Social lending models and niches.
Social Lending vendors with employment of internet make Person-to-Person lending process easy and fast. Several well known social lending hubs providing intermediary services for borrowers and lenders exist online today. They are all based on the simple principle of "people helping each other" in need.
All online social lending models consist of three major components:
Vendors
Social Lending companies review loan applications and scores of borrowers and assign risk levels on proposed loans. Every social lending platform or social lending hub allows borrowers to post their stories for particular financial need and for lender.
Borrowers
Individuals who wish to borrow funds for specific goal(s).
Lenders
Lenders can review postings by borrowers for monetary needs and contact them with questions to make a decision on any specific posting.
Social lending models can be classified into three distinct categories:
Online/Auction based marketplace model
Family and/or friend model
Social CD/Mutual fund model
Online marketplace model is a model that allows online borrowers and lenders to find each other online at a single location to transact their business. The loans issued to borrowers from lenders after a process similar to auction bidding: the lenders review the borrower's request and his/her story and make bids on the loan. The lender, or most likely, lenders who bid with the lowest loan interest rate win the loan to be issued to the borrower. If funding of the loan is 100% complete, the loan gets issued.
Unlike online marketplace model for social lending, Family and/or friend model was created to help form an alliance or a group of people who already know each other or related to each other through other aspects of life such as work, school, family etc, and willing to help each other in need. The Family and/or friend peer-to-peer lending model is built around online cooperation, rather than lender competition, and focuses more on loan processing and servicing.
Social CD/ Mutual fund model is based on the social lending CD consisting of a set of loans, or a portfolio of loans combined in a mutual fund by a social lending company that is registered with proper authorities. Social lending hub acts as the selector and approver of individual loans after which lenders or investors are invited to invest into these financial vehicles. Usually, in this type of social lending model the need to individually screen and pick loans is eliminated, simplifying the whole selection process for lenders.
Some peer-to-peer lending vendors utilize similar or somewhat mixed models described above. For instance, online social lending hubs like Prosper employ "online marketplace model" with elements of "Family and/or friend lending model" combining them in one single website.
For a list of Social Lending hubs, please go to Social Lending Vendor List
