IdeaWazaWiki - User contributions [en]

Person-to-person guaranteeing

2009-08-17T18:21:32Z

67.59.53.123: /* Examples of Local, Social, and Financial Impacts */

'''Person-to-Person Guaranteeing''' (P2P Guaranteeing) is the process by which people are able to facilitate the lending process by providing the [[guarantee]] or [[Collateral_(finance)|collateral]] for a [[loan]] to be taken out. In the case of a [[borrower]] in such a position that there is insufficient funds for even the loan collateral, banks will not lend because of the inherent riskiness associated with such a loan. Therefore, it would be necessary for the borrower to obtain the funds from outside sources. By engaging in P2P Guaranteeing a third party steps in and provides the necessary [[risk_capital|risk capital]] by guaranteeing the loan, thereby reducing the bank's risk and enabling them to make a loan that they would not have otherwise made.

==Advantages==
*'''Maximizing Impact''': Through the use of local credit channels, one U.S. dollar can leverage up to 50 dollars in loans,<ref name="benefits">[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/overview.html USAID], USAID's partial credit guarantees.</ref> the P2P Guaranteeing model has a doubling effect of sorts. The amount of [[Capital_(economics)|capital]] required of person A in order for person B to obtain a loan is less than the full loan amount, as person A is only supplying the collateral to free up the loan rather than the loan itself. Therefore, a $100 loan might require $20 in guarantee capital (20% of the loan amount).

*'''Lower Foreign Exchange Rate Risk''': With P2P guaranteeing transactions are done solely in the local currency, between the local bank and the borrower. Money does not exchange hands when one agrees to become a guarantor since a guarantee is only an agreement to take on debt should the borrower [[Default_(finance)|default]]. The only time money crosses borders with P2P guaranteeing is in the event of a default. Therefore, the risk of loss associated with fluctuations in the [[Foreign exchange rate]] is greatly diminished.

*'''Lower Interest Rates''': Guaranteeing a loan increases confidence that the loan will be repaid and it reduces the risk faced by the bank. As a result of reduced risk the cost to borrowing becomes less, which translates to a lower [[interest rate]] charged by the bank to the borrower.

*'''Promotion of Private-Sector Investment''': Guarantees will encourage financial institutions to lend untapped capital since part of the risk is being covered.<ref name="benefits" />

*'''Encouragement of Lending''': The risk is shared with the [[private-sector]], effectively reducing the overall level of risk and encouraging lending.<ref name="benefits" />

*'''Increase of Banks' Lending Capacity''': Guarantees help [[bank|banks]] make loans they would not have made otherwise, thereby allowing them to explore previously untapped markets and increasing their overall lending capacity.<ref name="benefits" />

*'''"The Demonstration Effect"''': By demonstrating the benefits of loan guarantees -- specifically [[sustainability]] and [[Profit_(accounting)|profitability]] -- local financial institutions will likely follow suit and expand their market reach.<ref name="benefits" />

==Examples of P2P Guarantees==

*A [[Memorandum of Understanding]] (MOU) was signed by [[USAID]] and [[Standard Chartered Bank]] aimed to support African economic growth. The october 2008 partnership hopes to enable things like increased trade throughout [[sub-Saharan Africa]] and to promote financial sector development among others.<ref name="usaid">[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/index.html USAID], Development Credit Authority (DCA).</ref>

*In 2008 USAID approved guarantees in [[Kyrgyzstan|Kyrgyzstan's]] education sector, enabling students to obtain [[loans]] for the purpose of pursuing [[higher education]]. Also, financing will be made available to [[Ghana|Ghana's]] private primary and junior secondary schools. <ref name="usaid" />

*In a July 2008 co-guarantee approval by USAID, a 10 year $48 million guarantee facility was set up to assist with the financial needs of "small and medium-sized enterprises" who are deemed "too small for corporate loans but have financing needs larger than what [[microfinance]] institutions can provide". <ref name="usaid" />

==Pioneer==
[[United_prosperity|United Prosperity]], a California-based non profit is considered to be the world's first person-to-person loan guaranteeing website<ref>[http://www.alliancemagazine.org/node/2288 Alliance Magazine], World's first P2P loan guarantee website enters the field.</ref> in which individuals can provide a [[loan guarantee]] which secures a much larger loan for a selected [[entrepreneur]] living in [[extreme poverty]].

