Peer to Peer lending legal battles

Recently I have educated myself on the very interesting and recently politically hot industry of peer to peer (P2P) lending. I have to say that I owe much of my knowledge to Zachary Tillman's research for our entrepreneurship project.

P2P lending is simply individuals loaning money to each other without the intermediation by a financial institution. This has been going on for a very long time, but has recently experienced a large growth due to the social web (approx. $647 million in 2007). Sites have sprung up to facilitate these financial relationships and they mostly charge a service fee or percentage. In the last year however, these sites have had a lot of pressure from the SEC come down on them and one, Prosper.com is currently in litigation over the issue of trading unregistered securities.

This legal crackdown and authoritarian rule over securities by the federal government is a setback for the industry, however I'm certain that the players in this field will rebound and evolve to stay in business. They will do this because there is a real need that they are filling. In many ways P2P lending is riding the same wave as the global microfinance movement. The point being that people can do great things and better their lives when given access even to a little bit of capital. The main indicator of this is the repayment rate on loans in these industries. While the repayment rates on the P2P industry's loans are not as impressive as those that the microfinance industry touts, they still outstrip traditional bank loans.

My outlook for this industry is that it will continue to grow and thrive. Investors are realizing that they need to connect more intimately with their investments, and banks just aren't cutting it. What I would like to see from P2P lending is the ability to drill down a search to your community and find people and projects happening locally.