How Does P2P Lending Help Entrepreneurs Establish Businesses in Developing Countries?

Most entrepreneurs require funding to get their business off the ground. For many, a lack of money can be a significant obstacle, with traditional lenders like banks reluctant to take a chance on an unproven entity. In developing nations, these barriers to success can be even more acute, with many entrepreneurs lacking security such as real estate or a guarantor to offer as surety.

According to a poll undertaken at the US-Africa Leaders Summit, 2 out of 3 Africans believe that their local community would be a good place to start a new business. However, just 1 in 4 Africans reports having the training or money to start a business themselves.

Whether establishing a venture or seeking to expand operations, business owners need capital to turn their idea into a profitable business. To start, they could use their personal savings, acquire a loan from the bank, ask friends or family members for help, speak to venture capitalists or angel investors, or sell shares in their business. They could also consider P2P lending, an increasingly popular way of enabling entrepreneurs to get their business off the ground or take their venture to the next level.

What Is P2P Lending?

P2P, or peer-to-peer lending, is a form of direct lending between two entities without the involvement of an official financial institution acting as an intermediary. Usually conducted via a P2P lending platform, the transaction leverages technology to bring together investors seeking attractive yield-generating investments and borrowers who are underserved by the traditional lending institutions.

The arrival of P2P lending has, according to experts, created a “tectonic shift in the financial services industry.” More and more firms are entering the space all the time, leaving global regulators scrambling to keep pace with business models and innovative offerings in this ever-expanding industry.

P2P lending has created greater financial inclusion, as well, providing individuals who have frustrated traditional lending routes with a new avenue to explore. It connects microinvestors with microentrepreneurs, creating life-changing partnerships that drive upward mobility in developing economies while generating a tidy return for the investor at the same time.

How Is P2P Lending Increasing Financial Inclusion in Developing Countries?

Founded in 2005, Kiva is a San Francisco-based P2P lending platform that helps the 1.7 billion unbanked individuals worldwide access the financial services they need. This international nonprofit coordinates crowdfunding loans, providing underserved communities with financial access and enabling entrepreneurs to turn ideas into thriving businesses—benefiting not just business owners but the wider community.

Thanks to Kiva, women can start their own business ventures, students can meet their tuition fees, farmers can invest in agricultural equipment, and families can afford life-saving medical care. For as little as $25, investors can become involved in this global movement and make a real difference in people’s lives, with 100 percent of every dollar going directly to funding Kiva loans.

Lourdes’ Inspirational Story

When Lourdes discovered she was pregnant at the age of 18, she found herself alone. Having worked as a maid since she was 14, Lourdes previously supported her mother and siblings, but she was turned away by her family and the father of her unborn child.

She explains that her life changed with the pregnancy, as she effectively lost everything. Following the birth of her son, Victor, she pieced together work to try to keep her family of two afloat.

Lourdes decided to start her own business selling empanadas and snacks, taking a loan of just over $60 to get her enterprise off the ground. She set strict rules for herself, including building savings and investing in herself, determined to show her family and the baby’s father that she was worth more and did not need a man by her side.

The business faced significant challenges. The makeshift shop was not secure, and Lourdes was robbed four times in just two months. Working long hours, she had little time for a social life. Nevertheless, Lourdes was determined to make her business a success.

Taking and repaying larger and larger loans, Lourdes eventually borrowed $975 from Kiva, using the money to buy a refrigerator and more stock, which allowed her to grow the business to the point where she could afford to move into a new shop. With a secure gate to prevent robberies, as well as an attached home, Lourdes and her son are safer and more secure.

Lourdes says that she is grateful for everything, particularly to Kiva lenders, who enabled her to achieve her dream. To other single mothers, she says that being a single parent can give you strength and make you want to fight even harder. Lourdes’ story is just one of many.

Other P2P Platforms

Alongside Kiva, several P2P lending platforms, like Peerform, Upstart, StreetShares, and Prosper, have sprung up over the last decade. These innovative fintech solutions are making a tangible difference in developing countries today. They create opportunities for promising entrepreneurs, effect lasting change in people’s lives, and drive social mobility and economic growth in underserved communities.

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