Out of all the digital start-ups I met as a minister, the one that most inspired was Zopa. Why? I think they have the capacity to completely re-write the terms of trade in the banking sector. I won’t go into my reasons in detail except to say that they can inject trust back into a financial system that is deeply lacking in that most important commodity right now.
Peer to peer lending is about an individual or groups of individuals betting on the ability and integrity of the person requiring the loan. See the debate being had over at the FT blog to see how some – in the banking sector – disagree.
I was so impressed with Zopa and the potential for P2P in this sector that I wrote to Alistair Darling about them before the last Budget. Government can take small decisions that can help this sector grow at an even bigger rate than it currently is already. I haven’t got the letter I wrote to the Chancellor in front of me but essentially I suggested three things:
1. Change the tax regime so that people who make loans – investors – can aggregate their total ‘wins’ and ‘losses’ for the purposes of tax. So, if you make 10 loans and nine of them fail, you should be allowed to offset them again the tenth loan that made you money.
2. Consider allowing people to use P2P within their ISA allowances.
3. Bring P2P within the remit of the small loans guarantee scheme. It is this area that I think could have a great impact in the small business sector. If people are prepared to bet their own cash on a business, then they are likely to conduct as much, if not more due diligence on the company as any bank. And when the banks make silly, greedy, short term risk averse decisions, groups of small private investors can step in.
If you’re interested in P2P then also take a look at how Kiva is having a huge impact on the developing world with micro credit. I’ve been with them for about a year now and as their byline says they give “loans that change lives.” (All hail Muhammad Yunus)