When Rose Ann Haft wanted to create an online diabetes prevention program a year ago, she didn’t need much. Still, without access to a line of credit or a bank loan, she struggled to come up with even the modest amount of cash it required.
Then she heard about Puddle, a social lending site that lets people–even those with bad or nonexistent credit—pool money and loan it to each other. It’s a system based on trust and relationships: no credit scores, no applications to fill out, no collateral.
The site, founded by alumni of Kiva and other microfinance organizations, is one of a wave of new lending sites that rely on social capital to fill a gap in the market for the nation’s roughly 64 million people without a credit record, as well as those just looking for a simple, hassle-free way to borrow small sums.
“The financial system in the U.S. may not trust these people, but they have others on the network who do.”
It’s a modern take on an age-old idea. Informal lending circles have a long history in countries from China to Africa to Mexico, where community members often pool money and take turns passing the pot to each other to help start businesses, pay for doctor’s bills or other needs.
Puddle is one of a handful of companies bringing that tradition online —others include eMoneyPool and the Mission Asset Fund in San Francisco. Earlier this year, Puddle launched a mobile friendly version that makes the service even more accessible.
“The financial system in the U.S. may not trust these people, but they have others on the network who do,” says Skylar Woodward, Puddle’s CEO. He cofounded the company with Matt Flannery, who a decade ago ago cofounded social lending pioneer Kiva. Woodward helped Flannery build the early versions of Kiva’s microfinance site. Rounding out the Puddle team is cofounder Jean Claude Rodriguez-Ferrera Massons, an Ashoka fellow who created an innovative cooperative financing model for immigrant groups in Spain.
Since they launched Puddle in 2013, about 4,000 people have participated in the network, borrowing over 6,000 times for a total of about $1 million.
More Trust, More Money
How does it work? New members sign up via Facebook and answer a few basic questions to verify identity. They also need a U.S. bank account and debit card. After contributing an initial $10 minimum, they get immediate access to up to five times the amount they contributed—so, a $10 contribution provides access to $50 in loans from the community; a $100 contribution gets you access to $500.
Members are encouraged to connect with others on the site—Puddle calls it “trusting.” By doing so, their accounts are linked and either party can borrow using funds each has contributed. There’s no arbitrary credit limit: the more people that trust you, the more you can borrow.
There’s also no interest charge. Instead, borrowers are charged a graduated fee based on the original amount withdrawn—$3 a month for up to $200, $5 a month for $201 to $600, and so on up to $74 a month for a loan of $9,400 to $9,800. They have up to six months to repay, although the monthly fee is designed to encourage faster repayment.
The site relies heavily on social media. Members can browse profiles and see repayment rates. They can also invite friends to participate, or join affinity groups. There’s a Puddle group for Ashoka fellows, for example.
Those social ties have been shown to increase repayment rates. But just in case, there is also a fee for late repayments.
Over time, Haft connected to about 100 people and was able to borrow money to pay for everything she needed to create her site, DiabetesPreventionEducation.com. That included the fee for getting certified as a diabetes prevention educator ($650) to various WordPress plug-ins (a few dollars to $300). According to Haft, it’s her prompt and reliable repayment after each instance she’s borrowed that has led to her successfully build her trust network, as well as her frequent comments. “I try to provide support and encouragement,” she says.
Anne Field is a freelance journalist that writes about entrepreneurship and social enterprise.