Last month around Christmas I decided to check out Microplace. Microplace is similar to Kiva in that their goal is also to raise funds for microfinance lending. However there are a number of key differences that set Microplace apart from Kiva.
With Microplace the goal is for “socially responsible investing” where you lend money to microfinance institutions and they in turn loan the money to various entrepreneurs. Microplace is an actual broker-dealer for microfinance securities and registered with the SEC while Kiva is registered as a non-profit charity. Microplace was bought by eBay in 2006.
Tracey Pettengill Turner, who founded Microplace, believes there are not enough charitable dollars to raise the capital needed by microfinance institutions. One of the key differences of lending on Microplace (as opposed to Kiva) is that you earn a return on your investment.
Investments and Returns
Browsing through various investments I found that investment yields range between 1% and 4% at this time. I don’t know if this is the historical norm or investments yields follow rate change pattern based on the credit environment. There are various loan lengths from a couple months to several years. Interest is paid quarterly on investments and principal is repaid at the end of the loan term.
One of my concerns is that Microplace doesn’t seem to the address the issue of defaults (if any) at all. There doesn’t seem to be any available statistics concerning past investments or details of what happens with defaults on the website. However each investment is accompanied by a prospectus of the underlying issuer.
Each investment available has a maximum available for purchase even though it is not shown on the website. Once an investment reaches the amount available for purchase I assume it’ll disappear from the listings automatically. If you want to find out how much of an investment is available left for purchase just type 99999999 as the investment amount in the “other amount” box and you’ll find out. Generally most investments where I’ve tried this have $100,000+ remaining so you usually don’t have to worry about investments disappearing left and right.
Funding Sources
Like Kiva, Microplace also uses PayPal as a payment processor. Unlike Kiva, Microplace also gives you the option of funding with a checking account for people who prefer not to bother with PayPal or don’t have an account. Microplace also allows interests and principal payments to be disbursed back to a PayPal or checking account.
Conclusion
My exposure and experience with Microplace is very limited at this time. I made a couple of investments because I was in a Christmas mood and none of them have been repaid yet nor have I received any interest payments yet so I’ll hold off on making any rash judgments. However, as with Kiva I suggest anyone investing to diversify their investments and like with all investments don’t use money you can’t afford to lose.
I’ll post an update to my MicroPlace experience in a couple months when I’ve experienced repayments and had more experience with the website.
