LendLocal is a new form of social investment. It gives you the chance to make a difference to the UK’s most disadvantaged communities.

How? By making loans to people and businesses the banks can’t be bothered with – not bad businesses or dodgy people, but those who miss out because of ‘postcode lending’.

Banks aren’t keen on lending in poorer areas, no matter how good a borrower’s prospects. They’d rather just go where their computers tell them (even if that means losing lots of money, as we’ve all seen).

Like Kiva LendLocal connects you to borrowers, except these could be in your own community or elsewhere in the UK, perhaps because the banks won’t lend.

Like Kiva the lending is not completely disintermediated. The stress is taken out of the process and you don’t have to work out who’s a safe bet as the loans were made originally by a community development finance institution (CDFI) or a credit union. Obviously your loan principal is at risk when you lend through LendLocal, but credit unions are credible organisations that know about lending money.

Like Kiva you will not get interest on your loan.

However, and I had not worked this out myself, if you relend your money for a while, you’ll qualify for very generous tax relief.

According to Julian lending through

LendLocal will give you the satisfaction of supporting local people – people here in the UK who the banks gave up on because of where they live and work.

If you are new to microfinance, listen & watch here:

Afterword: The only question I have is why doesn’t Kiva lend in the UK? It lends in the USA, so why not here? Will this undermine LendLocal’s proposition? As a lapsed Zopa lender and fan, to my mind the gap in the market is in a peer to peer lending platform using a model closer to Zopa, but which lends to higher risk borrowers, and gives a financial return as well as a social return to the investor.

Lent $25 towards Organic Vegetables business

I’ve just lent $25 to Oyungerel. This is loan number 198, so only 2 more and I will have lent $5000 to small businesses and groups in the developing world.

Here is Oyungerel’s spiel, though those veg look a bit too perfect to be organic (no ugly vegetables is always a tell-tale sign in developing countries)!

Mrs. Oyungerel is 36 years old and lives with her husband and 3 sons in a ger in the Darhan province of Mongolia. Her husband Monhbat helps his wife with their organic vegetable retail business at a local market. Her sons Ulsbold, age 7, goes to a local primary school and Torbold, age 4, and Irmuun, age 5, go to a local kindergarten. The borrower has been running her organic vegetable retail business since 2002. She has gained a lot of experience and the customers’ trust over the years. She is now requesting 5,000,000 MNT to purchase larger amounts of organic vegetables to sell at her rental counter. She is a hardworking, active and responsible woman.

Check my stats and spot the odd one out:

Have you ever wondered why you can get £60+ cashback for switching your energy supplier? It costs a huge amount of money to get new customers – this is a big marketing cost. Expect therefore that on average it is costing the company a lot lot more to obtain new customers through other routes, like TV ads, newspaper ads, radio, email newsletters, leafletting campaigns, junk mail etc.  Service or retail business who have no idea how much it costs to acquire new customers may well be throwing good money after bad when buying sdvertising space in the traditional way. The use of incentives on the other hand can be a very effective way of getting new customers, provided you construct the offering to avoid the sizeable cohort of ‘deal watchers’ who are not interested in anything but the incentive.

So now you know that there is no free lunch, but where does that leave the $25 one on Kiva. As far as I can see this is a really cute incentive and worth the ten minutes out of your busy lifestyle to get to grips with. The only warning? Kiva is slightly addictive – but in a positive way.

I should also say that I am not a financial adviser and this is not an investment in the sense that you get a financial return – you do not. But you will be helping to build human and social capital where it is needed, so think of it as a social investment. If you do invest, only invest small amounts and diversify your portfolio to manage the risks of default (default and delinquency are very very low compared to banks generally and say student loans in the UK) and exchange rate losses. Invest in small businesses you care about or know something about.

The problem for savers, unlike investors who can afford to lose their investment, is compounded as alternatives usually come with greater risks and not so transparent transaction costs. Accounts outstripping inflation may require savers to squirrel their money away for at least 3 years – though for most people this is just fine. Savers should avoid riskier assets and be wary of being misled by banks into buying inappropriate products. Most banks will make more than you out of the deal.

