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Peer Lending Network

Peer lending network offering a borrowing alternative for those who can't obtain conventional loans; program infrastructure provided by CUs.

Photo of David
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Who does this idea benefit, who are the main players and what's in it for them?

This program would benefit individuals who cannot oftain a convential loan product from a bank /CU (perhaps due to lack of credit or poor credit). It would also benefit individual's who are interested in taking on more investment risk for a potentially higher yield. Finally, this programs could benefit CUs who would provide the program backbone (ensuring lending compliance, providing required documents, etc) as the CUs would realize a new revenue stream from the small service fees imposed.

How is your idea specifically using the power of communities to improve financial opportunities and resources?

Leverging the burgoening growd sourcing movement, this new platform would bring borrowers and investors together from accross the nation/world to provide the funds needed to those who may lack other alternatives. By creating a community where individuals can invest in each other and offer collateral or security that may be unconvential by traditional standards, it creates new opportunities for the underserved. Group funding helps spread the risk and increases the likelihood of a loan being made.

What early, lightweight experiment can you try out in your own community to find out if the idea will meet your expectations?

Surveying individuals on the likelihood of lending money to various individuals based on varying scenarios and circumstances. This would provide an opportunity to test potential investors appetite for risk and willingness to contribute varying amounts at varying interest yields. This could also provide an opportunity to test the impact that social currency of "helping out someone in need" has on individual's sense of accomplishment and resulting desire to contribute.

What skills, input or guidance might you be seeking from the OpenIDEO community to help you build out or refine your idea further?

It takes a community to build a community so i'd seek the OpenIDEO community to provide feedback on what they would value most from such a program (as a borrower or investor). I would determine the value of social currency, poll users to get a feel for risk tolerance, acceptable collateral, what role the CU industry could play to create a secure and trustworthy community where transactions could occur.

This idea emerged from:

  • Other

The idea is to build an online community where the underserved could request to borrow money from the community. The potential borrower would make their case for their needs, offer any security/collateral, and request the basic terms of their loan. Each potential borrower would have a basic profile that would include details such as the borrowers credit score, history, community activity, etc.

Potential investors could review borrowing requests and profiles, and present offers (in part or whole for the requested loan amount). The potential borrower can review the loan offers and select or reject the terms. Once the borrower has accepted enough offers to meet their requested loan amount, the borrower would sign the loan documents and secure any collateral (this infrastructure would be provided by the contributing CUs who would collectively establish and maintain this community).  Once the documents have been signed each "investor" would have their respective contribution ACH'd and the lump sum would be given to the borrower.

As payments are made, the principal and interest would be divided among all investors based upon their respective contribution to the total amount (providing an ongoing income stream). Collection activity could be provided by the CU Collective and the associated administrative costs would be baked into the service fee that would be charged on each loan (potentially in the interest rate, or pehaps splity between the borrower and investor).

The possibilities for this community are endless, incorporating educational resources and "badges" that borrowers could earn to further signify their creditworthiness, blogs and tips boards, rebates from the CU Collective to borrowers/investors based on satisfactory transactions (ie. on time payments, etc, thus not requiring additional resources from the CU Collective for collections, etc).

To truly reach the underserved we would seek to expand the reach of this program beyond the internet, perhaps partnering with local merchants, banks, credit unions, agencies in under served areas to provide access to these programs for those who may not have computers or internet access.

Ultimately this program would provide potentially high yield investments for individuals who are interested in better returns on their money, new avenues to borrow for individuals who may not have any other options, and a new revenue stream for credit unions who would maintain this program.

1 comment

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Photo of Adriel Estrada

I like your idea, especially the use of continued education and “badges” to show a person’s journey to better financial health. It feels as though it would be somewhat counterintuitive to highlight someone’s credit score in their profile considering that many would join the community because of their lack of creditworthiness. However, I agree there should be some metric as to how trustworthy a borrower may be, especially at the onset. Perhaps a “Money IQ” quiz can be administered before becoming eligible to receive loans, in a way incentivizing a borrower to study in advance and become more fluent in financial matters. Then the badge system can be employed.

In addition, my initial thought is that most CUs either local or national may not have the resources to extend their current systems without heavy investment. As it stands now, your idea would compensate them on a transaction level. It may be difficult to find a CU that would be willing to allocate the resources, technology or otherwise, unless there exists a large enough pool of borrowers and investors to virtually guarantee their initial investment. I see potential for CUs participating in more local peer lending communities. Otherwise, I would recommend that you look into following a backend similar to what Kickstarter or Indiegogo currently use, such as Stripe.