eBay Tests Its Online Prowess in Microfinance

WASHINGTON -- EBay Inc. says its approach to e-commerce, which has made it a power in Internet retail and online payments, can be just as successful in microlending.

The prime example of this is MicroPlace Inc., an eBay unit that operates an online microlending network. Just as eBay lets shoppers peruse an extensive catalog of goods, MicroPlace uses the Internet to connect individual lenders with entrepreneurs in 22 developing countries, from Kyrgyzstan to Kenya to Costa Rica.

Bill Barmeier, eBay's vice president of global citizenship, said that when his San Jose company acquired MicroPlace in late 2006, it was little more than a business plan in the mind of its founder, Tracey Turner, and a set of connections with microfinance institutions around the world.

Since then eBay has combined its experience in creating online markets and its massive user base with Ms. Turner's ideas and relationships to create a lending Web site that offers people the chance to make small loans to worthy causes, to be paid back with interest.

"One of eBay's core competencies, clearly, is creating and operating online marketplaces, and MicroPlace is an online marketplace for microfinance investments," Mr. Barmeier said in an interview Tuesday. Building the site "required significant knowledge of the world of payment transfers, because that's much of what MicroPlace deals with."

He stressed that the funds moving through MicroPlace are not gifts, and that eBay's preferred approach is to create a self-sustaining operation.

The basic idea, he said, is "eBay creating a means, whether it's an online platform or program or the like, that enables our employees or customers to be a force for good."

Ms. Turner, who became MicroPlace's general manager when eBay acquired her company, said that since the site went live in October, it has originated 20,000 loans, as of this month, though she would not say how much they were worth.

MicroPlace's users think of the funds as investments, not donations, she said. "Microfinance is not charity."

However, since the returns on MicroPlace loans range from 1% to 3%, their appeal is not always financial, Ms. Turner said, and being part of eBay has helped her company attract a specific type of lender. (She said it is hoping to increase the rate paid on its loans this year.)

"The kinds of people that are interested in MicroPlace are those who want to connect their social values ... with their investment wallet," Ms. Turner said, and paying them enough to reinvest when their loans are repaid is an important part of the model. "We have to build microfinance in a sustainable way."

MicroPlace has also benefitted from its relationship with eBay's PayPal Inc. online payments unit, she said. Lenders can send money to MicroPlace only through PayPal or automated clearing house transactions, and 60% of users choose PayPal, which does not charge MicroPlace any transaction fees.

Ms. Turner said that there is a strong overlap between her audience and PayPal's. "If you are online and doing something like socially responsible investing online, you're probably a PayPal customer."

This synergy has led to talks about further collaboration between the two units, she said. "The more that we can integrate with eBay and PayPal, the better."

For example, the units have discussed making it possible for lenders to access MicroPlace accounts from PayPal's site, Ms. Turner said. "We have a bunch of ideas in the works," though there are no plans for implementing any of them.

Kate McKee, a senior adviser with the Consultative Group to Assist the Poor, a microfinance research and consulting company in Washington, said that microloans are not a new concept, but making them available on the Internet could dramatically expand the number of potential lenders.

"The main thing that's important about MicroPlace is it's offering an avenue that hasn't existed for retail investors, for consumers," to begin funding loans around the world, she said.

Ms. McKee also said the eBay connection can make the idea of lending more accessible to people who may have an interest in helping others but are not familiar with the process.

"Where eBay definitely adds value is finding out how to make that an efficient process," she said. MicroPlace lenders will find the site familiar.

"It's not exactly mirroring" eBay, she said, but it is "using the techniques and the approaches and processes that people are familiar with from online auctions."

And the idea of linking MicroPlace and PayPal could make the process even more comfortable for users, Ms. McKee said, because it would make it easier for them to see how much money they have available and how much they could shift into MicroPlace.

"On the same screen" lenders can see "what you're doing for yourself, and you're seeing what you're doing for the broader world," she said.

MicroPlace's site lets people lend money to banks and nonprofits on five continents; the borrowers use the money to fund small loans to help people start or expand their businesses. MicroPlace administers the loans and deposits repaid funds into users' PayPal accounts.

Mr. Barmeier said MicroPlace is not profitable now, but if it does generate profits, eBay intends to use the money to fund various charity projects, such as the eBay Foundation fund.

Judy Chang, a PayPal principal product manager, said her unit also benefits from working with MicroPlace.

"People who lend, lend more than once on average, so we do see a lot of activity among lenders to microfinancing organizations," she said. "Once they lend, they'll lend again with PayPal."

And after lenders receive payments into the PayPal accounts, they may use the money for purchases, which generate transaction fees, Ms. Chang said. "They can buy things on eBay. They can send money to a friend. The spending patterns are pretty typical of our consumer base in general."

Though she said the no-fee arrangement with MicroPlace is unusual, PayPal also waives its fees for Kiva Microfunds, a San Francisco nonprofit that, like MicroPlace, lets consumers make small loans to entrepreneurs in other countries.

Ms. Chang said Kiva's president, Premel Shah, was able to negotiate the fee waiver because she was a former PayPal executive; PayPal is the only payment option his company accepts.

Edward Woods, a senior analyst for Celent LLC, a Boston financial research arm of Marsh & McLennan Cos., said that working with online microloan facilitators such as MicroPlace and Kiva offers clear benefits to both eBay and PayPal. "It's another outlet for PayPal transactions, which drive PayPal accounts, which could also drive the funds in those accounts," he said, and owning MicroPlace will help eBay build its corporate image. "This is a way to build affinity around the globe."

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