==References==
<references/>

==External Links==
*[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/index.html USAID] - Development Credit Authority (DCA)
*[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/overview.html USAID] - USAID's Partial Credit Guarantees

[[Category:Financial services]]
[[Category:Social networks]]
[[Category:Credit]]
[[Category:Peer-to-peer charities]]
[[Category:Peer-to-peer lending companies]]

Person-to-person guaranteeing

2009-08-17T18:16:21Z

67.59.53.123: /* Advantages */

'''Person-to-Person Guaranteeing''' (P2P Guaranteeing) is the process by which people are able to facilitate the lending process by providing the [[guarantee]] or [[Collateral_(finance)|collateral]] for a [[loan]] to be taken out. In the case of a [[borrower]] in such a position that there is insufficient funds for even the loan collateral, banks will not lend because of the inherent riskiness associated with such a loan. Therefore, it would be necessary for the borrower to obtain the funds from outside sources. By engaging in P2P Guaranteeing a third party steps in and provides the necessary [[risk_capital|risk capital]] by guaranteeing the loan, thereby reducing the bank's risk and enabling them to make a loan that they would not have otherwise made.

==Advantages==
*'''Maximizing Impact''': Through the use of local credit channels, one U.S. dollar can leverage up to 50 dollars in loans,<ref name="benefits">[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/overview.html USAID], USAID's partial credit guarantees.</ref> the P2P Guaranteeing model has a doubling effect of sorts. The amount of [[Capital_(economics)|capital]] required of person A in order for person B to obtain a loan is less than the full loan amount, as person A is only supplying the collateral to free up the loan rather than the loan itself. Therefore, a $100 loan might require $20 in guarantee capital (20% of the loan amount).

*'''Lower Foreign Exchange Rate Risk''': With P2P guaranteeing transactions are done solely in the local currency, between the local bank and the borrower. Money does not exchange hands when one agrees to become a guarantor since a guarantee is only an agreement to take on debt should the borrower [[Default_(finance)|default]]. The only time money crosses borders with P2P guaranteeing is in the event of a default. Therefore, the risk of loss associated with fluctuations in the [[Foreign exchange rate]] is greatly diminished.

*'''Lower Interest Rates''': Guaranteeing a loan increases confidence that the loan will be repaid and it reduces the risk faced by the bank. As a result of reduced risk the cost to borrowing becomes less, which translates to a lower [[interest rate]] charged by the bank to the borrower.

*'''Promotion of Private-Sector Investment''': Guarantees will encourage financial institutions to lend untapped capital since part of the risk is being covered.<ref name="benefits" />

*'''Encouragement of Lending''': The risk is shared with the [[private-sector]], effectively reducing the overall level of risk and encouraging lending.<ref name="benefits" />

*'''Increase of Banks' Lending Capacity''': Guarantees help [[bank|banks]] make loans they would not have made otherwise, thereby allowing them to explore previously untapped markets and increasing their overall lending capacity.<ref name="benefits" />

*'''"The Demonstration Effect"''': By demonstrating the benefits of loan guarantees -- specifically [[sustainability]] and [[Profit_(accounting)|profitability]] -- local financial institutions will likely follow suit and expand their market reach.<ref name="benefits" />

==Examples of Local, Social, and Financial Impacts==

*A [[Memorandum of Understanding]] (MOU) was signed by [[USAID]] and [[Standard Chartered Bank]] aimed to support African economic growth. The october 2008 partnership hopes to enable things like increased trade throughout [[sub-Saharan Africa]] and to promote financial sector development among others.<ref name="usaid">[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/index.html USAID], Development Credit Authority (DCA).</ref>

