Dave's Take On Microlending

Brian wants to know what Dave thinks about peer-to-peer lending. He's interested in investing in individual loans as an investment strategy. Dave thinks it's stupid.

QUESTION: Brian in Fresno wants to know what Dave thinks about peer-to-peer lending. He’s interested in investing in individual loans as an investment strategy. Dave thinks it’s stupid.

ANSWER: As a small investment strategy, it’s stupid, because these are loans that are not collateralized. They’re not checked out. Would you loan your friend money without checking him out because he needed $50? Why does a guy need $50?

There’s a social justice aspect to it that you’re helping somebody and that kind of thing. I prefer charitable giving to lending. If you’re going to help somebody, let’s just help them. Why put them into debt? It’s kind of a vogue concept. It’s kind of a faddish thing. Everybody’s yacking about it—kind of like the microlending in third-world countries. Is that helping or hurting? Certainly anytime we can help people who are hurting and take some of their stress off, that’s never a bad thing from a nobility standpoint. As an investment, no, it doesn’t make any sense at all, and is it the best way to really help someone? I personally would rather give someone money than loan them money. To me it doesn’t feel like it does much except kind of make people feel good. Did they really get a lift out of it? Was their life really changed? If $50 changes your life, I’d rather give it to you. I really would.

The motivation behind this or microlending on the third-world country level or that type of thing is very noble. I appreciate that. But since I don’t believe debt is a positive thing—since I believe it’s a curse—it would be really hypocritical for me turn around and put people into debt that I say I’m trying to help. From the standpoint that I take, it would be unethical. I can’t impugn that on someone else, but if you don’t believe debt’s a good thing and you go around putting people in debt in the name of helping them, it’s inconsistent.