What is person to person lending,peer to peer lending and social lending?
In its simplest form peer to peer is the lending and borrowing between individuals without the need for a traditional financial institution like a bank, building society or credit union.  In the UK Zopa is the market leader.

History of Peer to Peer Lending.
Zopa (zone of possible agreement) was the first social lending operation launching in the UK in March 2005 and since has launched in the USA and Italy and has plans to launch in Japan. They are backed by the likes of Bessemer Venture Partners, Balderton Capital and Wellington Partners.
This was followed by the launch of Prosper in the USA in 2006 who were also backed by venture capital and have since gone onto have over 810,000 members and over $175,000,000 in loans. The last figure i saw suggested there are now over 30 peer to peer set up around the globe with more launches planned. 
Zopa UK has had a record month in January 2009 with over 2.2 million of loans disbursed. This is more than double the previous highest monthly figure that zopa had achieved.
Zopa continues to grow April 2009 has been another record month;with over £3 million lent to borrowers, which is 3.5 times what they disbursed in April 2008. This takes the total zopa disbursals to over £40 million!
In July 2009 Zopa Uk announced that it had made its 10,000th loan and that loan disbursals had reached £50 million and 40% of this figure had been achieved in 2009 so the growth continues. They also recorded the 300,000 zopa member. 

List of some P2P lenders

United Kingdom
Zopa (closed)
Lending Club
Virgin Money







Zopa (launch soon)




Kiva (non profit help for developing world)

If you are a user either as a borrower or lender through any peer to peer company and would like to share your experiences of it please send us an email of your experiences and opinions and over time we hope to build up a database we can share here with others. 

If you are looking for a true social lender Kiva might be for you.

Kiva allows microfinance institutions around the world, called "Field Partners", to post profiles of qualified local entrepeneurs on its website. Lenders browse and choose an entrepreneur they wish to fund. Kiva aggregates loan capital from individual lenders and transfers it to the appropriate Field Partners to disburse to the entrepreneur chosen by the lender. As the entrepreneurs repay their loans, the Field Partners remit funds back to Kiva. As the loan is repaid, the Kiva lenders can withdraw their principal or re-loan it to another entrepreneur.

Below is an example of a loan request on Kiva.

Matilda Adjeibea is 30 years old. She is married and has three children, two of whom are in school. She owns and operates a grocery shop and sells items like rice, sugar, vegetable oil, bottled water, body and hair creams, skimmed powdered milk, etc. in her neighborhood. With the loan, she wants to purchase more bags of rice, bags of sugar, cartons of vegetable oil, boxes of body and hair creams, etc. to increase her inventory. She hopes to improve her savings to support her children in school.

Matilda belongs to the community group called "Biako Ye" Trust Group. In this group, members guarantee for one another as social collateral to the loan and support one another to repay the loan. She is after $875 over 8 months.

Kiva partners around the world
Kiva partners around the world

Lenders' funds are transferred to Kiva through PayPal, which does not collect its usual fees in this case Field Partners generally charge interest from their borrowers, although Kiva claims to keep track of how much interest is charged and will not work with those charging unfair interest rates. Kiva lenders do not receive any interest because Kiva is not registered with the US Government as a broker. Kiva claims that its borrowers have a historical repayment rate of about 99.7%.

My own experience of Zopa in the UK as a lender 
Here are my own figures as a lender.
In the month of January 2008 i lent out £1060 to 44 borrowers at an average rate of 8.93% 12 months later i have received capital repayments from this figure of £519.43 and interest of £66.38 and had 11 of these zopa borrowers repay early. Of this figure 1 zopa loan to the value of £10 is late.
Forward 12 months
In the month of January 2009 i lent out £320 to 17 borrowers at an average rate of 12.08%.
As you can see from the above i have increased the rates i lend out at on zopa over the last 12 months which has had a negative effect on the quantity of loans i have been involved with but think this is necessary to give myself cover for potential bad debts as the UK stays in recession. 
My overall rate of return from zopa since joining using zopa's figures is 9.74% (after the zopa fee) but before any bad debts although the true return will be lower due to funds earning less while waiting to be lent out in the holding account and the time lag between a loan being accepted and completed.
Overall though to date zopa has been providing me with a higher rate of return than a savings account and has also been giving me a higher return than property or the stockmarket.
The figure at the end of july 2009 had reached 9.96% (before bad debts) and i will soon analyse the return after bad debts are taken into account.

update 07/06/2010 My current return has now reached 10.21% before bad debts.

Over 50s Life Insurance.

P2P lending the future.
A recent report by Celent Communcation suggested peer to peer lending would reach $1.6 billion this year and then double in 2009 and reach near $6 billion in 2010.
An example of this growth can be seen from Zopa UK as week ending 02/10/2007 147,120 was lent out but a year later week ending 02/10/2008 245,200 was lent out so up by over 66%.

