Author Topic: Hello and Interest free loans  (Read 13858 times)

samsung_2015_16

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Hello and Interest free loans
« on: January 17, 2015, 07:00:22 PM »
My name is Ata, and currently I'm working on a free service to let people borrow interest free and let lenders still make a profit from their loans through social networking. My background is in software development, and I'm currently working in the tech industry. My interest in peer to peer lending started when the housing crisis occurred and it became my side passion ever since.

What got me interested was the fact that we live in a digital world where we have so much information on our hand, yet it felt like that no advantage was being taken from all that information to prevent people from losing their homes.

To elaborate on this further, the two things I noticed which caused people to lose their homes was the unwillingness of banks (due to legitimate reasons of their own) to help the home owners with their mortgage, and the huge amount of interest that the home owners were incurring.  And so I started thinking of ways where a community can be established where borrowers can borrow interest free, and yet have a way to let lenders make a money from their loans.

So with that said, I'm looking forward to sharing my solution, if you are interested in knowing, as to what peer to peer lending should be that allows borrowers to borrow interest free. I would also like to hear everyone's feedback, get critiqued, and have a meaningful conversation. 

Would also like to hear everyone's opinion if they think interest free loans is something that is possible.


« Last Edit: January 17, 2015, 07:09:47 PM by samsung_2015_16 »

rock413

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Re: Hello and Interest free loans
« Reply #1 on: January 17, 2015, 07:40:19 PM »
First of all welcome to the forum. This is an interesting idea similar to a kiva microfinance but for larger loans. How would the lenders make money in this type of arrangement. I am interested in seeing your ideas and providing feedback of what I think.

Prescott

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Re: Hello and Interest free loans
« Reply #2 on: January 17, 2015, 08:02:26 PM »
Welcome to the Forum. Do you work at Even?

samsung_2015_16

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Re: Hello and Interest free loans
« Reply #3 on: January 17, 2015, 08:15:19 PM »
Hello Rock!  Thanks!  So essentially the way a lender makes money through my solution is through profit sharing.  I setup a portal to let people socialize so that they can borrow and lend from each other. The idea is that as users come, the portal has a potential of generating revenue due to traffic. Since the users made the portal profitable, the business model is to share that profit with both the lenders and borrowers. 

I'm giving a very high level overview. There are other reasons I did it this way, and can go further, but please let me know if that sorta makes sense.  I can give you some examples too if you like :-)

samsung_2015_16

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Re: Hello and Interest free loans
« Reply #4 on: January 17, 2015, 08:16:23 PM »
Hello Prescott!  No I don't :-)  I work in a tech company that has nothing to do with finance ^_^.  What do you do?

Prescott

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Re: Hello and Interest free loans
« Reply #5 on: January 17, 2015, 09:25:33 PM »
Technology and Consumer finance

rock413

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Re: Hello and Interest free loans
« Reply #6 on: January 18, 2015, 12:05:30 PM »
So you are doing a profit sharing model. Is there a graduated schedule for payments based on how much an investor has with the platform or is it just a straight profit sharing and everyone gets the same payment regardless. How do you grade loans based on risk? Is there a certain risk profile you are targeting such as a  high earner with at least a 700 credit score or something similar.  An example would be great to see how the whole system works.

samsung_2015_16

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Re: Hello and Interest free loans
« Reply #7 on: January 18, 2015, 03:46:58 PM »
Hello Rock.  Before I give an example let me set the stage a little bit to bring things more in context:

1. I'm not a broker nor a lender nor do I offer any service to allow people to send or receive money from my solution. Lenders and Borrowers would have to send money to each other through some other means like paypal, bank, or simply a check.

2. Since I'm not a broker nor a lender I decided to create a tool to allow people to make their own decision as to who they should and not lend to

3. This is different from other peer to peer lending sites that are there today.  Traditional peer to peer sites will almost always have a broker in between for example lending club.  Since I'm not a broker, I decided to base my model on a total social networking platform

4. Therefore what I decided to do was instead of using the traditional control measures to evaluate a loan request (such as credit score), I
         A) established tools to let a user to make that determination
         B)  facilitated an architecture where people provide two forms of their social identity to establish some ground level credibility instead of credit score.
         C) developed a social networking platform where people are open to do what ever. 

