Prosper - Micro lending brought to the masses

A while ago I was reading in the Wall Street Journal, for those of us who are regulars it is called simply "The Journal", about the Nobel Prize winner Muhammad Yunus. He started the Grameen bank in India that gave out micro-credit loans. These are very small loans given to poor entrepreneurs in third world nations. The impact of these banks is amazing. It stimulates economic development, and fuels the capitalist fire like few other things can. This, of course, does a number of wonderful things economically, politically, and socially for these countries.

Fortunately, I do not live in India. However, I plan on traveling there some day. So how can I start doing something like supporting a micro-credit loan program in Dayton, OH of all places?

Enter www.prosper.com. Prosper is the online version of the Grameen bank. I have been enjoying a 12% return on my investment for about a year now. In the spirit of Micro-credit loans I started small. A mere $250.00 deposit and I was ready to lend. It works similar to Ebay. People basically auction their requests for capital with a detailed description and the lowest rates from the people willing to lend the money win. Lenders, such as my self, bid on these requests with what ever return that they would deem acceptable from their investment. Once the full loan amount is funded the auction closes and the loan is financed.

Prosper has thought of the risks involved and it is compulsory to attach a credit agency to these accounts so that if they were to default, the agency will represent you and get most of your money back. Also, all of those wanting money have their credit score attached. The amount of information is very nice, and makes for a very secure and safe lending environment. The best part of this process is that you can manage your own risk. Do you want to get a higher return? Say, 20%? Well, the people you will lend to will have a credit rating much lower than those expecting an 8% return. The amount of risk you accept is up to you.

I however decided to split my $250.00 between two people. One is paying off credit cards. The other is much closer to my heart. He is getting his MBA and is in sales. Bravo! Though I am not worthy of any Nobel prize, I certainly am enjoying participating in an idea that achieved that status.