How Social lending, Peer to Peer lending and Zopa works.
Different P2P lenders operate differently but below is an example of how Zopa in the United Kingdom operates.
To join Zopa you sign up as a lender or a borrower. If you sign up as a lender you then decide how much you would like to lend from 10 upwards. Zopa has Markets and Listings.
So Information on lending first. 
In the Markets you choose the rate and amount you are prepared to lend at in each market over 36 or 60 months. The markets are A*, A, B, C and Y. A*-C reflects the quality of the borrower and Y is for people between the ages of 20-25. Zopa's system will show you as you put a figure in what your expected return would be after their fee (1%) and bad debts. As an example if you offered to lend at 10% to an A* borrower over 38 months your expected return would be 8.5%. When you lend money in a zopa market you are ranked by  date  when you offered the money and interest rate offered so if a borrower wanted to borrow 5000 the lenders offering the lowest rates  from 10 to 5000 would be part of the loan.
While you are waiting for money to be lent out Zopa pays you interest of base rate less 0.75%.
Listings are more like an online auction where a borrower publishes information about themselves like loan purpose, loan amount and income/debts and lenders compete with each other to be part of the loan. For example if someone wished to borrow 1000 and each lender was bidding 10 only the 100 lenders offering the lowest rates of interest on the 10's would be part of the loan when it closes.
For Borrowers,
To borrow you sign up with zopa and then a credit check is done and subject to them deciding you are creditworthy you are assigned the market you could borrow in or alternatively you could put up a listing and let lenders bid directly on your loan request. Zopa charge a transaction fee of 94.25 to borrowers and loans can be between 1000 and 15,000 over 3 or 5 years. One very strong feature is that as a borrower you can pay it back at anytime with no early re-payment penalty. It is worth noting that zopa will only accept borrowers with a good track record and it has been reckoned that less than 50% of the UK population are eligible.
If you want to check out your credit report first to see what the banks think of you you can get it for free HERE 

Is it safe?
From a borrowers prospective it is 100% safe as it is just like taking out a loan with a bank except that the interest is being earnt by members of the public rather than a bank or building society. For lenders there is the risk of bad debt but by having a broad spectrum of borrowers with loans from yourself and by setting your rates at a level that compensate for the risk of default you should be ok plus you have the benefit of the underwriters who if in doubt will err on the side of rejecting a loan application. From my own perspective after 16 months  to date i have not had a bad debt with Zopa even though my rates were set on the assumption that i take 150 of bad debts each year.

How do the peer to peer companies make money?
Each peer to peer (P2P) lending company will charge differently but here is how zopa charge. All new lenders pay an annual fee of 1% on the amount they lend to borrowers but are not charged for money not lent out. This fee is accrued on a daily basis equivalent to 1% per annum and deducted monthly. Borrowers pay 94.25 but only if they accept and complete the loan. 

Why do people lend to total strangers through an organisation llike Zopa rather than putting their money in the bank?
This is a very common and understandable question. The answer is people do it for a variety of reasons. Some because they hate banks and financial institutions so for them it is an attempt to get back at the banks, for others it is a social thing and an opportunity to give something back to society by lending at a lower rate than the borrower could get from a financial institution and for others they see it as an alternative asset class or an opportunity to get a higher return than they could from a savings account. On Zopa i have seen the two extremes with money being offered to borrowers at as low as 1% and as high as 20%.


Latest P2P News

15/10/2008 Prosper Filing Registration Statement; Enters Quiet Period

Prosper has started a process to register, with the appropriate securities authorities, promissory notes that may be offered and sold to lenders through our site in the future.

Until we complete the registration process, we will not accept new lender registrations or allow new commitments from existing lenders. If you’re an existing lender, your current lender agreements will be unaffected; your existing loans will continue to be serviced; you’ll be able to track and monitor your loans; and you’ll be able to withdraw funds from your Prosper account.

If you’re a borrower with an existing loan, you will continue with your current borrower agreement and be unaffected by the registration process.  If you’re a borrower seeking a loan, you will still be able to create a new loan listing, which we will endeavor to fulfill through alternative sources.  As the appropriate securities authorities may consider a new loan listing to constitute the offer of a security, we are unable to post new loan listings on our site until our registration statement becomes effective.

A successful registration can take several months, but we assure you we will do our best to move forward as quickly as possible.  Until this process is complete, we’re required to be in a quiet period and will be unable to respond to press, blogger or other inquiries about Prosper or the registration filing until it becomes effective.

Zopa withdraws from USA market.
Details below from zopa.

You probably know that Zopa’s US operation has a very different model to that in the UK and Italy in that it works in partnership with financial institutions (the credit unions) rather than being a pure peer to peer marketplace as it is here and in Italy.
So while our model is doing very well in current market conditions, the US has been adversely affected in a way that just couldn’t have been predicted when we launched int he US and is no way the fault of our partners. For us, a real shame is that we weren’t able to launch the original model over there for regulatory reasons.

So, sadly, our US colleagues have decided to withdraw from the US marketplace. This decision will have no impact on Zopa’s other activities in the UK, Italy and Asia.
Zopa’s UK operation has experienced significant volume increases in 2008 with huge growth in new members and increasing lender returns, while continuing to maintain excellent credit quality - currently less than 0.5% of loans are affected by any kind of late payment issue, with actual losses below 0.04%.
Zopa Italy has also achieved the highest growth of any European peer-to-peer operation since its launch in January, and has recently launched the first secondary market for any peer-to-peer operation.

Zopa’s US customers’ deposit accounts continue to be insured by the NCUA up to $250,000, and servicing of those accounts as well as the loans will be assumed by the credit unions within 90 days.

Zopa looks forward to continuing to develop and expand its operation worldwide as it continues to offer investors a safe return on their investments and a better deal for borrowers, and remains optimistic that it can return to the US market when conditions permit.

We’d like to thank our US colleagues for their hard work, dedication and the oustanding service they have provided for their customers. I’m sure you’ll join us in wishing them the very best.

details on peer to peer lending, p2p, person to person lending and zopa uk