Through MicroPlace’s secure platform, everyday people can purchase investments – for as little as $100 – from microfinance security issuers. MicroPlace also enables investors to direct the impact of their investment to a specific country and microfinance institution in the developing world. The microfinance institutions use the funds to make small loans to the working poor, who in turn use the loans to start or expand small businesses and lift themselves out of poverty.
This sounds suspiciously like the Kiva peer-to-peer lending model, right? At first glance - and before my first cup of coffee has taken affect - it does. A little digging, however, illustrates some key differences between the two.
As P2P Lending News explains, [t]he big difference between MicroPlace and Kiva...is that loans will be securitized (and therefore potentially trade-able), and lenders will earn interest. Unlike Kiva, lenders on MicroPlace invest in microfinance by purchasing securities. Funds generated by these sales are then invested in microfinance institutions around the world. MFIs, in turn, solicit clients, make loans and collect payments - they do their normal day-to-day business.
Once client payments are in, the institutional investors receive their loan (plus interest) who can then pay back their investors - people who purchased those original securities. It's not as simple a model as Kiva's, but its differences are very important.
First of all, Kiva is a non-profit. As Matt and Jessica Flannery have explained, it's very difficult to become a SEC-registered broker/dealer - even more difficult when you're running Kiva from your living room on the nights and weekends. (See pages 37-38 of the Innovations article for Matt's take on this decision.) MicroPlace, on the other hand, had the institutional and financial backing of EBay, allowing it to go through the complex regulatory application process and to put up the necessary money for the SEC to sign off. Upshot: Kiva wanted to be for-profit, but had to stay a NGO because it was a regulatory nightmare to register with the SEC. As a result, lenders on Kiva only receive their loans back - without interest. MicroPlace, as a broker/dealer, can pay interest to lenders - thanks to its ability to navigate the aforementioned regulatory maze.
Secondly, MicroPlace adds a level of intermediation that Kiva doesn't have. With Kiva, lenders provide capital to MFIs, who then lend to clients. MicroPlace is a market for microfinance securities, not just requests for loans. Sure, it takes away some of the intimacy, but for the microfinance industry, it's a big step. Securitizing loans helps diversify risk, and allows microfinance investors to reach into the second and third tier MFIs that are having a hard time raising non-donor money.
Are Kiva and MicroPlace competitors? Yes and no. On the one hand, they compete for lenders and have similar models. (Side note - this competition could get bad if the mainstream media screws up the story here. The differences between Kiva and MicroPlace are important, but subtle. Fingers crossed.)
On the other hand, Kiva is filling an unmet need in terms of providing a direct, peer-to-peer portal on which lenders and borrowers can connect. MicroPlace, meanwhile, is more businesslike - it offers a portal where profit-conscious investors can get involved in microfinance without totally compromising on rate of return.
For more on the MicroPlace story:
The interest rate is 2-3% on most loans.. not that different from kiva where it's 0%.
If you want to earn interest rates look at myc4.com.. Think they are about to launch publicly soon (if they haven't already.. I'm in the beta program.)
Loans are typically at around 18% - though you decide what interest rate you want.. Like I lent out some money at 2% to a school project.. And at around 18% to some other projects..
I've been a Kiva lender for several years, and have 3 or 4 active loans at any given time now. Only once has a borrower failed to pay back 100%, and he repaid 85%. I like being able to choose the individual and country and type of business. The E-Bay model may work very well, but I much prefer the more individual approach. I guess I'm not much of a businesswoman!
Marion offers an insight into the Kiva/MicroPlace comparison: the importance of a personal touch. While Kiva works through microfinance institutions to make its loans - they are not purely "peer-to-peer" as some have suggested - it has an definitive p2p connection at its core. After all, you select whom you loan to and then receive updates and repayment - you don't talk with the intermediary.
Will MicroPlace - with its interest rates and corporate backing - be able to create the same "soft" touch Kiva has? Only time will tell...