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Web sparks person-to-person lending around the world

Social-networking principles have spawned a lending marketplace that lets individuals make loans to almost anyone.

By G. Jeffrey MacDonaldCorrespondent of The Christian Science Monitor / December 24, 2007

Every morning, as soon as Diane Reese wakes up in her Saratoga, Calif., home, her first steps lead to the family computer. She can't wait to find out whether her 782 debtors are making their payments on time.

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For Ms. Reese, an IBM engineer, the revenue stream from loans she's made at 0 percent interest through isn't as important as what the payments represent. They mean her hand-picked business partners – a barber in Uganda, a fish saleswoman in Vietnam, a school principal in Kenya – are lifting themselves out of poverty.

"We're peers now," Reese says. "I'm investing in their small enterprises.... I'm not being the beneficent Santa Claus or something. I'm a partner with people who are working to improve things. It's a very satisfying way to invest money."

As Christmas arrives with a seasonal reminder to look out for the less fortunate, investors are finding a growing range of options for helping without a handout. Thanks to creative intermediaries and new avenues on the Internet, they're lending to specific individuals or operations that tug at their heartstrings. And they're usually getting their money back, sometimes with a respectable interest rate.

For would-be lenders with a social agenda, options are proliferating at a rapid clip. In February, Prosper ( debuted with a claim to be America's "first people-to-people lending marketplace." In May, LendingClub launched a direct lending site ( that uses a social-networking database to link lenders with suitable borrowers on the basis of a lender's preferences and risk tolerance. Next year, Kiva plans to begin paying nominal interest to its lenders, who are often drawn to the nonprofit's borrower network of entrepreneurs in developing countries.

These emergent opportunities differ in a few important ways from conventional investments that aim to be socially responsible (SR). These focus primarily on debt, not equity, so investors get paid back in lieu of acquiring a stake in a company. Also, companies involved here are usually private enterprises, not publicly traded firms such as those held in the portfolios of SR mutual funds. And instead of selecting a prepackaged basket of socially screened investments, investors are largely setting their own ethical criteria and picking investments accordingly.

As organizations compete for lenders' cash, some are trying to offer enhanced security as well as meaningful investments.

Consider for instance Zopa, a for-profit firm that's been pairing lenders with borrowers in Britain since 2005 and launched its service in the United States earlier this month.

Here's how it works: Someone with at least $500 to invest browses Zopa's website ( and picks at least one individual or company to help. Maybe it's Sage, a Mill Valley, Calif., husband-and-wife tutoring company that this month has been touting its goal to expand and serve underprivileged students. The CD buyer can opt either for the 5.1 percent interest rate or a lower rate of his or her choosing, which would in turn reduce Sage's monthly payment. The lower the rate, the lower Sage's payment and the more cash they have for their mission-based enterprise. And even if they default, the CD owner still reaps the agreed-upon return. Zopa guarantees its CDs because the borrower has already taken out a loan from a partner credit union, which bears the risk of default.

Zopa hopes the channel will strike a chord with affinity investors, such as religious individuals who'd like to support the efforts of similar-minded individuals.

That would be fine with Ben Wheeler, a Christian comedian who's taken out a loan for $10,000 to lease space for a new Christian comedy club in San Jose, Calif. Mr. Wheeler, (who goes by the handle "Pharaoh" on the site) says he used Zopa not so much because he needed help with his payments but because the online platform would give his mission-driven project more exposure than it would have otherwise.