can get a good rate even if you don't have great credit. By the way, when I say "choosing your words" I don't mean that you should say something untrue. If you are willing to do the work it takes to learn how to speak to the people you want to reach, you will likely be rewarded with a lower interest rate.
Because Prosper.com uses a bidding process to both fund your loan to 100% within a certain time frame and then lower the rate as more people bid with lower acceptable minimums, if you get more lenders involved in the process it's very highly likely that your rate will go down. Another factor in lowering your rate is the amount you are borrowing. When the minimum bid allowed is $25, it's obviously easier to fund a loan for $2000 than it is to fund a loan for $13,000. It stands to reason that if you know some people who might not loan you $1000 each, you can probably easily get them to join Prosper.com and be part of the group who loans you mostly $25 or $50 or $100 each. Many people feel much more comfortable because there is a legal contract.
While I have only participated as a lender on Prosper.com and Kiva.org and have not been a borrower on these sites, I think you'll agree that the advice I've given sounds logical if your goal is to lower your interest rate. As I gain experience with Prosper I will be able to give concrete examples of what I am talking about here. For now, you can click on the title of this post to read more about borrowing money at Prosper. You can also contact me if you would like to pay me to help you get better results when using Prosper as a borrower.
"We Let You Loan to Low Income Entrepreneurs"
Please remember that I am just a person who has found a way to do some good AND make an interest rate on my money that I like. I started with Kiva.org which you can visit by clicking on the title of this post. I then added Prosper.com. Click here to view my article titled, "Borrow Money Or Refinance Online From Real People For Better Interest Rates." Below is some information I copied and pasted from Kiva's "About" page:
Kiva's mission is to connect people through lending for the sake of alleviating poverty.
Kiva is the world's first person-to-person micro-lending website, empowering individuals to lend to unique entrepreneurs around the globe.
The people you see on Kiva's site are real individuals. When you browse entrepreneurs' profiles on Kiva, choose someone to lend to, and then make a loan, you are helping a real person make great strides towards economic independence and improve life for themselves, their family, and their community. Throughout the course of the loan (usually 6-12 months), you can receive email journal updates and track repayments. Then, when you get your loan money back, you can relend to someone else.
Kiva partners with existing microfinance institutions. In doing so, we gain access to entrepreneurs from communities world-wide. Our partners are experts in choosing qualified entrepreneurs. That said, they are usually short on funds. Through Kiva, our partners upload their entrepreneur profiles directly to the site so you can lend to them. When you do, not only do you get a unique experience connecting to a specific entrepreneur on the other side of the planet, but our microfinance partners can do more of what they do, more efficiently.
Kiva provides a data-rich, transparent lending platform. We are constantly working to make the system more transparent to show how money flows throughout the entire cycle, and what effect it has on the people and institutions lending it, borrowing it, and managing it along the way. To do this, we are using the power of the internet to facilitate one-to-one connections that were previously prohibitively expensive. Kiva creates an interpersonal connection at low costs due to the instant, inexpensive nature of internet delivery.
Kiva's mission is to connect people through lending for the sake of alleviating poverty.
Kiva is the world's first person-to-person micro-lending website, empowering individuals to lend to unique entrepreneurs around the globe.
The people you see on Kiva's site are real individuals. When you browse entrepreneurs' profiles on Kiva, choose someone to lend to, and then make a loan, you are helping a real person make great strides towards economic independence and improve life for themselves, their family, and their community. Throughout the course of the loan (usually 6-12 months), you can receive email journal updates and track repayments. Then, when you get your loan money back, you can relend to someone else.
Kiva partners with existing microfinance institutions. In doing so, we gain access to entrepreneurs from communities world-wide. Our partners are experts in choosing qualified entrepreneurs. That said, they are usually short on funds. Through Kiva, our partners upload their entrepreneur profiles directly to the site so you can lend to them. When you do, not only do you get a unique experience connecting to a specific entrepreneur on the other side of the planet, but our microfinance partners can do more of what they do, more efficiently.
Kiva provides a data-rich, transparent lending platform. We are constantly working to make the system more transparent to show how money flows throughout the entire cycle, and what effect it has on the people and institutions lending it, borrowing it, and managing it along the way. To do this, we are using the power of the internet to facilitate one-to-one connections that were previously prohibitively expensive. Kiva creates an interpersonal connection at low costs due to the instant, inexpensive nature of internet delivery.
Thursday, November 12, 2009
"Achieve A Good Return Even If One Borrower Defaults"
While watching some Grey's Anatomy with my wife I decided to make some preliminary calculations. This includes 18 loans at Prosper.com and 2 at Kiva.org. Let's remember that the two loans at Kiva have a zero percent return. The 18 at Prosper are most of the $550 I currently have invested at Prosper and I am waiting on three more loans to close there. So, my predictions are a little rough as they exclude the final three loans. But, we can get a preliminary basic picture of what's going on and what to expect.
If I assume that on average 1 out of 20 or so loans will not be repaid, I have found that with my selections I will still receive a respectable interest rate. In fact, many people who invest in the stock market would love to get this return every year. I want to be clear that I have not yet received even one dollar back yet as I write this because it is so early in the process. I am trusting the human beings who say they will pay back the loans and I am trusting the track records of both Kiva.org and Prosper.com.
