About two years ago the Nobel Economic prize was won by this guy who did micro-lending in rural India. The idea was that those people, mainly farmers, who are dirt poor simply cannot get loan from traditional financial institutions - first the loan amount is too small to cover the administration cost, second there is no security. Yet these people are very credit worthy and the risk is low enough - the small loans are mainly bridge loans with very clear repayment means.
I have no idea if this business is still doing fine, given that the Nobel Prize may have encouraged more competitions and drove down the interest and encouraged more relax micro lending.
Anyway, I found out about this web site in Hong Kong (
www.ecmoneyhk.com) trying to match micro lendings. It's a market place where anyone who wants to borrow money would post amount required, interest willing to pay, location of borrower. Anyone interested to lend the money would respond to the request.
In the last 30 days, there are about 250 requests for loan, and perhaps 1/3 or more were responded to. Most of the request for loans are willing to pay around 10% interest in 30 days! That's very high interest, and way exceed the legal loan shark threshold of ~60% per annum. My initial reactions:
1. is this legal? especially for the people who wants to lend money.
2. how high is the default risk? at 10% interest, if less than 1 in 10 default, it's already a good deal.
3. assuming lending like this is legal, can this be an organized business doing micro lending?
4. in the Indian case, the borrowers seems mostly farmers, whose borrowing maybe capital investment in nature, and repayment is the harvest. In the HK case, are the borrowers simply borrowing for consumption? What/where is the repayment means?
5. the web site takes admin fee from 2% - 5% depending on the amount. That's the transaction cost bear by the borrower. If I commit to a large number of lending, can I get a rebate, say 1%, from the web site?
