To begin this look into the history of peer-to-peer (P2P) lending, its prudent to remember that peer-to-peer lending has been around since humans settled in Mesopotamia. Although now it has become a buzz word, P2P lending was up until the hegemony of the modern bank, the only form of lending available within communities.

blog.prosper.com]

Why is there a market for alternative lending?

In the US and elsewhere the past decade of economic hardships have left many families buried under bills and debt and suffering from low credit scores. Unable to qualify for a loan from a major bank many people are desperate for support. Simon Cunningham on his blog Lending Memo runs down the 7 Reasons Why P2P Lending is Good News for Imperfect Credit. P2P lending sites, utilizing technology and the internet in ways novel to the financial sector are able to keep overhead costs low and as a result offer loans to more people.

Grameen: The first alternative bank

Although it is not peer-to-peer, Grameen Bank, founded by Muhammad Yunus in 1983 set the stage for an alternative banking revolution. The Grameen Bank was founded on the principle that loans are a better tool than traditional charity to eradicate poverty. Started in Yunus home country of Bangladesh, Grameen Bank offered lines of microcredit to families previously underserved by traditional financial institutions and in desperate need of access to capital.

The online lending boom

Evidenced by the successes of Grameen and coupled with the growth of microfinance and online sharing and communication platforms in the early 2000s, online P2P lending was primed to take off. In 2005, the non-profit Kiva launched as well as the for-profit Zopa in the UK. One year later Prosper and Lending Club launched in the US.

With the US banking crisis and thousands unable to qualify for a loan, Lending Club and Prosper offer a must needed alternative. Lending club enables borrowers to create loan listings on its website by supplying details about themselves and the loans that they would like to request. All loans are unsecured personal loans and can be between $1,000 $35,000. Lending Club evaluates each borrower, assigns them a credit rating, and sets their interest rate and fees. Investors can browse all the individuals asking for a loan and can contribute towards the total loan amount. About 80% of Lending Clubs borrowers use the loans to pay off their credit card debt and to-date the site has facilitated $2,281,230,550 in loans.

Extending the Reach of the Financial Sector

With peer-to-peer organizations growing and proving themselves to be a safe, capable method of lending and investing, organizations are utilizing its person-centric structure to expand the reach if the financial sector. Those traditionally deemed unbankable–people living under the global poverty line, living in rural areas, or determined a high risk client–are now being afforded the same access to traditional financial services. In 2009 Zidisha  became the first peer-to-peer lending organization to link lenders and borrowers across internationals borders without a local intermediary organization. Extending these lines of credit to new demographics has had transformative effects on developing communities: small business owners can become growing entrepreneurs and hire employees, youth can afford higher education and invest in their futures.

While the history of peer-to-peer lending is rooted in the developed world its potential spans far beyond the original borrowers and has the potential to bring banking to the millions of people living in poverty.