reminds me of prosper.com

The Kiva concept reminds quite a bit of the website prosper.com, which also allows individuals to act as lenders over the internet. However, it seems (based on my wikipedia search) that with kiva, you have a much better chance of getting paid back. Reportedly, kiva has a loan default rate of a few tenths of a percent, whereas prosper.com is about ten times worse. In fact, kiva apparently has an overabundance of lenders and a shortage of suppliers.

I wonder why this is. It seems like it should be the opposite; after all, with kiva you are lending to people half-way across the globe, many of whom are very poor. I would think they would have a tendency not to pay up.

Here’s my guess: kiva has targeted a specific group of people that naturally has an incentive to pay up. Generally, you are lending to entrepreneurs in developing countries. I am sure these entrepreneurs are anxious to better their situation, and are therefore motivated to repay the loan. This is key. Prosper.com has not done this. Instead of targeting a specific group of borrowers, prosper has taken the shot gun approach: loan to everyone and then try to force them to pay up. Force is never as powerful as natural incentive.

I guess my point is to show how important it is to target the right market. The marketplace is an extremely powerful force that can drive a business forward or crush it.