Hello and Interest free loans

[AnilG]

The whole premise of this approach appears to be lending/borrowing between people you know. There are three challenges with this model:

• All personal finance advise focuses on why you shouldn't lend to friends and family. Because you will rarely get your money back.
• Most borrowers don't want to advertise that they are having "financial" problems. They may approach one or two close friends in confidence to borrow money but they wouldn't openly admit to borrowing money on a social network of people they know. There is social stigma against disclosing your financial problems as it can lead to negative effect on your other relationships with people you know.
• Lending/borrowing between social network of loose connections can be deadly for one or both parties because lenders and borrowers will know each other's identity. Just read this forum and see how lenders b*tch about deadbeat borrowers, late payments, and why lending club/prosper don't go after such borrowers. Can you imagine what will happen when identity of such borrowers is available to lenders?

How will you overcome these challenges? If you can overcome these challenges, you may have a chance.

BTW, Lending Club started out as Facebook app and quickly got off Facebook. Also, there was another startup (can't recall the name right now) which tried to do the same social network based person-to-person lending but i guess they never gained traction.

[rock413]

This is an interesting model but like others have chimed in there are some possible parts of the lending laws that your model might trigger. This type of model hasn't caught traction before but maybe it will catch traction now with all the interest in peer to peer lending. I am interested in seeing how this pans out and if you will be able to scale up and grow your business.   

[samsung_2015_16]

Thanks Anil, and Rock! Very valuable feedback.  Greatly appreciate it! I'm always revising my methodology to ensure that it is still within regulations.  Stay tuned!  More updates to come :-)

[Kobuksan]

Hey Samsung, interesting value proposition as I am working on something similar as well. I just enrolled into MIT's Fintech certification program to learn more about the industry to refine/define my core proposition and validate it's many assumptions. I am interested if you are still engaged in your work and looking to learn more about your experiences...

My concept is giving people access to capital interest free as well which should also make it tax exempt (if my model works as I intend) and from reading the comments, I've addressed all the stated concerns that have been brought to light. I want to disrupt how the lower tiered credit scoring market is served in the capital markets with the same ethical intentions you stated.

[nonattender]

Hey Samsung, interesting value proposition as I am working on something similar as well. I just enrolled into MIT's Fintech certification program to learn more about the industry to refine/define my core proposition and validate it's many assumptions.

I'm familiar with that MIT program and I'd appreciate it if you'd send me a personal message and let me know how it goes for you and what you learn.

My concept is giving people access to capital interest free as well which should also make it tax exempt (if my model works as I intend) and from reading the comments, I've addressed all the stated concerns that have been brought to light.

Clearly, your background is not in any finance/econ/money-related field.  Things happen and defaults ALWAYS occur - no matter how good your own intentions or those of your borrowers may be.  I suggest that you put a lot of planning into how to mitigate reality...

I want to disrupt how the lower tiered credit scoring market is served in the capital markets with the same ethical intentions you stated.

Now, this part has my attention.  There's a big hole in the lower end of the market where "payday" is still the predominant model - and it's ripe for (I try not to vomit from the buzzword) "disruption".  There's exactly one company (LendUp) which is approaching the market with anything even resembling a plan (their rates are "high", relatively, but so are the costs involved in servicing small dollar subprimes, so, while not optimal, it's a step in the right direction - and their model is very heavily focused on responsibility-building/education for a subprime borrower population that's already proven it can't handle traditional credit, budget appropriately - or be trusted to pay back).

Again, once you've gotten further along and have a plan to deal with (I can't stress this enough) the inevitability of defaults, I am open to you sending me a personal message and discussing this.  I'm not affiliated with the MIT course you're taking, but I am... close by...

As far as your "interest free" idea, I mean, ok, maybe, fine - but thousands of years of human behaviour are why "interest rates" exist:

https://www.youtube.com/watch?v=4rASq52zRFs

[Emmanuel]

Interesting idea.

However, be aware that many businesses tried to articulate lending between friends, but all had to pivot or close doors...
If the people know each other enough (e.g. close family members), they don't need a marketplace. If they're not close enough, up to Anil's point, they don't want to tell they're in financial distress.

On top of that, lending money to 'friends' doesn't work, because you can't force getting your money back without tainting the relationship. That's why lending is best when with strangers. One could go as far as considering that's why we pay intermediaries like banks: so it's not 'our fault' if they're ruthless in getting the money back.

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[sanjaybaghelaseo]

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