Person-to-Person Lending: Is Financial Democracy a Click Away? (microREPORT)

This microREPORT introduces the reader to the relatively recent phenomenon of Person-to-Person lending. A brief background of Person-to-Person (P2P) lending is presented and the most popular models and platforms used today are reviewed. The authors categorize the models and identify their strengths and challenges.

The P2P lending market, which began as a web-based market between borrowers and lenders in the same country, has begun to expand internationally, extending virtual communities and linking lenders in developed countries to borrowers in developing countries. As such, it has drawn attention to its potential to contribute to a broader effort to improve access to finance to the poor in the developing world, an area which is currently being addressed by international and bilateral donor organizations, socially responsible investment funds and to some extent, commercial investors and banks. For micro, small and medium enterprise (MSME) lenders, and particularly for microfinance institutions, the growing success of the P2P marketplace offers an opportunity to increase access to capital and diversify funding sources by attracting a new investor class of small, socially motivated investors.