Here are the interest rates I will receive from the 18 loans at Prosper:
34%, 15.16%, 18.5%, 17%, 26.7%, 19%, 29%, 26.47%, 33%, 23.95%, 33.27%, 19.1%, 26%, 27%, 16%, 19.95%, 28%, and 22%. The loans are mostly at $25, but they range from $5.10 to $64.88.
The interest rate on the 2 loans at Kiva.org is 0%. Both loans are for $25.
My total invested in all 20 loans is $507.16 and I expect to receive $616.51 and now that I have found how easy it is to use Google as a calculator, I know that this return - which is MORE than I expect - would be 21.56%. If one of the randomly chosen (among the higher risk) loans defaults without even one payment being made, then I will receive $31.62 less. That would mean that I would get back $584.89 instead and that would mean a return of 15.3%.
To recap, so far I have loaned 2 women at Kiva $25 each at an interest rate of ZERO percent and 18 people at Prosper a total of $507.16 and even if one of the Prosper borrowers doesn't pay back any money at all, I can expect an interest rate around 15%.
Who says you can't make a profit doing some good?
If I assume that on average 1 out of 20 or so loans will not be repaid, I have found that with my selections I will still receive a respectable interest rate. In fact, many people who invest in the stock market would love to get this return every year. I want to be clear that I have not yet received even one dollar back yet as I write this because it is so early in the process. I am trusting the human beings who say they will pay back the loans and I am trusting the track records of both Kiva.org and Prosper.com.
Here are the interest rates I will receive from the 18 loans at Prosper:
34%, 15.16%, 18.5%, 17%, 26.7%, 19%, 29%, 26.47%, 33%, 23.95%, 33.27%, 19.1%, 26%, 27%, 16%, 19.95%, 28%, and 22%. The loans are mostly at $25, but they range from $5.10 to $64.88.
The interest rate on the 2 loans at Kiva.org is 0%. Both loans are for $25.
My total invested in all 20 loans is $507.16 and I expect to receive $616.51 and now that I have found how easy it is to use Google as a calculator, I know that this return - which is MORE than I expect - would be 21.56%. If one of the randomly chosen (among the higher risk) loans defaults without even one payment being made, then I will receive $31.62 less. That would mean that I would get back $584.89 instead and that would mean a return of 15.3%.
To recap, so far I have loaned 2 women at Kiva $25 each at an interest rate of ZERO percent and 18 people at Prosper a total of $507.16 and even if one of the Prosper borrowers doesn't pay back any money at all, I can expect an interest rate around 15%.
Who says you can't make a profit doing some good?
"You Choose Who Gets Your Money"
There are lots of borrowers to choose from on Prosper.com. You choose who gets your loan of $25 or more. The borrowers are rated by Prosper and you can decide what level of risk is within your comfort zone. I choose to take on higher risk borrowers and we'll see what happens. I'll share some facts about my first Prosper loan recipient in today's post.
My first borrower's loan originated on October 28, 2009. I purchased $25 of his loan on 10/27 - 1 day earlier. There were less than 40 lenders who had successful bids. The borrower is paying 35% and all the lenders receive the same rate - 34%. (As far as I understand the bidding process, all lenders receive the same rate on all Prosper loans). The 1% difference goes to Prosper. This loan is the borrower's second at Prosper.com and he has made 24 payments on the first one to reduce his amount owed from $2,000 to below $900. All his payments have been on time.
This borrower is listed as military enlisted, a full-time employee with over 20 years at his employer. The site allows for personal statements by the borrower and in his he says, "I always pay my bills no matter what." I know that a lot of people appreciate blunt statements like this.
Prosper rates this loan in what many would consider a very, very risky category. They estimate that loans like this will not be paid back 25% of the time. Because of his personal statement and the fact the he is long-term military, I decided to take a chance.
Keep in mind that when you bid, you might say that you are willing to accept 17% interest, but if all the lenders together only bid the loan down so far, or not at all, then you will receive the interest rate that everyone else receives. In this case, that is 34%. Many would say that that rate is fair given the high risk rating he has received. Until I am proven wrong, I will look at this as receiving a very generous interest rate from a military man who has given us his personal assurance that he always pays his bills "no matter what". His track record with Prosper backs that up.
My first borrower's loan originated on October 28, 2009. I purchased $25 of his loan on 10/27 - 1 day earlier. There were less than 40 lenders who had successful bids. The borrower is paying 35% and all the lenders receive the same rate - 34%. (As far as I understand the bidding process, all lenders receive the same rate on all Prosper loans). The 1% difference goes to Prosper. This loan is the borrower's second at Prosper.com and he has made 24 payments on the first one to reduce his amount owed from $2,000 to below $900. All his payments have been on time.
This borrower is listed as military enlisted, a full-time employee with over 20 years at his employer. The site allows for personal statements by the borrower and in his he says, "I always pay my bills no matter what." I know that a lot of people appreciate blunt statements like this.
Prosper rates this loan in what many would consider a very, very risky category. They estimate that loans like this will not be paid back 25% of the time. Because of his personal statement and the fact the he is long-term military, I decided to take a chance.
Keep in mind that when you bid, you might say that you are willing to accept 17% interest, but if all the lenders together only bid the loan down so far, or not at all, then you will receive the interest rate that everyone else receives. In this case, that is 34%. Many would say that that rate is fair given the high risk rating he has received. Until I am proven wrong, I will look at this as receiving a very generous interest rate from a military man who has given us his personal assurance that he always pays his bills "no matter what". His track record with Prosper backs that up.
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