*In 2008 USAID approved guarantees in [[Kyrgyzstan|Kyrgyzstan's]] education sector, enabling students to obtain [[loans]] for the purpose of pursuing [[higher education]]. Also, financing will be made available to [[Ghana|Ghana's]] private primary and junior secondary schools. <ref name="usaid" />

*In a July 2008 co-guarantee approval by USAID, a 10 year $48 million guarantee facility was set up to assist with the financial needs of "small and medium-sized enterprises" who are deemed "too small for corporate loans but have financing needs larger than what [[microfinance]] institutions can provide". <ref name="usaid" />

==Pioneer==
[[United_prosperity|United Prosperity]], a California-based non profit is considered to be the world's first person-to-person loan guaranteeing website<ref>[http://www.alliancemagazine.org/node/2288 Alliance Magazine], World's first P2P loan guarantee website enters the field.</ref> in which individuals can provide a [[loan guarantee]] which secures a much larger loan for a selected [[entrepreneur]] living in [[extreme poverty]].

==References==
<references/>

==External Links==
*[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/index.html USAID] - Development Credit Authority (DCA)
*[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/overview.html USAID] - USAID's Partial Credit Guarantees

[[Category:Financial services]]
[[Category:Social networks]]
[[Category:Credit]]
[[Category:Peer-to-peer charities]]
[[Category:Peer-to-peer lending companies]]

Person-to-person guaranteeing

2009-08-17T18:15:36Z

67.59.53.123: /* Advantages */

'''Person-to-Person Guaranteeing''' (P2P Guaranteeing) is the process by which people are able to facilitate the lending process by providing the [[guarantee]] or [[Collateral_(finance)|collateral]] for a [[loan]] to be taken out. In the case of a [[borrower]] in such a position that there is insufficient funds for even the loan collateral, banks will not lend because of the inherent riskiness associated with such a loan. Therefore, it would be necessary for the borrower to obtain the funds from outside sources. By engaging in P2P Guaranteeing a third party steps in and provides the necessary [[risk_capital|risk capital]] by guaranteeing the loan, thereby reducing the bank's risk and enabling them to make a loan that they would not have otherwise made.

==Advantages==
*'''Maximizing Impact''': Through the use of local credit channels, one U.S. dollar can leverage up to 50 dollars in loans,<ref name="benefits">[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/overview.html USAID], USAID's partial credit guarantees.</ref> the P2P Guaranteeing model has a doubling effect of sorts. The amount of [[Capital_(economics)|capital]] required of person A in order for person B to obtain a loan is less than the full loan amount, as person A is only supplying the collateral to free up the loan rather than the loan itself. Therefore, a $100 loan might require $20 in guarantee capital (20% of the loan amount).

*'''Lower Foreign Exchange Rate Risk''': With P2P guaranteeing transactions are done solely in the local currency, between the local bank and the borrower. Money does not exchange hands when one agrees to become a guarantor since a guarantee is only an agreement to take on debt should the borrower [[Default_(finance)|default]]. The only time money crosses borders with P2P guaranteeing is in the event of a default. Therefore, the risk of loss associated with fluctuations in the [[Foreign exchange rate]] is greatly diminished.

'''Lower Interest Rates''' 
Guaranteeing a loan increases confidence that the loan will be repaid and it reduces the risk faced by the bank. As a result of reduced risk the cost to borrowing becomes less, which translates to a lower [[interest rate]] charged by the bank to the borrower.

