DMC Session 10: Peer-funding and investment

Digital Media Culture / Digitaalinen mediakulttuuri (KDVCL01)

10: Torstai 19.03.2009 13:00 – 16:00

Peer-funding and investment

This sessions aims to explore peer-to-peer finances and the differnet companies or arts/activist projects which are developing emerging field.


Useful preludes

Money as Debt (2006, USA)
Paul Grignon's 47-minute animated presentation of "Money as Debt" tells in very simple and effective graphic terms what money is and how it is being created. “a painless but hard-hitting educational tool and encourage the widest distribution and use by all groups concerned with the present unsustainable monetary system in Canada and the United States”

Debt: The First Five Thousand Years
by David Graeber (2009)

Wealth of Neighbours/The Money Fix (US, 2009)



What is Microcredit ?
(by Muhammad Yunus), January, 2009

“The word 'microcredit' did not exist before the seventies. Now it has become a buzz-word among the development practitioners. In the process, the word has been imputed to mean everything to everybody. No one now gets shocked if somebody uses the term "microcredit" to mean agricultural credit, or rural credit, or cooperative credit, or consumer credit, credit from the savings and loan associations, or from credit unions, or from money lenders. When someone claims microcredit has a thousand year history, or a hundred year history, nobody finds it as an exciting piece of historical information.

I think this is creating a lot of misunderstanding and confusion in the discussion about microcredit. We really don't know who is talking about what. I am proposing that we put labels to various types of microcredit so that we can clarify at the beginning of our discussion which microcredit we are talking about. This is very important for arriving at clear conclusions, formulating right policies, designing appropriate institutions and methodologies. Instead of just saying "microcredit" we should specify which category of microcredit.

Let me suggest a broad classification of microcredit :

A) Traditional informal microcredit (such as, moneylender's credit, pawn shops, loans from friends and relatives, consumer credit in informal market, etc.)

B) Microcredit based on traditional informal groups (such as, tontin, su su, ROSCA, etc.)

C) Activity-based microcredit through conventional or specialised banks (such as,
agricultural credit, livestock credit, fisheries credit, handloom credit, etc.)

D) Rural credit through specialised banks.

E) Cooperative microcredit (cooperative credit, credit union, savings and loan associations, savings banks, etc.)

F) Consumer microcredit.

G) Bank-NGO partnership based microcredit.

H) Grameen type microcredit or Grameencredit.

I) Other types of NGO microcredit.

J) Other types of non-NGO non-collateralized microcredit.”


Rotating Savings and Credit Associations (ROSCAs)

“ROSCA is a group of individuals who agree to meet for a defined period of time in order to save and borrow together. "ROSCAs are the poor man's bank, where money is not idle for long but changes hands rapidly, satisfying both consumption and production needs.

Meetings can be regular or tied to seasonal cash flow cycles in rural communities. Each member contributes the same amount at each meeting, and one member takes the whole sum once. As a result, each member is able to access a larger sum of money during the life of the ROSCA, and use it for whatever purpose she or he wishes. This method of saving is a popular alternative to the risks of saving at home, where family and relatives may demand access to savings.

Every transaction is seen by every member during the meetings. Since no money has to be retained inside the group, no records have to be kept. These characteristics make the system a model of transparency and simplicity that is well adapted to communities with low levels of literacy and weak systems for protecting collective property rights.

The system further reduces the risk to members because it is time limited — typically lasting no more than 6 months. This reduces the size of the loss, should someone take funds early and not pay back."

“The individuals in the ROSCA select each other, which ensures that participation is based on trust and social forces (see Social capital), and a genuine commitment to participate.”

See also 'Chit funds' from India


'Solidarity Lending'

“Solidarity lending takes place through ‘solidarity groups’. These groups are a distinctive banking distribution channel used primarily to deliver microcredit to poor people. Solidarity lending lowers the costs to a financial institution related to assessing, managing and collecting loans, and can eliminate the need for collateral. Since there is a fixed cost associated with each loan delivered, a bank that bundles individual loans together and permits a group to manage individual relationships can realize substantial savings in administrative and management costs.”


