Person-to-person online lending starts to pick up

Online person-to-person money-lending, a growing business in the United States, is showing signs of catching on in Japan despite its potential risks.

An emerging Tokyo venture called maneo Inc. has become a pioneer in the field, bringing together prospective lenders and borrowers over the Internet.

A 32-year-old dairy farmer in the Kanto region who needed money to buy cattle in an auction has already benefited from the company's service, raising ¥2 million in four days from about 40 people via maneo's Web site.

"It wouldn't have been possible to get the money this quickly from banks or agricultural cooperatives," he said.

Online person-to-person lending, also known as social lending, charges interest at lower rates than those set by consumer loan companies, while individual lenders can expect to pocket returns that are relatively high compared with yields on conventional financial instruments.

Through maneo's Web site, borrowers are asked to give details, including the amount sought, the desired interest rate and the purpose for which the funds will be spent.

Potential lenders registered with maneo can ask them questions over the Internet and may then submit their loan offers in an auctionlike process.

Since launching the business last fall, maneo has helped put together more than ¥100 million in loans. The number of registered lenders has topped 10,000.

People borrowing money via maneo often use the newly acquired funds to pay for their wedding or to invest more in their businesses, among other purposes.

When a borrower manages to attract a large number of prospective lenders, the lenders compete to offer lower rates. The going rates are usually between 5 percent and 10 percent. Maneo charges a commission from borrowers and lenders when the deal is struck.

Tadatoshi Senoo, the 35-year-old president of the company, said he went into the business because he "wanted to create a system that can supply money to people in real need."

Lenders, however, must be aware of the risk of loan losses. While borrowers are required to have fixed jobs that earn them at least ¥3 million a year and meet some other conditions, the company says there were some cases as of the end of July in which the loan became irrecoverable.

The U.S. market for person-to-person lending is estimated to be worth about ¥50 billion and several Japanese companies are gearing up to enter the business.

Hideo Yamazaki, a senior researcher at Nomura Research Institute, said lenders should be provided with more information about would-be borrowers and borrowers' creditworthiness needs to be rated if the new breed of lending service is to work.