“As an entrepreneur in Argentina, you’re lucky if you can get an institution to write you a loan. But when they do, interest rates often fall between 45 – 55%,” says Antonio Zavalia, Director and Co-Founder of Bondarea. “Who can afford to take out a loan at those rates?” Bondarea is remedying the lack of available or affordable loans to small businesses and individuals in Argentina through their peer-to-peer lending website and software.
What’s the difference between peer-to-peer lending and crowdfunding? While both are trying to solve capital related problems, small businesses that use crowdfunding techniques are selling a product. In return for contributing, funders receive a perk or product from the entrepreneur. When it comes to peer-to-peer financing, “entrepreneurs or individuals can ask for microloans. Loanees then bid to lend some or all of the requested loan at an interest rate dictated by the loanee.” This way, if an entrepreneur needed a loan of 16,000 Argentine Pesos, he could auction off his loan and several loanees could offer to lend different amounts at different rates. The entrepreneur could also decide to turn down an offered loan if the interest rate was not agreeable.
Overall, the average interest rate on Bondarea is 32.5%. “Competition among bids drives interest rates down,” says Antonio. While that might sound scary to an entrepreneur in the States, that’s a lot cheaper than going to a bank (interest rates fall between 45-55%). After two years in business, Bondarea says that the total percentage of late payments (those more than 30 days) is about 0.6% (only a fraction of its comparable number at local financial institutions) and to date, and no one has failed to pay back the loans.
Antonio believes that these low numbers are due in part to the credit screening done by Bondarea. “It’s a mix of the backward looking factors found in the U.S. FICO score and forward looking factors, which judges how attractive a loan can be to potential loanees.” Bondarea screens each entrepreneur or individual before allowing him/her to auction off the requested loan.
However, it’s the software-as-a-service side of their business that is the most scalable and has the highest potential to affect entrepreneurs and individuals in need of a loan. “We sell the software used on our peer-to-peer lending platform to NGOs in Argentina, so they can more effectively and efficiently run their own community peer-to-peer lending programs.”
Overall, through both their peer-to-peer lending platform and software, Antonio says they’ve funded roughly 400 to 500 businesses, adding up to 6 million pesos (about 600,000 USD at the Argentine official rate) worth of loans. That’s a huge impact!
The biggest growth challenge for Bondarea is that, “people are scared to borrow or lend money in the current economic and political context… especially to a company that isn’t a household brand. It’s tough. However, as we build up a reputation for finding good credits and ensuring low borrowing costs, new users come to our platform in greater numbers.” And yet, at the same time the lack of available loans means that there is a real potential for growth for Bondarea as both a lending platform and software.