Local Exchange Trading Systems (LETS)

“Local Exchange Trading Systems (LETS) also known as LETSystems are local, non-profit exchange networks in which goods and services can be traded without the need for printed currency. Michael Linton originated the term "Local Exchange Trading System" in 1983 and, for a time ran the Comox Valley LETSystems in Courtenay, British Columbia, CA.”

“A LETSystem is a trading network supported by its own internal currency. It is self-regulating and allows its users to manage and issue their own 'money supply' within the boundaries of the network.

The key points include:

* co-operation: no-one owns the network.
* self-regulation: the network is controlled by its users.
* empowerment: all network users may 'issue' the 'internal currency'.
* money: money, as a means of exchange, is an integral feature.

LETSystem recording services keep track of transactions and issue statements of LETSystem trading.

LETSystems use their own type of 'money' - they are money systems.

Barter is a type of exchange where we swap goods and services without using money - I give you a loaf of bread and you give me two cabbages. You fix my car and I'll cook you dinner. But you may not like my cooking………….

Money overcomes the limitations of barter. I give you money for your goods and services and you can spend it elsewhere. In a LETSystem you can use your account to buy what you want from one person and then sell what you can to another.”

“The word "LETS" was chosen to highlight an invitation (let's) and a culture of consent. LETS embodies the 'Law of Two Feet' - "If you like it, you walk in. If you don't, then you walk away”.

The LETSystem Design Manual


Ithaca Hours (Ithaca, NY, US)

Since 1991..
“Ithaca Hours is a local currency system that promotes local economic strength and community self-reliance in ways which will support economic and social justice, ecology, community participation and human aspirations in and around Ithaca, New York. Ithaca Hours help to keep money local, building the Ithaca economy. It also builds community pride and connections. Over 900 participants publicly accept Ithaca HOURS for goods and services. Additionally some local employers and employees have agreed to pay or receive partial wages in Ithaca Hours, further continuing our goal of keeping money local.”

“The name HOUR is meant to remind you that, in addition to being a medium of exchange for commodities, currency represents someone's labor, the time taken to provide a skill or perform a service. Your time is worth something to someone else. When you give someone an HOUR, you are telling them: "I did this much somewhere else. Please give me the equivalent here."
Finnish translation:


weBank: can people replace institutions?

Report by Christian Alhert,

Focus on “emerging finance businesses that all utilize the internet to dis-intermediate traditional financial organisations and mechanisms by increasing the level of direct financial interaction of remote individuals. In other words, individuals are offered ways to act together collectively and engage in financial activities such as borrowing, lending, investing and currency exchange, without the traditionl intermediary of a bank.”

As we learned a few sessions ago..

P2P has usually been used as a term to describe the technical means of interacting, where members of a network are treated as equals, enabling fast file transfers using and sharing computer resources collectively.

Hence: “person-to-person” or “Peer-to-peer (P2P) finance” or “social or web 2.0 finance”

P2P finance has received an increased level of attention lately in english-language mainstream media..

For example: Wall Street Journal article in Dec 2008 entitled “Peer Loans Ease the Credit Crunch” & Harvard Business Review lists P2P finance as a 'breakthrough' idea in 2009.

'Peer' Loans Ease the Credit Crunch

Forget Citibank Borrow from Bob

Green Note: Private Student Loans Network:


History of the term 'P2P Finance'

Oldest 'player' in P2P financial market has been UK company Zopa & US business Prosper, since 2005 & 2006 respectively. Until then online person-to-person lending was untested.
Now there are over 30 companies in different countries, including Germany, Netherlands, Italy, France, Sweden, Finland & Japan.

Zopa (UK/IT/US/JP)

Prosper (US)

Almost all examples are “focused on one national 'market', mirroring the fragmentation of financial regulation (in this context) into nationally confined markets.”
“In contrast, Kiva, a P2P lender with the mission to lend money from people in the developed world to entrepreneurs in the developing world, transfers money across national borders.”