'''Promotion of Private-Sector Investment''' 
Guarantees will encourage financial institutions to lend untapped capital since part of the risk is being covered.<ref name="benefits" />

'''Encouragement of Lending''' 
The risk is shared with the [[private-sector]], effectively reducing the overall level of risk and encouraging lending.<ref name="benefits" />

'''Increase of Banks' Lending Capacity''' 
Guarantees help [[bank|banks]] make loans they would not have made otherwise, thereby allowing them to explore previously untapped markets and increasing their overall lending capacity.<ref name="benefits" />

'''"The Demonstration Effect"''' 
By demonstrating the benefits of loan guarantees -- specifically [[sustainability]] and [[Profit_(accounting)|profitability]] -- local financial institutions will likely follow suit and expand their market reach.<ref name="benefits" />

==Examples of Local, Social, and Financial Impacts==

*A [[Memorandum of Understanding]] (MOU) was signed by [[USAID]] and [[Standard Chartered Bank]] aimed to support African economic growth. The october 2008 partnership hopes to enable things like increased trade throughout [[sub-Saharan Africa]] and to promote financial sector development among others.<ref name="usaid">[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/index.html USAID], Development Credit Authority (DCA).</ref>

*In 2008 USAID approved guarantees in [[Kyrgyzstan|Kyrgyzstan's]] education sector, enabling students to obtain [[loans]] for the purpose of pursuing [[higher education]]. Also, financing will be made available to [[Ghana|Ghana's]] private primary and junior secondary schools. <ref name="usaid" />

*In a July 2008 co-guarantee approval by USAID, a 10 year $48 million guarantee facility was set up to assist with the financial needs of "small and medium-sized enterprises" who are deemed "too small for corporate loans but have financing needs larger than what [[microfinance]] institutions can provide". <ref name="usaid" />

==Pioneer==
[[United_prosperity|United Prosperity]], a California-based non profit is considered to be the world's first person-to-person loan guaranteeing website<ref>[http://www.alliancemagazine.org/node/2288 Alliance Magazine], World's first P2P loan guarantee website enters the field.</ref> in which individuals can provide a [[loan guarantee]] which secures a much larger loan for a selected [[entrepreneur]] living in [[extreme poverty]].

==References==
<references/>

==External Links==
*[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/index.html USAID] - Development Credit Authority (DCA)
*[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/overview.html USAID] - USAID's Partial Credit Guarantees

[[Category:Financial services]]
[[Category:Social networks]]
[[Category:Credit]]
[[Category:Peer-to-peer charities]]
[[Category:Peer-to-peer lending companies]]

Person-to-person guaranteeing

2009-08-17T18:15:14Z

67.59.53.123: /* Advantages */

'''Person-to-Person Guaranteeing''' (P2P Guaranteeing) is the process by which people are able to facilitate the lending process by providing the [[guarantee]] or [[Collateral_(finance)|collateral]] for a [[loan]] to be taken out. In the case of a [[borrower]] in such a position that there is insufficient funds for even the loan collateral, banks will not lend because of the inherent riskiness associated with such a loan. Therefore, it would be necessary for the borrower to obtain the funds from outside sources. By engaging in P2P Guaranteeing a third party steps in and provides the necessary [[risk_capital|risk capital]] by guaranteeing the loan, thereby reducing the bank's risk and enabling them to make a loan that they would not have otherwise made.

==Advantages==
*'''Maximizing Impact''':
Through the use of local credit channels, one U.S. dollar can leverage up to 50 dollars in loans,<ref name="benefits">[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/overview.html USAID], USAID's partial credit guarantees.</ref> the P2P Guaranteeing model has a doubling effect of sorts. The amount of [[Capital_(economics)|capital]] required of person A in order for person B to obtain a loan is less than the full loan amount, as person A is only supplying the collateral to free up the loan rather than the loan itself. Therefore, a $100 loan might require $20 in guarantee capital (20% of the loan amount).

*'''Lower Foreign Exchange Rate Risk''':
With P2P guaranteeing transactions are done solely in the local currency, between the local bank and the borrower. Money does not exchange hands when one agrees to become a guarantor since a guarantee is only an agreement to take on debt should the borrower [[Default_(finance)|default]]. The only time money crosses borders with P2P guaranteeing is in the event of a default. Therefore, the risk of loss associated with fluctuations in the [[Foreign exchange rate]] is greatly diminished.

'''Lower Interest Rates''' 
Guaranteeing a loan increases confidence that the loan will be repaid and it reduces the risk faced by the bank. As a result of reduced risk the cost to borrowing becomes less, which translates to a lower [[interest rate]] charged by the bank to the borrower.