5. The way the model works is that a user A specifies when they need to borrow money, and also indicates when they can lend to others. The tool then matches the user A with other potential users whose borrowing and lending dates intersects with user A

6. I also recommended a user to not borrow a huge some from a lender, and a lender not to lend a huge some to a borrower. The premise was to borrow little amounts from various lenders to get the amount you need, and to pay back the little amounts in time to establish credibility.  All I could do was recommend and not "regulate" it.

7. The key for the lender to use my model is not to lend a huge amount to one user, but instead to distribute small amounts to a number of users. Again the whole point is for a borrower to borrow little amounts from lenders to get out of a financial bind, and pay them back when they are able to do so. For the lenders, lending a small amount is less risky as well.

This was the initial model that I had setup and deployed, however there were many problems with it which mainly came down to the following:

1. There was no incentive for the lender to lend despite the social identity, and the ability to help each other out
2. There was also a hesitance among lenders to lend as there was no assurance given by me if whether the borrower would pay back the loan or not

And so I had to think about a way to add an additional control measure where a lender would feel adequately secure about lending money to other borrowers. That was a bit tricky since I couldn't really broker anything between a lender and a borrower, nor go after a borrower if they defaulted.

Therefore, since I'm not a broker I established the additional following ground work:

1. I introduce the profit sharing program (also called a reward program) for both lenders and borrowers. The point behind that program is if the lenders and borrowers use the site in a "certain" way that makes me profitable due to traffic, I share my profit with both the lender and borrower.  Note: the need to use it in a certain way. Again it is their choice how they want to conduct themselves as I'm not regulating their action.
2. I put my own money into the reward pool to share with the users, and I keep replenishing it.
3. The lenders get a share of my profit if they use my site in the following manner:
        A) Register
        B) Provide two forms of social identity (currently I'm accepting google+, linkedin, facebook, and twitter but I will consider others)
        C) There is cash in the reward pool (which will be indicated in the app)
        D) The users that he or she has lend to also have two forms of social identity
        C) If they lend to at least 5 people, I will pay the lender the amount that he has lend in total for a maximum of $50.00.

4. The borrowers get a share of my profit if they use my site in the following manner:
        A) Register
        B) Provide two forms of social identity (currently I'm accepting google+, linkedin, facebook, and twitter but I will consider others)
        C) There is cash in the reward pool (which will be indicated in the app)
        D) The users that he or she has borrowed from also have two forms of social identity
        C) If they pay back the loan in time, I will pay the borrower 50% of the total loan amount for a maximum of $50.00.

So now that I have given the above context, here is an example of how this would work.

1. You would register
2. You would provide two forms of social identity (this is all optional btw, and you can even do it at a later time)
3. You specify how much you can lend, and by what day
3. You decide to lend $45 in total to various users by giving out small loans to 6 users in total ($10, $5, $12, $3, $10, $5)

You would get qualified for a cash reward from me for an amount of $45 regardless if the borrowers have paid you back or not.  So if you look at it, the worst case scenario is that all the users default in which case you get your $45 back from me. The best case scenario is that you double on the amount you lend since the borrowers will give you back the amount they owe and plus the $45 from me which brings the total to $90.

Now what happens if you lend a total of $60 to 5 users?  The maximum you would get back from me is $50. The only reason for that is since I'm still starting this I need to watch how much of my funds I'm putting in of my own, however I will increase the payback as traffic and business increases.  Also you can just put back that same money in a next series of lending period and just keep making more money that way. 

One good benefit that came out of the model above is that it helps users to ask money from their family and friends if they are in a bind.  Often times parents have to help their children, or the other way around due to financial problems. However most often then not it is difficult for parents to friends to lend their own money because they have financial problems of their own.  This model will help them to a certain point as they can a at least get some money back that they lend or borrow for that matter. 

I do perform some inquiries before dispensing the funds to make sure the user is not trying to fraud me.  That is where having two forms of social identity for the lender and the borrower comes handy. 

I recently introduced this model, and I feel like this is a fairly new way of doing things hence why I wanted to bring it to this forum to see what everyone thought. 

