An Analysis of European Online Microlending Websites

This paper looks at the relatively new phenomenon of online micro-lending, which targets needy entrepreneurs as well as individuals looking for small financial solutions to their liquidity problems.

With the development of web 2.0, a new kind on lending is taking place on the internet, termed peer to peer lending (P2P) or social lending. In Europe, this includes commercial lending websites such as Zopa, Smava, Boober, Kokos, and Monetto as well as microcredit web platforms. The paper uses a case study approach to reveal that:

• Online lending reduces operating costs, financing costs and increases outreach;
• Investors and borrowers consider P2P social lending websites as an appropriate channel to reintegrate into loan-related transactions;
• Although web 2.0 permits platform models, most sites have retained intermediary roles and have not permitted direct peer to peer contact;
• Challenges for expansion of these models include trust-building and market analysis.

Study findings seek to lead MFIs to lobby for specific laws, and encourage them to invest in online lending solutions to radically reduce operating costs as well as to increase outreach.