'''Promotion of Private-Sector Investment''' 
Guarantees will encourage financial institutions to lend untapped capital since part of the risk is being covered.<ref name="benefits" />

'''Encouragement of Lending''' 
The risk is shared with the [[private-sector]], effectively reducing the overall level of risk and encouraging lending.<ref name="benefits" />

'''Increase of Banks' Lending Capacity''' 
Guarantees help [[bank|banks]] make loans they would not have made otherwise, thereby allowing them to explore previously untapped markets and increasing their overall lending capacity.<ref name="benefits" />

'''"The Demonstration Effect"''' 
By demonstrating the benefits of loan guarantees -- specifically [[sustainability]] and [[Profit_(accounting)|profitability]] -- local financial institutions will likely follow suit and expand their market reach.<ref name="benefits" />

==Examples of Local, Social, and Financial Impacts==

*A [[Memorandum of Understanding]] (MOU) was signed by [[USAID]] and [[Standard Chartered Bank]] aimed to support African economic growth. The october 2008 partnership hopes to enable things like increased trade throughout [[sub-Saharan Africa]] and to promote financial sector development among others.<ref name="usaid">[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/index.html USAID], Development Credit Authority (DCA).</ref>

*In 2008 USAID approved guarantees in [[Kyrgyzstan|Kyrgyzstan's]] education sector, enabling students to obtain [[loans]] for the purpose of pursuing [[higher education]]. Also, financing will be made available to [[Ghana|Ghana's]] private primary and junior secondary schools. <ref name="usaid" />

*In a July 2008 co-guarantee approval by USAID, a 10 year $48 million guarantee facility was set up to assist with the financial needs of "small and medium-sized enterprises" who are deemed "too small for corporate loans but have financing needs larger than what [[microfinance]] institutions can provide". <ref name="usaid" />

==Pioneer==
[[United_prosperity|United Prosperity]], a California-based non profit is considered to be the world's first person-to-person loan guaranteeing website<ref>[http://www.alliancemagazine.org/node/2288 Alliance Magazine], World's first P2P loan guarantee website enters the field.</ref> in which individuals can provide a [[loan guarantee]] which secures a much larger loan for a selected [[entrepreneur]] living in [[extreme poverty]].

==References==
<references/>

==External Links==
*[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/index.html USAID] - Development Credit Authority (DCA)
*[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/overview.html USAID] - USAID's Partial Credit Guarantees

[[Category:Financial services]]
[[Category:Social networks]]
[[Category:Credit]]
[[Category:Peer-to-peer charities]]
[[Category:Peer-to-peer lending companies]]

Person-to-person guaranteeing

2009-08-17T18:14:33Z

67.59.53.123: /* Advantages */

'''Person-to-Person Guaranteeing''' (P2P Guaranteeing) is the process by which people are able to facilitate the lending process by providing the [[guarantee]] or [[Collateral_(finance)|collateral]] for a [[loan]] to be taken out. In the case of a [[borrower]] in such a position that there is insufficient funds for even the loan collateral, banks will not lend because of the inherent riskiness associated with such a loan. Therefore, it would be necessary for the borrower to obtain the funds from outside sources. By engaging in P2P Guaranteeing a third party steps in and provides the necessary [[risk_capital|risk capital]] by guaranteeing the loan, thereby reducing the bank's risk and enabling them to make a loan that they would not have otherwise made.

==Advantages==
'''Maximizing Impact''' 
Through the use of local credit channels, one U.S. dollar can leverage up to 50 dollars in loans,<ref name="benefits">[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/overview.html USAID], USAID's partial credit guarantees.</ref> the P2P Guaranteeing model has a doubling effect of sorts. The amount of [[Capital_(economics)|capital]] required of person A in order for person B to obtain a loan is less than the full loan amount, as person A is only supplying the collateral to free up the loan rather than the loan itself. Therefore, a $100 loan might require $20 in guarantee capital (20% of the loan amount).

