Why Would a Lender Want to Join a Group? — Prosper Group Analysis Part 2 | P2P Lending, Peer to Peer Lending, People to People Lending

Previously I posed several questions on prosper groups. Here is the second installment of answers. Why would a lender join a group? I think that the answer must be you are getting a higher ROI and/or that you are supporting some ethical, political, collegiate, or ??? value. Given that I can’t measure ones values that leaves maximizing ROI.

How can I measure ROI? The data is too young to measure default rates and any estimate is only a guess at this point. I propose measuring loans currently in default. No group currently default: (339/4,467 ~ 7.6%). With a group currently default (142/1,983 ~ 7.2%). That shows a slight improvement but not a statistical lock.

To be fair prosper alleges that a group’s reputation matters so I could only count loans with 4 or 5 star groups. This is a bit of a self fulfilling prophecy since groups with better ratings have less defaults by definition.

Only time will tell if groups make a difference from a lender’s perspective. How many loans must a group fund before it’s reputation is to be believed?

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