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Submitted by: Kanini Mutooni
About 10 years ago, no one believed that going online to find a husband or wife would be something normal, acceptable (not to mention profitable!!). Fast forward 10 years later and online date is no longer a fad but very much a normal thing, almost like ordering a skinny, flat white latte!! Could Peer to Peer lending and Crowdsourcing follow the same route in the next few years? i.e. move from a revolution to being mainstream methods of raising capital for new businesses? While both crowd funding and peer-to-peer lending are ways to secure capital online the two are different from one another and the aspects of each option should be considered carefully.
Peer-to-peer lending facilitates the occurrence of a transaction between a lender and borrower that are not mediated by a financial institution. This means that a bank is not required between these two individuals to create the transaction; the bank is only used at the end to facilitate the movement of funds from the lender to the borrower.
Crowd sourcing like peer-to-peer lending also found their beginnings in the philanthropic sector, it is here that various political or social organizations and even individuals would request money for a specific cause or purpose. The idea with crowd sourcing is that a goal could be achieved through many small donations as opposed to seeking a lump sum. Crowd funding much younger than peer-to-peer lending however using this method to crowd source an investment is really catching on. Kickstarter and smartmoney.nl are two examples of the popularity of this method of raising capital.
In 2005 the first peer-to-peer lending company was started in Britain by Zopa who launched a website in which lenders and borrowers could connect and arrange an amicable loan and repayment plan. Later other companies such as Smava, Babyloan and myC4 came into being offering the peer-to-peer lending new robust places to do business.
MyAzimia.org, a young dynamic software firm has taken the peer to peer lending revolution a step further and exploited the gap that exists in the availability of a technology platform for peer to peer lending to take place. The firm has developed a platform for P2P lending and sells licenses to Microfinance institutions and individual entrepreneurs to launch their operations from.
It is arguable that P2P lending and crowd funding are both not very sure and safe method of investing as they both involve meeting complete strangers on the internet and agreeing to a transaction that would normally be completed within the confines of a banking institution. To be honest this sounds again like dating on the internet !!!
Crowd funding and P2P give the players a feeling of community and social networks which are the main reasons why they have caught on so well. For these reasons both options appeal to a huge number of people and at the moment the amount of outstanding loans in the peer-to-peer lending market alone has loans totaling in excess of five billion dollars. It is clear that in a very short while, both these methods of raising capital will dominate the mainstream and give entrepreneurs a viable possibility to raise funds for their businesses instead of relying on Private Equity funds and Venture capital funds and banks to do this. Just you watch this space!!!
About the Author: Kanini Mutooni, a chartered accountant who had spent her entire working life in the US and UK in the Risk Management and banking sector, is the founder of
myazimia.org
. She discovered microfinance during the financial crisis and decided that this truly was the “new good face of banking”.
Source:
isnare.com
Permanent Link:
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