Kiva (US)

“Kiva's mission is to connect people through lending for the sake of alleviating poverty.

Kiva is the world's first person-to-person micro-lending website, empowering individuals to lend directly to unique entrepreneurs in the developing world.

The people you see on Kiva's site are real individuals in need of funding - not marketing material. When you browse entrepreneurs' profiles on the site, choose someone to lend to, and then make a loan, you are helping a real person make great strides towards economic independence and improve life for themselves, their family, and their community. Throughout the course of the loan (usually 6-12 months), you can receive email journal updates and track repayments. Then, when you get your loan money back, you can relend to someone else in need.”


“P2P Finance offers higher returns”

weBank quote:

“P2P Businesses promise returns on investments of often more than 5% (ranging to more than 10%)”…

However these are potentially risky investments as some services offer no insurance against defaults.. some, such as German P2P lender Smava has introduced an insurance scheme making lending less risky.

2008 saw new businesses opening in the this new market at a faster rate than in any previous year.


Experiments with P2P models

exploring new ways of approaching financing online..
catering to people's needs by allowing them to engage more directly with each other.

weBank quote:
“Some put borrowers and lenders into direct contact,

others hold auctions and aggregate investments into bands, makings the process anonymous.”

“other very different business models are being tested, such as bringing thousands of years old 'rotating savings and credit associations' (ROSCAs) online;”

“enabling currency transfers by matching supply and demand between individuals;”

“and focusing on confined communities such as MBA alumni lending to MBA students.”

“And apart from companies offering new ways to borrow and lend money, we can also see innovation in areas such as collective investment into music and film production, as well as scheme to collectively buy a football club”

Note: First example of film crowd-funded: Iraq for Sale (2006)


Political awareness

weBank quote:

“In January 2009 the European Parliament called for a legislative framework to encourage micro-lending schemes”

“Microcredit – the provision of small loans to very small businesses and other borrowers who might not approach the mainstream financial system – originally emerged in the developing world, but it also has a useful role to play in stimulating grass-roots economic activity in Europe.”

“it is too early to say whether or not current regulatory set-ups hinder the emergence of financial mechanisms which could operate at lower costs compared to banks and also offer credit to consumers otherwise marginalised.

It is also not clear whether P2P approaches represent an inherently lower risk than traditional financial institutions, or if they are just another form of the same risk, only with part of it transferred to the awareness of individuals.”



Will traditional mainstream financial institutions put their money behind P2P scheme?

Will the P2P business models scale up?

(for example law suit problems with Prosper (US) indicate that even a system that is meant to cut out the middle man still needs strong regulation and new ethical frameworks)

How much lending and borrowing that can be facilitated via the internet?

(“whilst maintaining acceptable risk, and without an ever increasing army of humans checking credit worthiness”)

While the internet makes P2P lending possible, it doesnt necessarily make it cheaper or safer.

However, new firms have the advantage of embracing new technologies more effectively than established operators, and are more likely to explore radically different business processes.

weBank quote:

“Either P2P Banking doesnt not scale and is of no interest to banks, or it is the biggest threat to business that ever existed.”

“How much potential there is for more radical business models to be developed in the future, models which go even further, combining the characterisitics of businesses such as Zopa and Prosper (lending and borrowing), with models involving collective investment.

In other words, is there scope for a highly distributed ownership of a banking system?”


'The Age of Stupid': eco-activist film crowd-funded (UK, 2008)

The Age of Stupid: final trailer, Feb 2009 HD

1. Write a Crowd-Funding Budget
2. Download our documents and adapt them for your project
3. Get lawyers to check your documents
4. Pitch to anyone you even slightly know who is even remotely rich
5. Spend the money on making your film
6. Share out the loot”

The making of 'The Age of Stupid' [52 mins]



which brought 50,000 people together

“Situated in Kent, England, Ebbsfleet United play in the Blue Square Premier, which is four divisions below the Premiership.

In February 2008, the members purchased the football club for £600,000. Just three months later, Ebbsfleet United won the FA Trophy at Wembley – the club’s greatest achievement in a history that dates back to 1890.”