'''Lower Foreign Exchange Rate Risk''' 
With P2P guaranteeing transactions are done solely in the local currency, between the local bank and the borrower. Money does not exchange hands when one agrees to become a guarantor since a guarantee is only an agreement to take on debt should the borrower [[Default_(finance)|default]]. The only time money crosses borders with P2P guaranteeing is in the event of a default. Therefore, the risk of loss associated with fluctuations in the [[Foreign exchange rate]] is greatly diminished.

'''Lower Interest Rates''' 
Guaranteeing a loan increases confidence that the loan will be repaid and it reduces the risk faced by the bank. As a result of reduced risk the cost to borrowing becomes less, which translates to a lower [[interest rate]] charged by the bank to the borrower.

'''Promotion of Private-Sector Investment''' 
Guarantees will encourage financial institutions to lend untapped capital since part of the risk is being covered.<ref name="benefits" />

'''Encouragement of Lending''' 
The risk is shared with the [[private-sector]], effectively reducing the overall level of risk and encouraging lending.<ref name="benefits" />

'''Increase of Banks' Lending Capacity''' 
Guarantees help [[bank|banks]] make loans they would not have made otherwise, thereby allowing them to explore previously untapped markets and increasing their overall lending capacity.<ref name="benefits" />

'''"The Demonstration Effect"''' 
By demonstrating the benefits of loan guarantees -- specifically [[sustainability]] and [[Profit_(accounting)|profitability]] -- local financial institutions will likely follow suit and expand their market reach.<ref name="benefits" />

==Examples of Local, Social, and Financial Impacts==

*A [[Memorandum of Understanding]] (MOU) was signed by [[USAID]] and [[Standard Chartered Bank]] aimed to support African economic growth. The october 2008 partnership hopes to enable things like increased trade throughout [[sub-Saharan Africa]] and to promote financial sector development among others.<ref name="usaid">[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/index.html USAID], Development Credit Authority (DCA).</ref>

*In 2008 USAID approved guarantees in [[Kyrgyzstan|Kyrgyzstan's]] education sector, enabling students to obtain [[loans]] for the purpose of pursuing [[higher education]]. Also, financing will be made available to [[Ghana|Ghana's]] private primary and junior secondary schools. <ref name="usaid" />

*In a July 2008 co-guarantee approval by USAID, a 10 year $48 million guarantee facility was set up to assist with the financial needs of "small and medium-sized enterprises" who are deemed "too small for corporate loans but have financing needs larger than what [[microfinance]] institutions can provide". <ref name="usaid" />

==Pioneer==
[[United_prosperity|United Prosperity]], a California-based non profit is considered to be the world's first person-to-person loan guaranteeing website<ref>[http://www.alliancemagazine.org/node/2288 Alliance Magazine], World's first P2P loan guarantee website enters the field.</ref> in which individuals can provide a [[loan guarantee]] which secures a much larger loan for a selected [[entrepreneur]] living in [[extreme poverty]].

==References==
<references/>

==External Links==
*[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/index.html USAID] - Development Credit Authority (DCA)
*[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/overview.html USAID] - USAID's Partial Credit Guarantees

[[Category:Financial services]]
[[Category:Social networks]]
[[Category:Credit]]
[[Category:Peer-to-peer charities]]
[[Category:Peer-to-peer lending companies]]

Person-to-person guaranteeing

2009-08-17T18:14:06Z

67.59.53.123: /* Advantages */

'''Person-to-Person Guaranteeing''' (P2P Guaranteeing) is the process by which people are able to facilitate the lending process by providing the [[guarantee]] or [[Collateral_(finance)|collateral]] for a [[loan]] to be taken out. In the case of a [[borrower]] in such a position that there is insufficient funds for even the loan collateral, banks will not lend because of the inherent riskiness associated with such a loan. Therefore, it would be necessary for the borrower to obtain the funds from outside sources. By engaging in P2P Guaranteeing a third party steps in and provides the necessary [[risk_capital|risk capital]] by guaranteeing the loan, thereby reducing the bank's risk and enabling them to make a loan that they would not have otherwise made.

