Money Issue

Given our interest in evolutionary models collective self-development, I though this might be relevant -- grassroots banking for the rest of us.  Anybody interested in local economies, microlending, and just plain new, cool stuff should take a look.-

Combining elements of "eBay, Friendster and the local bank," a recently launched website called Prosper.com lets "users lend and borrow money among themselves," reports Bob Tedeschi in The New York Times (2/13/06). "We looked at eBay and said, 'Why can't we do this for money," says Chris Larsen, Prosper's ceo and founder. Noting that consumers make only about four percent interest on savings accounts while paying at least 14 percent on credit card purchases, he observes: "That's just a huge spread ... We think if you allow people to participate directly, it's a more efficient marketplace. People can make a better return on their deposits, which then become the source of credit to others."

The way it works is, lenders "deposit their money with Prosper -- which hold it in an interest-bearing account ... and either review the loan requests individually or fill out a form permitting Prosper to allocate money to borrowers who meet certain criteria ... To help lenders minimize risk, Prosper permits them to finance just part of a given loan, so a typical lender may offer, say, $100 at 6.5 percent interest toward a loan to someone with excellent credit. Once the bidding is complete, and if enough lenders bid enough money to finance the loan at a single rate acceptable to the borrower, Prosper transfers the money to the borrower's account ... Prosper makes money by charging borrowers one percent of the loan amount, while lenders pay 0.5 percent of the loan's balance each year."

The coolest part of this concept is that prospective borrowers can band together into "groups with defined interests or characteristics that, they hope, will make them more attractive to some lenders." Like horseback riders, for example, who need barn money. Lenders can form groups, too. One lender "started a group to lend money to people affiliated with the Climb High Foundation, which trains women in tourist destinations to become climbing and trekking guides." Either way, the sense of community is the thing: "It's satisfying to place money in little bits with people who have stories, and in groups that you know and trust and want to support," says Chris Larsen, adding: "And if you're part of a group, the theory is that you'll perform better as a borrower than if it was some disconnected credit card company."