Social lending in Canada - Cut out the middleman

I have been impatiently waiting for a peer to peer lending service in Canada that will provide person to person lending across Canada.  Such services exist in the US, notably www.prosper.com which has many borrowers and lenders.

In a nutshell many lenders participate in a given loan to a borrower.

Say Sally needs $5,000 to buy a used piano for her home based music school.  She teaches music at a local high school and there is demand for a tutor.  Her credit card is a bit loaded and she would not be able to pay it off when the bill comes in.  Her bank is willing to lend her the money, but they want a stiff 9.5% for her personal loan.

Sally sets up a borrower account at prosper.com.  This takes about a week to setup and involves providing personal financial data.  The information is verified by prosper.com.  Her name and particulars are hidden from the lenders at prosper, but her credit rating and other details like home ownership are provided.

Sally places a "loan listing" with a title, declaration of need, her cash flow (incomes and expenses) and assets and a narrative about what she is trying to do with the money.  She also posts the interest rate she is willing to pay.  Let's say she posted 7%.

Interested lenders who believe Sally is a good risk and that the interest rate matches the risk then bid in slices on the loan.  Bob bids $100 at Sally's rate.  Jerry bids $50.  Joan goes $250 and so on.

If Sally's loan request is filled before the deadline (say 7 days), then other lenders may think they've missed out on a good thing.  So they can now (in a spirit of good hearted competitiveness) bid lower interest rates.  Now David comes in at 6.5% at $100.  So the last bids into Sally's loan are removed and replaced with Davids bid.  And so it goes.

(There are options for immediate loan also, as soon as Sally hits 100% of her loan, then she gets the money and bidding on it is cut off).

The money is transferred from the lenders accounts into the borrowers account.  Sally can buy her piano!  Next month her payment is withdrawn from her bank account.  In the prosper.com setup, loans are set for 3 years.  The borrower may pay back faster without penalty.  Her payment includes a small fee that prosper.com collects.

The lenders see their proportional "slice" from the payment go into their account (minus a small fee that goes to prosper.com.  The lenders can then lend the money again or transfer it to their own bank.

The middleman being cut out here is big banking.  Between deposits and GIC's earning paltry interest rates and the high lending rates of the banks are their operating costs and profits.  P2P lending is very operations lean.  Lending risks are taken on by the lenders (a little detail worth noting for lenders2be).

While prosper.com is running in the US and Zopa is running in the UK, Italy and the US, there is no Canadian P2P lending system in operation ... to date.

CommunityLend is in its runup to getting Canadian approvals in place.  It is running late.  Originally scheduled to open in the fall of 2007, its schedule has slipped to the right and it still has not started.  Good news is that its website is improving and that the company has both a board of directors (see the site) and advisors.

In a reply to an e-mail, Colin Henderson, co-founder and CTO of CommunityLend says that operations are imminent.  As soon as regulatory issues are solved they will go into Beta mode.

This Blogger intends to be a lender from the get go... so impatiently waiting on Communitylend to get started.