“As a MyFootballClub member, you will be part of a unique website community, the first in the world to purchase a football club. You will join thousands of members living in over 80 countries, all of whom get to vote on key decisions, from team selection to financial budgets.

Before every match, MyFootballClub members have a say in team selection. They can back the coaching staff's judgement, or choose to pick the team and formation themselves.

Members also get to vote on other fundamental decisions, from setting a weekly playing budget (£10,000 this season) to deciding on season ticket prices to approving Nike as the club’s supplier and its designs.

MyFootballClub members communicate on its thriving forums, which have around 25,000 forum posts from members each month. Members can also set up special interest groups as well as talk in its chatroom.”

Ebbsfleet/MyFootballClub - 'Inside Out' BBC TV [08.55 mins]



“SellaBand has been regarded as a driving force behind the Music Revolution. It challenges the traditional music industry and encourages aspiring artists and music lovers to go into business together. SellaBand aims to level the playing field of the global music industry.

Anyone can invest in a SellaBand artist or band and once they have achieved the required amount of investment, investors receive a limited edition copy of the album. On top of that, the artists and their fans share equally in the revenues of the album. SellaBand is an exciting way of discovering new music, changing the face of the music industry and being part of the fun.

To date 29 Artists from 12 different countries have raised the full $50,000 and over $2,200,000 has been invested in unsigned artists. SellaBand has proven that new talent is still out there, waiting to be heard and that music fans from all over the world are willing to put in their hard earned cash to make it happen. We've been around for over 2 years and already we have changed lives and made dreams come true. The Music Revolution is happening. Right here, right now… (october 2008)”

weBank quote:

“Sellaband.. offers musicians a space to upload their music and distribute it for free and also engage directly with fans. Whilst, in this sense, Sellaband functions much like MySpace, it has combined this function with a distributed investment model. If an artist reaches $50,000 in investment s/he will be recorded professionally while the investors (the fans) get free CD's and a slice of advertisement income in return. However, although more than 30 artists have reached this goal, it seems unclear if the financial return works, or if the entrepreneurs behind Sellaband have instead created an ingenious record label by minimising their investment costs in an artist, whilst providing fans with an emotionally gratifying means of engaging with that artist.”


Tanda Foundation (US/MX)

“Tanda Foundation is an experimental and informal not for profit held and run by its users. We aim to found new ways and means to support creative production, create a community interested in build a public fund via micro-donations and decide our own cultural agenda. The Foundation aims to be an accountable platform of funding for its users, where the process of application, reviewing, voting, and collection of funds is accesible to all its Patrons and Candidates.
The Foundation relies on 2.0 infrastucture to exist with minimal costs and labor. Think in an automatic not-for-profit.”

“Grants are Tandas, offered in two types: Cash or Fame.
We also facilitate the "Auto-Tanda" mode.”


Scred (FI)

“ Scred is a Finnish company building tools and services to help friends, groups and communities manage their money, wherever they are.

Pools are for simple tracking and balancing amongst friends, while MiniCorps allow you to track income and expenses, as well as actually sell items and receive money.”

“Say you are spending a weekend together at a cottage. Mike pays for the petrol to wherever you are going, and Lisa pays for the food. Other small expenses pop up along the way, as they tend to do. After the trip is over and you're finally safe from the mosquitos Scred will work out all the complex shared expenses between participants back and forth and will tell you exactly what each person owes, and who is expecting money. All you need to do is to lie back and relax.

Use pools to:

* Track debts between people
* Balance your debts and shared expenses.
These will be automatically shuffled within a pool.
* Manage transactions in multiple currencies and Scred will work out the rates.
* Let Scred tell you who owes what after a long trip.
* Use Scred on your mobile phone, even without a connection!
* Pools can be used totally for free.”


More P2P Financial company/ or Micro-funding project examples

Midpoint & Transfer (CA)

Kubera Money (UK)


Links below from Pedagogical Factory's event 'How We Fund' event, Chicago





P2P Foundation: Money

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