MICROCAPITAL BRIEF: Crowdfunding Platforms Including Peer-to-Peer Model Lead to Increased Reach, Reduced Transaction Costs in Microfinance

Crowdfunding platforms, intermediary services that act as an interface between “the public” and the “crowdfunded” project, can offer increased audience size, reduced transaction costs and decreased “legislative complexities,” reportedly says Daniela Castrataro, co-founder of UK-based social media consulting agency “twintangibles” [1]. Ms Castrataro expounds on two models of crowdfunding platforms used in microfinance: (a) a microlending model wherein money collected from a “crowd of people” is managed by local intermediaries; and (b) a peer-to-peer lending model in which financial transactions occur directly between individuals without the “intermediation of a traditional financial institution.” US-based nonprofits Kiva and United Prosperity primarily use the microlending model while UK-based for-profit company Zopa, US-based nonprofit Zidisha and for-profit LendingClub, also of US, use the peer-to-peer lending. Ms Castrataro points out that choosing the right platform based on sector, location and project needs is imperative for a successful crowdfunding project.

As reported in a MicroCapital story in January, Kiva has recently piloted a peer-to-peer platform called Kiva Zip in Kenya and the US city of San Francisco. In 2011, approximately USD 90 million in loans were made via Kiva and its 146 partner microfinance institutions (MFIs) to borrowers in 60 countries. As of June 2010, United Prosperity reports working with 850 families that have received total loans worth USD 165,000. Zidisha reports that it has facilitated approximately USD 50,000 in loans from 250 lenders to 80 low-income entrepreneurs in Kenya and Senegal as of 2011.

By Nisha Koul, Research Associate

About Kiva: Incorporated in 2005, Kiva is a US-based online portal allowing individuals to make loans to microfinance institutions (MFIs), which then make loans to people with low incomes. As of September 2011, Kiva reports that: it has engaged 990,000 users, 625,000 of whom have funded a loan; 81 percent of loans have been made to women entrepreneurs; the repayment rate on these loans is 98.9 percent; and the average loan size is USD 385. In 2011, approximately USD 90 million in loans was funded through Kiva and Kiva’s field partner MFIs to microentrepreneurs in 60 developing and rich countries.

About United Prosperity: Launched in May 2009 in the US as an NGO, United Prosperity aims to help entrepreneurs and “transform the lives of their families and communities.” It uses a variation of the microlending model of crowdfunding wherein the money contributed by lenders is used as collateral or a loan guarantee with a local bank which then lends double the amount to the microentrepreneur through a local microfinance institution (MFI). United Prosperity claims that this helps the microentrepreneur build a strong relationship and credit history with the MFI and the local banking system. As of June 2010, United Prosperity reports working with 850 families that have received total loans worth USD 165,000.

About Zidisha: Zidisha is a nonprofit organization that was launched in 2009 in the US by Julia Kurney, a founding partner of Senegal Ecovillage Microfinance (SEM). Zidisha intermediates loans from individuals to entrepreneurs with credit histories in Senegal and Kenya. Lenders are able to browse listings written by the entrepreneurs themselves and then bid on interest rates with the entrepreneur able to select the lowest offered rate. As of 2011, Zidisha has facilitated approximately USD 50,000 in loans from 250 lenders to 80 low-income entrepreneurs in Kenya and Senegal. As of 2011, Zidisha reports a 100 percent repayment rate.

Sources and Additional Resources:

[1] Social Media Week, “Crowdfunding Platforms: To Each Their Own,” http://socialmediaweek.org/blog/2012/01/02/crowdfunding-platforms-to-each-their-own/

MicroCapital.org story, January 26, 2012, “MICROCAPITAL BRIEF: Kiva Piloting Peer-to-Peer Microfinance Lending Platform Kiva Zip in Kenya, San Francisco,” http://www.microcapital.org/microcapital-brief-kiva-piloting-peer-to-peer-microfinance-lending-platform-kiva-zip-in-kenya-san-francisco/

MicroCapital.org story, January 22, 2012, “MICROFINANCE OPINION: Crowdfunding May Be Next Frontier for Microenterpirse Funding,” http://www.microcapital.org/microfinance-opinion-crowdfunding-may-be-next-frontier-for-microenterpirse-funding/

MicroCapital.org story, September 8, 2011, “MICROCAPITAL BRIEF: Microfinance Institutions (MFIs) in India Attempt to Raise Funds Using “Crowd Sourcing,” http://www.microcapital.org/microcapital-brief-microfinance-institutions-mfis-in-india-attempt-to-raise-funds-using-%E2%80%9Ccrowd-sourcing%E2%80%9D/

MicroCapital.org story, May 5, 2011, “MICROCAPITAL BRIEF: 17 Websites Now Allow Individuals to Commit as Little as USD 20 as Microfinance Loans,” http://www.microcapital.org/microcapital-brief-17-websites-now-allow-individuals-to-commit-as-little-as-usd-20-as-microfinance-loans/

MicroCapital Universe Profile: Kiva, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Kiva

MicroCapital Universe Profile: United Prosperity, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=United+Prosperity

MicroCapital Universe Profile: Zidisha, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Zidisha.org

Browse the MicroCapital Universe and add your entry to the wiki at http://www.microcapital.org/microfinanceuniverse/

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