Borrowing from a bank has traditionally been a slow, bureaucratic process, often off-limits to people outside the wage-and-salary mainstream, whether they’re starting a business or getting back on their feet. Over the centuries, groups of people have organized various styles of societal credit arrangements to address these shortcomings. Today’s credit union, a co-operative, community-based banking model, still thrives.

In the past 30 years, the rise of microcredit has been providing small loans to people around the world that have no access to traditional banks or could not meet banking industry requirements. More recently, the combination of microfinance and online social networking has resulted in a new phenomenon: peer-to-peer lending, or social lending.

Today, more than a dozen websites connect borrowers and lenders without using banks as middlemen. The economic advantage of such peer-to-peer lending extends to attractive interest rates for borrowers; often half that of Visa or MasterCard. LendingClub.com has surpassed $1 billion in such loans.

“Interest rates turn a charitable relationship into a business relationship,” notes Matt Flannery, who founded the online micro-lender Kiva.org in 2005. “That empowers the poor by making them business partners.” Kiva lenders don’t earn interest on their loans, but the underlying micro-lenders that administer the loans in their countries do.

Sources: Ode magazine, MainStreet.com