But for investors seeking a slightly higher return there’s been a quiet revolution in something called social or peer to peer lending. Here’s what people have been saying about Zopa.com, which is a bit like Kiva. Both social lending platforms connect borrowers with lenders and have remarkably low default rates. Kiva doesn’t give you a return on your investment for you are growing human capital in the developing world instead, but you can get your capital back over time.

Zopa on the other hand is much more sophisticated. Here’s what THEY say about their model:

Peer-to-peer lending is a … fairer and more human way of doing money. It’s like borrowing and lending with your friends and family – except there are thousands of people you can lend and borrow with.

… lenders and borrowers get better rates, because peer-to-peer lending is more efficient than the traditional banking model.

… Banks use your money to make even more money for themselves. They lend some of it out, gamble some of it on the price of tin or the Yen depreciating, and invest the rest in any other money-making schemes they can think of.

… at Zopa, people who have spare money lend it directly to people who want to borrow. There are no banks in the middle, no huge overheads and no unethical investments.

I’ve been lending with Zopa for about three years. Not much simply because I don’t have much to spare, but the return has been 6.7%

So why recommend it? here’s what they say:

Great rates: Returns over 5.7% pa (after charges and actual average annualized defaults, over last 12 months)

A proven track record: We have lent over £190 million of savers’ money and have 30,000 happy lenders.

Responsible: Zopa borrowers have the best credit ratings and borrow only what they can afford.

If it’s good, share it: Nearly all Zopa’s lenders have joined after a recommendation from a friend.

Lenders should be investors rather than savers, not so much because it is risky – it is not in the great scheme of things – but because you need to be fairly numerate and computerate to get the hang of the (very clever) system.

And a final thought. Zopa are offering people like me a £100 for every friend who invests £2k. Go check it out.

Now, if anyone does sign up I will re-lend every £100 I get on Kiva for as long as I can.

A total of $71.37 has been repaid today! As of March 15, 2011, you now have $80.08 in KivaCredit in your account. You can re-lend to another borrower, withdraw to your PayPal account or donate these funds to help cover Kiva’s operating expenses. Or you can use these funds to purchase a Kiva Card — a thoughtful gift for a friend.