Does this help?  Let me know what you think :-)


samsung_2015_16

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Re: Hello and Interest free loans
« Reply #8 on: January 18, 2015, 04:13:50 PM »
One more thing I wanted to add.  The reason they borrowers would be borrowing interest free is due to the following reasons:

1. Users who will be lending, (who can also be family and friends) will not be professional lenders therefore they will be bound to laws and regulations if they try to charge an interest directly. 

2. The purpose of loans on this model is really to help each other out 

3. In order for a users to lend with interest, they would have to "invest" it through the broker as traditional peer to peer lending sites offer. However since I'm not a lender nor a broker myself, I cannot take a users money

4. So therefore the most a user can do is lend money to a another fellow user who needs help interest free.  Getting a profit share is a side effect of this which also adds an additional security blanket for the lender

Now that is not to say that a lender may not charge interest.  The lender can however that would be between the lender and borrower. 

Hope that helps :-)

RazzleDazzle

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Re: Hello and Interest free loans
« Reply #9 on: January 18, 2015, 04:51:22 PM »
Great thoughts. Have you seen https://vouch.com/

Prescott

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Re: Hello and Interest free loans
« Reply #10 on: January 18, 2015, 06:28:34 PM »
I am not a lawyer, but I spend enough time around them - it sounds like you are going to run afoul of lending regulations, and by being part of the profit sharing, securities regulation (this could be considered commission). Most platforms rent a charter from a bank for lending regulations and then use a Broker dealer for trading operations.

I'll be interested to see your progress though and see if you get traction

Prescott

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Re: Hello and Interest free loans
« Reply #11 on: January 18, 2015, 06:30:32 PM »
Now that is not to say that a lender may not charge interest.  The lender can however that would be between the lender and

This is somewhat how Prosper started (and then got shut down and sued over). Retail investors could set whatever interest rate they wanted and it was pretty easy to realize that people are not great at assessing risk.

samsung_2015_16

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Re: Hello and Interest free loans
« Reply #12 on: January 18, 2015, 07:16:30 PM »
Thanks Prescott. That is a great way to put it..."commissions." So one of the things I do a lot is keep consulting with my lawyers. I plan to have my site revised by them and make sure that I'm within the law to do what I'm doing. As per my lawyers, I'm walking a very tight line between regulations and non-regulations.  So I will bring this up with them and make sure I'm in compliance.

Prosper is still there though....is there another Prosper? 

Razzle...thanks for referring me to that site.....I like their business model of "vouching".  Do you use it often? 

RazzleDazzle

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Re: Hello and Interest free loans
« Reply #13 on: January 18, 2015, 07:27:36 PM »
No worries. I like what you are trying to achieve.

As prescott mentioned though that general retail investors are not that great setting interest rates and credit risk evaluation.

We have vouch model built in over past 7 years of lending. Essentially we have all the nuts and bolts of your "traditional" retail real estate crowdlending, yet besides business cash flow + real estate collateral there is an additional "Vouch" model we use on each application from folks/business owners in the same business domain "vouching" on top of liens and business risk assessment that we do. In essence we have "triple" security if you will. This is our "secret" sauce. Mostly internally generated and you can image a complex "graph" based interrelationships exist.

I personally have signed up on vouch but haven't used it yet or vouched for anyone. Looks like they are still in beta I think.
« Last Edit: January 19, 2015, 12:29:27 AM by RazzleDazzle »

samsung_2015_16

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Re: Hello and Interest free loans
« Reply #14 on: January 19, 2015, 01:27:56 AM »
Hello Razzle.  Totally understand what you and Prescott are stating. That is a common feed back I've been getting which is this notion of making sure that the lenders are regulated. This is where I'm trying to differentiate my model from the rest of the peer to peer networks. I want to create  one based on a social networking platform. If you can network via linked in for jobs, twitter to share ideas, facebook for social media, why not connect to grant each other loans interest free through mutual friendship? That is what I'm trying to enable through this platform.  Essentially just as friends "spot" each other money, or help each other out in real life (without interest), I'm trying to enable that same experience virtually.  That is why I'm not positioning my self as a broker nor a lender since mediators are not needed in a social network environment.  But, to your point, abuse, and violation can happen so how do we avoid that?  It is a work in progress. 

Would you like to see my website?