==Advantages==
'''Maximizing Impact'''
Through the use of local credit channels, one U.S. dollar can leverage up to 50 dollars in loans,<ref name="benefits">[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/overview.html USAID], USAID's partial credit guarantees.</ref> the P2P Guaranteeing model has a doubling effect of sorts. The amount of [[Capital_(economics)|capital]] required of person A in order for person B to obtain a loan is less than the full loan amount, as person A is only supplying the collateral to free up the loan rather than the loan itself. Therefore, a $100 loan might require $20 in guarantee capital (20% of the loan amount).

'''Lower Foreign Exchange Rate Risk'''
With P2P guaranteeing transactions are done solely in the local currency, between the local bank and the borrower. Money does not exchange hands when one agrees to become a guarantor since a guarantee is only an agreement to take on debt should the borrower [[Default_(finance)|default]]. The only time money crosses borders with P2P guaranteeing is in the event of a default. Therefore, the risk of loss associated with fluctuations in the [[Foreign exchange rate]] is greatly diminished.

'''Lower Interest Rates'''
Guaranteeing a loan increases confidence that the loan will be repaid and it reduces the risk faced by the bank. As a result of reduced risk the cost to borrowing becomes less, which translates to a lower [[interest rate]] charged by the bank to the borrower.

'''Promotion of Private-Sector Investment'''
Guarantees will encourage financial institutions to lend untapped capital since part of the risk is being covered.<ref name="benefits" />

'''Encouragement of Lending'''
The risk is shared with the [[private-sector]], effectively reducing the overall level of risk and encouraging lending.<ref name="benefits" />

'''Increase of Banks' Lending Capacity'''
Guarantees help [[bank|banks]] make loans they would not have made otherwise, thereby allowing them to explore previously untapped markets and increasing their overall lending capacity.<ref name="benefits" />

'''"The Demonstration Effect"'''
By demonstrating the benefits of loan guarantees -- specifically [[sustainability]] and [[Profit_(accounting)|profitability]] -- local financial institutions will likely follow suit and expand their market reach.<ref name="benefits" />

==Examples of Local, Social, and Financial Impacts==

*A [[Memorandum of Understanding]] (MOU) was signed by [[USAID]] and [[Standard Chartered Bank]] aimed to support African economic growth. The october 2008 partnership hopes to enable things like increased trade throughout [[sub-Saharan Africa]] and to promote financial sector development among others.<ref name="usaid">[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/index.html USAID], Development Credit Authority (DCA).</ref>

*In 2008 USAID approved guarantees in [[Kyrgyzstan|Kyrgyzstan's]] education sector, enabling students to obtain [[loans]] for the purpose of pursuing [[higher education]]. Also, financing will be made available to [[Ghana|Ghana's]] private primary and junior secondary schools. <ref name="usaid" />

*In a July 2008 co-guarantee approval by USAID, a 10 year $48 million guarantee facility was set up to assist with the financial needs of "small and medium-sized enterprises" who are deemed "too small for corporate loans but have financing needs larger than what [[microfinance]] institutions can provide". <ref name="usaid" />

==Pioneer==
[[United_prosperity|United Prosperity]], a California-based non profit is considered to be the world's first person-to-person loan guaranteeing website<ref>[http://www.alliancemagazine.org/node/2288 Alliance Magazine], World's first P2P loan guarantee website enters the field.</ref> in which individuals can provide a [[loan guarantee]] which secures a much larger loan for a selected [[entrepreneur]] living in [[extreme poverty]].

==References==
<references/>

==External Links==
*[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/index.html USAID] - Development Credit Authority (DCA)
*[http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/overview.html USAID] - USAID's Partial Credit Guarantees

[[Category:Financial services]]
[[Category:Social networks]]
[[Category:Credit]]
[[Category:Peer-to-peer charities]]
[[Category:Peer-to-peer lending companies]]