What is P2P Lending, Crowdfunding & Shadow Lending?

1.       What is Peer to peer (P2P) lending?

·         P2P lending is the practice of lending money to individuals or businesses through online services that match lenders directly with borrowers.

·         P2P lending companies offering these services operate entirely online, they can run with lower overhead and provide the service more cheaply than traditional financial institutions.

·         As a result, lenders often earn higher returns compared to savings and investment products offered by banks, while borrowers can borrow money at lower interest rates (even after the P2P lending company has taken a fee for providing the match-making platform and credit checking the borrower).

2.       What is Crowdfunding?

·         Crowdfunding is a way of raising finance by asking a large number of people each for a small amount of money.

·         It is the practice of funding a project or venture.

·         There are 3 types of crowdfunding: 

1)      Debt crowdfunding: Investors receive their money back with interest

2)      Equity crowdfunding: People invest in an opportunity in exchange for equity. Money is exchanged for a shares, or a small stake in the business, project or venture.

3)      Donation crowdfunding: People invest simply because they believe in the cause & expect nothing back. Returns can be offered such as acknowledgements. Returns are considered intangible.

3.       What is Shadow Lending?

·         Shadow lending is private lending done outside the walls of a traditional bank. Example, if your parents loaned you $50,000 for a down payment, they are shadow lenders.

·         Turning into shadow lenders has become an alternative to applicants who found it becomes more difficult to secure traditional mortgage financing from traditional bank due various reasons such as government intervention, banks continue to narrow their qualifications & etc.

·         In other words, while the banks continue to narrow their qualifications, alternative lenders (private mortgage lenders) are filling the void and creating products priced based on risk. Sure, these products might come at a higher rate than a traditional mortgage. 

·         In many cases, the loans are financed by wealthy investors and high-net-worth individuals seeking higher returns than those provided by the stock markets.

·         The lenders are unregulated. For borrowers who are unable to secure financing from the big banks, they will turn to private lenders such as mortgage investment corporations for help. There’s a transfer of risk from the regulated part to the unregulated part.

What is Helicopter Money?

What is helicopter money?

·         The government spends, but when it spends more than it taxes, it must borrow. This is fiscal policy.

·         The central bank controls the money supply and can create new money, and uses those powers to push interest rates up or down. This is monetary policy.

·         Helicopter money just marries these two powers - The government spend using new money created by central bank (instead of using taxing & borrowing).

Pro & Con

·         Pro - It would allow the government to spend more, and thus juice job creation and wage growth, without increasing the deficit.

·         Con - Inflation could increase more than expected

When to use?

·         In the very low interest rate environment when interest rate cannot go down further (such as Japan which are currently at negative interest rate), helicopter money may be an alternative from that perspective.

The Japanese used to do it in Malaysia during World War II.. Back then, it was called Banana Money.

Someone who you think will harm you, may be the one who save you..

A bus full of passengers was traveling when suddenly the weather changed & there was a huge storm n downpour & lightning all around.

They could see that d lightning would appear to come towards the bus & then go elsewhere.

After 2 or 3 horrible instances of being saved from lightning strikes, the driver stopped the bus about 50 ft away from a tree & said -

"We have somebody in the bus whose death is a certainty today."

Because of that person everybody else will also get killed today.

Now listen carefully what I am saying ..

I want each person to come out of bus 1 by 1 & touch the tall tree trunk & come back.

Whomsoever death is certain will get caught up by d lightning & will die & everybody else will be saved".

They had to force the 1st person to go & touch the tree & come back.

He reluctantly got down from the bus & went & touched the tree.

His heart leaped with joy when nothing happened & he was still alive & went back to the bus.

This continued for rest of the passengers who were all relieved when they touched the tree & nothing happened.

When the last passenger's turn came, everybody looked at him with accusing eyes.

That passenger was very afraid & reluctant since he was the only 1 left.

Everybody forced him to get down & go & touch the tree.

With a 100% fear of death in mind, the last passenger walked to the tree & touched it.

There was a huge sound of thunder &!the lightning came down & hit the bus - yes the lightning hit the bus, & killed each & every passenger inside the bus.

It was because of the presence of this last passenger that, earlier, the entire bus was safe & the lightning could not strike the bus.

LIFE LEARNING from this..

At times, we try to take credit for our present achievements, but this could also be because of a person right next to us.

Look around you. Probably someone is there around you, in the form of Your Parents, Your Spouse, Your Children, Your Siblings, Your friends, etc, who are saving you from harm..!

Think About it.

You will surely find that Person..!!