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Lending Exchange

 

Zopaanimw

This intrigued me. A market based lending service which uses credit ratings to assess risk and risk to assess the rate of interest you borrow/lend at.

As they say:

Lenders can choose what rate to lend at and, by looking at the markets, decide what sort of people to lend to and when.

Borrowers can choose to take a rate offered or to wait and see whether the rates drop. Both avoid paying needless chunks of commission to Financial MegaCorp plc and can get better rates of interest as a result.

How have they done it? Zopa create "non-commercial" loan agreements [within the meaning of the Consumer Credit Act] to  allow people to lend. They make their money through a commission i.e. facilitating the exchange. 

Reminds me of some of the cooperative lending societies [especially those flourishing in India] except Zopa seems to me to favour those who are already in a strong financial/credit position.  The poorest are not even online, so I doubt that it’s even aimed at those who struggle to get credit through other means. There are also huge trust issues for any suspecting user to grapple with even though you do not lend to individuals but to at least 50 borrowers.  However, the idea of lending to *real* people works – it creates a relationship of value, quite literally.  It may only break down when someone defaults on payment.  Who calls in the heavies? Perhaps they could offer a premium  service for soft lefty liberals unwilling to get their hands dirty?

Anyway, nice development. Be interesting to see where it goes.

1 Comment
  1. Hello,

    I’m one of the founders of Zopa.

    Yes, we’ve deliberately modelled it on some of the community methods of finance … and taken that concept and put it on the internet.

    To handle the trust issues we give everyone who joins a credit rating (from Equifax, based on their previous credit history) and then we have a thorough vetting of all borrowers before we pay out the money they’ve asked for. At this stage people can tell us anything they want about themselves to prove their creditworthiness – eg. if they have assets like a house – which we will take into account in deciding whether to let the money be lent out.

    So far (22 July 05) we’ve had no defaults or missed payments. We also have a debt collection agency standing by to recover lenders’ money if its not repaid.

    Tim

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