The world wide web has helped people who are dissatisfied with traditional banking to find innovative alternatives. There are now websites that allow lenders and borrowers to link up directly without the involvement of a bank or similar institution.
How do they work?
- These sites provide various ways of linking up borrowers with lenders (who may also be savers). Some (such as Kiva and Buzzbnk) are focused on supporting projects that may find borrowing difficult. Others are purely commercial and are concerned with providing higher savings rates and lower borrowing costs than banks or building societies.
- Sometimes the site’s owners have limited involvement and basically provide space. On other occasions, the site is only part of an organisation that is more involved and provides a number of guarantees.
- Several of these schemes provide support to people without access to more mainstream forms of credit. For example, Kiva allows people to make small loans that will add up to a bigger loan for small-scale farmers in the global south. When lenders get the money back, they may loan it out again and again or choose to keep it.
- Using these schemes as a lender can be risky. Generally, there is no guarantee you will get the money back if the project that you are funding fails. However, one scheme, RateSetter, has developed a guarantee scheme.
- These schemes do not provide regular banking services such as current accounts.
- Many users consider these schemes more ethical as they connect up people without the intervention of an arguably exploitative institution. Of course, peer-to-peer financing can also be used by individuals and projects with few ethical concerns.