Term of the Days: Social Capital

If there was a theme to the Prosper Days conference, it was "social capital".

The opening page of the prosper website currently says "Get great rates and help fellow Americans". Prosper CEO Chris Larsen described different types of investors in his keynote address as "George Baileys" (from A Wonderful Life) and "Gordon Geckos" (from Wall Street). Bailey is the bleeding heart who wants to lend to deserving people while Gecko looks to line his pockets with the hard-earned money of those same deserving people ("Greed, for lack of a better word, is good"). Larsen, co-founder of Prosper, said Prosper tries to serve both types. When it comes down to it, it doesn't matter to Prosper what people's reasons are for investing. Nevertheless, the company has from the beginning promoted community involvement; people helping people. And some of the recent changes to Prosper have again brought "social capital" to the forefront.


Prosper CEO Chris Larsen

Portfolio plans. Lenders can create portfolio plans that target specific types of loans - conservative or aggressive, with interest rates over a certain number, for example. Once the plan is created, the plan will automatically seek out loans that meet the lender's criteria, and bid on them. The lender doesn't even have to be there.

Larsen highlighted changes in the portfolio plan options. Lenders can now choose from several "social criteria" as well: whether the borrower has endorsements from friends; whether those friends are "verified" (proven to be separate people from the borrower), whether any of those endorsers have bid on the loan. Statistically, borrowers who obtain endorsements from verified Prosper members who then actually bid on the borrower's loan do stand a better chance of being funded - and those borrowers are more likely to honor their commitment to repay the loan than those in similar circumstances who do not have endorsements by bidders.


Group leader Marilyn Paguirigan

And then there was Marilyn. Marilyn Paguirigan spoke at at least four Prosper sessions. She is the leader of Malana Ohana, a Prosper borrower-and-lender group, based in Hawaii, that has unique characteristics. Primarily of interest is that its leader knows all of the members personally. It is essentially family-and-friends who support each other. Marilyn's group exemplifies the community aspect of Prosper and she spoke highly and often of the benefits of social capital. Her group has a high rating (four out of five stars), indicating its borrowers rarely default. The success of the group indicates that community support and associated social pressure has value.

The "people helping people" aspect of Prosper is attractive to a great many people. Many of us feel good when we can actually see (and sometimes even know) who is getting the money we lend, and we feel even better that we are keeping the loans out of the hands of the greedy lender industry. Prosper funds, however, are housed in Wells Fargo Bank, which tells us that the industry is still getting its cut.