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Johannesburg - The credit market in South Africa is largely dominated by big banks and large non-bank credit providers.
Whatever the form of credit required, whether a mortgage or a personal loan, your only option up to now has been to go an institution and to apply for credit. As far back as history stretches in this country, credit has been supplied from institutions to individuals.
Banks aggregate small lots of savings from a multitude of individuals at relatively low interest rates and channel them to loans at more expensive interest rates; I’m over simplifying the process but this is the general process.
To illustrate, banks make their money as follows: the banks pay savers 7% (if you are lucky), and lend that same money out to borrowers in loans at 27% (the national credit act maximum is 31% currently). The bank then nets the margin - 20%!
This is the normal, standard way banks operate, specifically in a retail deposit taking bank, which offers loans.
I was resigned to the fact that this was the status quo and there were no better alternatives, until I found Prosper (www.prosper.com). Prosper, in a nut shell, is a Peer-to-Peer (P2P) loan platform based in the USA that allows individuals to directly lend to and borrower money from each other without any intermediaries involved.
So in essence the banks and other financial intermediaries have been removed from the credit process. Lenders earn a better return than what they would have if they had saved their money with a bank. Borrowers also benefit through paying lower interest rates on their loans.
Lending Club (www.lendingclub.com) is another formidable P2P loan platform based in the USA. Both Prosper and Lending Club have facilitated over $2bn in loans since their inception. In fact, in September 2013, Lending Club facilitated over $203m in loans alone.
I also discovered Zopa (ww.zopa.com) from the UK who is achieving outstanding results and have facilitated about £400m in loans.
Default risks
The risk of default associated with P2P lending is a very real concern. If a borrower defaults, the loss is borne directly by the lender. This has been managed internationally by lenders spreading their risk over a number of borrowers.
So a lender may lend out $1 000 to 10 borrowers at $100 each. So if one borrower defaulted on a $100 portion, the loss is not as significant as if one borrower defaulted on the full $1 000.
Also a borrower’s loan is made up on a number of lenders loans, aggregated loans.
Benefits
By eliminating the middle man, the margins can be spread across the lender and the borrowers. This could be shared amongst both parties, for instance, the lenders would earn a higher return than, say, depositing the same cash into a bank account.
The borrowers would also win in the sense that interest charged on their loans could be less than that charged by traditional financial intermediaries.
P2P in South Africa
South Africa has a huge unsecured lending market with credit providers making abnormally large profits. This is not a secret.
But what if individuals and not only credit providers and banks could get in on the action?
This could also be an attractive alternative income source for individuals who want to lend smaller amounts of money to other individuals directly.
The payoff from both parties could be quite attractive. Borrowers could present their background, profile and related information on a platform where lenders could lend directly to them. Or lenders could opt to aggregate their funds and share the risk and profits.
Would you as an individual take on the risks to make the same profit the banks do?
Well, a Johannesburg start up plans to help you do just that. Still in pre-launch phase, YIBA (www.yiba.co) is an online South African Peer-to-Peer lending platform.
YIBA stands for You’re Invited, Banks Aren’t. If you are interested, check out their launch page and sign up as a supporter, once they launch in early 2014 – you’ll be the first to know - www.yiba.co (not .com; not co.za just .co).
- Fin24
*Alastair Curtis is chief operating officer and co-founder of YIBA. Views expressed are his own. Follow YIBA on twitter at @YibaCo
* Tired of big banks making money on your money? Share your views on P2P lending.
Whatever the form of credit required, whether a mortgage or a personal loan, your only option up to now has been to go an institution and to apply for credit. As far back as history stretches in this country, credit has been supplied from institutions to individuals.
Banks aggregate small lots of savings from a multitude of individuals at relatively low interest rates and channel them to loans at more expensive interest rates; I’m over simplifying the process but this is the general process.
To illustrate, banks make their money as follows: the banks pay savers 7% (if you are lucky), and lend that same money out to borrowers in loans at 27% (the national credit act maximum is 31% currently). The bank then nets the margin - 20%!
This is the normal, standard way banks operate, specifically in a retail deposit taking bank, which offers loans.
I was resigned to the fact that this was the status quo and there were no better alternatives, until I found Prosper (www.prosper.com). Prosper, in a nut shell, is a Peer-to-Peer (P2P) loan platform based in the USA that allows individuals to directly lend to and borrower money from each other without any intermediaries involved.
So in essence the banks and other financial intermediaries have been removed from the credit process. Lenders earn a better return than what they would have if they had saved their money with a bank. Borrowers also benefit through paying lower interest rates on their loans.
Lending Club (www.lendingclub.com) is another formidable P2P loan platform based in the USA. Both Prosper and Lending Club have facilitated over $2bn in loans since their inception. In fact, in September 2013, Lending Club facilitated over $203m in loans alone.
I also discovered Zopa (ww.zopa.com) from the UK who is achieving outstanding results and have facilitated about £400m in loans.
Default risks
The risk of default associated with P2P lending is a very real concern. If a borrower defaults, the loss is borne directly by the lender. This has been managed internationally by lenders spreading their risk over a number of borrowers.
So a lender may lend out $1 000 to 10 borrowers at $100 each. So if one borrower defaulted on a $100 portion, the loss is not as significant as if one borrower defaulted on the full $1 000.
Also a borrower’s loan is made up on a number of lenders loans, aggregated loans.
Benefits
By eliminating the middle man, the margins can be spread across the lender and the borrowers. This could be shared amongst both parties, for instance, the lenders would earn a higher return than, say, depositing the same cash into a bank account.
The borrowers would also win in the sense that interest charged on their loans could be less than that charged by traditional financial intermediaries.
P2P in South Africa
South Africa has a huge unsecured lending market with credit providers making abnormally large profits. This is not a secret.
But what if individuals and not only credit providers and banks could get in on the action?
This could also be an attractive alternative income source for individuals who want to lend smaller amounts of money to other individuals directly.
The payoff from both parties could be quite attractive. Borrowers could present their background, profile and related information on a platform where lenders could lend directly to them. Or lenders could opt to aggregate their funds and share the risk and profits.
Would you as an individual take on the risks to make the same profit the banks do?
Well, a Johannesburg start up plans to help you do just that. Still in pre-launch phase, YIBA (www.yiba.co) is an online South African Peer-to-Peer lending platform.
YIBA stands for You’re Invited, Banks Aren’t. If you are interested, check out their launch page and sign up as a supporter, once they launch in early 2014 – you’ll be the first to know - www.yiba.co (not .com; not co.za just .co).
- Fin24
*Alastair Curtis is chief operating officer and co-founder of YIBA. Views expressed are his own. Follow YIBA on twitter at @YibaCo
* Tired of big banks making money on your money? Share your views on P2P lending.