Below is the repayment update on your Kiva Portfolio

	Nubia Del Socorro Mendieta Baltodano in Nicaragua (Activity: Home Products Sales)  You Loaned: $25.00 Newly Repaid: $2.45 Total Repaid So Far: $25.00 (100.00% of your loan) Repayment Status: Paid back
	Maqsoodan Jaffat Masih’s Group in Pakistan (Activity: Clothing Sales)  You Loaned: $25.00 Newly Repaid: $1.09 Total Repaid So Far: $25.00 (100.00% of your loan) Repayment Status: Paid back
	Nusrat Talib Hussain’s Group in Pakistan (Activity: Jewelry)  You Loaned: $25.00 Newly Repaid: $2.17 Total Repaid So Far: $25.00 (100.00% of your loan) Repayment Status: Paid back
	Soutra Group in Mali (Activity: Food Production/Sales)  You Loaned: $25.00 Newly Repaid: $4.17 Total Repaid So Far: $25.00 (100.00% of your loan) Repayment Status: Paid back
	Las Entusiastas Group in Paraguay (Activity: Cosmetics Sales)  You Loaned: $25.00 Newly Repaid: $6.25 Total Repaid So Far: $18.75 (75.00% of your loan) Repayment Status: Paying back on time
	Union Women Group in Liberia (Activity: Fish Selling)  You Loaned: $25.00 Newly Repaid: $8.08 Total Repaid So Far: $17.80 (71.20% of your loan) Repayment Status: Paying back on time
	Zahra in Lebanon (Activity: Clothing)  You Loaned: $25.00 Newly Repaid: $2.09 Total Repaid So Far: $16.67 (66.68% of your loan) Repayment Status: Paying back on time
	Alicia in Bolivia (Activity: Construction Supplies)  You Loaned: $25.00 Newly Repaid: $2.08 Total Repaid So Far: $16.66 (66.64% of your loan) Repayment Status: Paying back on time
	Tuwisana Plus Group in The Democratic Republic of the Congo (Activity: Retail)  You Loaned: $25.00 Newly Repaid: $6.26 Total Repaid So Far: $15.64 (62.56% of your loan) Repayment Status: Paying back on time
	Rani Muhammad Ashraf’s Group in Pakistan (Activity: Furniture Making)  You Loaned: $25.00 Newly Repaid: $2.28 Total Repaid So Far: $13.64 (54.56% of your loan) Repayment Status: Paying back on time
	Fe Y Alegria Group in Paraguay (Activity: Personal Housing Expenses)  You Loaned: $25.00 Newly Repaid: $4.17 Total Repaid So Far: $12.50 (50.00% of your loan) Repayment Status: Paying back on time
	Aigul Mambetalieva’s Group in Kyrgyzstan (Activity: Cattle)  You Loaned: $25.00 Newly Repaid: $3.05 Total Repaid So Far: $11.47 (45.88% of your loan) Repayment Status: Paying back on time
	Shahnaz Munir Masih’s Group in Pakistan (Activity: Construction Supplies)  You Loaned: $25.00 Newly Repaid: $2.28 Total Repaid So Far: $11.41 (45.64% of your loan) Repayment Status: Paying back on time
	Saleema Sabir Hussain’s Group in Pakistan (Activity: Grocery Store)  You Loaned: $25.00 Newly Repaid: $2.27 Total Repaid So Far: $11.38 (45.52% of your loan) Repayment Status: Paying back on time
	Shamshad Ramzan’s Group in Pakistan (Activity: Animal Sales)  You Loaned: $25.00 Newly Repaid: $2.29 Total Repaid So Far: $6.87 (27.48% of your loan) Repayment Status: Paying back on time
	Rani Mehmood Masih’s Group in Pakistan (Activity: Construction Supplies)  You Loaned: $25.00 Newly Repaid: $2.29 Total Repaid So Far: $6.86 (27.44% of your loan) Repayment Status: Paying back on time
	Rana Rashed Group in Afghanistan (Activity: Hotel)  You Loaned: $25.00 Newly Repaid: $2.50 Total Repaid So Far: $5.00 (20.00% of your loan) Repayment Status: Paying back on time
	Santa Catalina Group in Paraguay (Activity: Fruits & Vegetables)  You Loaned: $25.00 Newly Repaid: $4.17 Total Repaid So Far: $4.17 (16.68% of your loan) Repayment Status: Paying back on time
	Mouhamad in Lebanon (Activity: Cosmetics Sales)  You Loaned: $25.00 Newly Repaid: $2.07 Total Repaid So Far: $4.15 (16.60% of your loan) Repayment Status: Paying back on time
	Santa Cruz De Mechoacan Group in Mexico (Activity: Retail)  You Loaned: $25.00 Newly Repaid: $3.12 Total Repaid So Far: $3.12 (12.48% of your loan) Repayment Status: Paying back on time
	Mohamed in Lebanon (Activity: Cafe)  You Loaned: $25.00 Newly Repaid: $2.08 Total Repaid So Far: $2.08 (8.32% of your loan) Repayment Status: Paying back on time
	Bachir in Lebanon (Activity: Clothing Sales)  You Loaned: $25.00 Newly Repaid: $2.08 Total Repaid So Far: $2.08 (8.32% of your loan) Repayment Status: Paying back on time
	Swaydan in Lebanon (Activity: Grocery Store)  You Loaned: $25.00 Newly Repaid: $2.08 Total Repaid So Far: $2.08 (8.32% of your loan) Repayment Status: Paying back on time