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A Finextra member
A Finextra member 29 January, 2009, 11:46Be the first to give this comment the thumbs up 0 likes

I'm afraid I have to disagree that the crisis will encourage social lending. If anything, the requirement for social lending is a hangover of the days of excessive consumer leverage. A quick preview of borrowers profiles on social lending sites will demonstrate this quite clearly.

There are fundamental issues with the social lending business model (capital tie-up, time investment to maximise returns and increasing borrower risk profile in a downturn) that will start to show more prominently as the year progresses.

Your comment that the lenders and borrowers take the risk is also not correct. The lender takes all the risk and it's pretty one sided. Banks play a very valuable role in the lending process and can allocate capital, create portfolios and manage risk much better than an individual. (While I agree they have to do this much better going forward).

Theoretically, technology makes it possible to dis-intermediate the banks. In reality it comes at a cost. A cost that I think most lenders are unwilling to accept. I have seriously investigated placing some of my risk capital into social lending and I decided it was not and investment I was willing to make. I would be interested to hear from social lending investors if it has proved a rewarding investment of time and money.