There's a rising name in the lending world, and that name is Prosper.

If you've been reading personal finance blogs for long, then you're almost sure to have heard of Prosper. It's the site that allows borrowers and lenders to get together on a peer-to-peer (P2P) level. Prosper sets the rules, supply and demand set the rates — and the well-dressed bankers get left out of the process almost entirely.

Prosper is a bit like eBay ... but with promissory notes and collection agencies.

Key to the successful functioning of the Prosper concept are Group Leaders — those men and women who've taken it upon themselves to start up and direct their own groups of borrowers and lenders. In the Prosper universe, the Group Leader's duties may be myriad: They offer advice and experience to group members. They may engage in "vetting," where they examine and evaluate potential borrowers (over and above that which is done by Prosper itself) and then make recommendations to other lenders-at-large. When lenders have questions for a particular borrower, the Group Leader may act as a go-between for the two parties. And when loan payments fall late, the Group Leader is the likely "target" for nervous and info-hungry lenders.

Who would sign up for something like this?

Well . . . Jeff would.

And on a large scale, no less.

Making Prosper Work: "Jeff," Group Leader, Fanafi Financial

It takes a guy like "Jeff" to run a Prosper group like Fanafi Financial. With a recent headcount of around 450 members, Fanafi ("Find a Need and Fill It") has burgeoned to eyebrow-raising levels. If there is such a thing as a Prosper Mega-Group, then Fanafi is one.

Some further tibits regarding Fanafi Financial:

• Number of borrowers in group: ~150
• Listings Currently Open: 28
• Active Loans: 112, for a total of $505,078

Well, there wasn't a group at the time that fit my attitude towards my early understandings of the whole process of P2P lending.

In the beginning I never had it in my head that I wanted to be the biggest in terms of membership or loans. I was a little overwhelmed early on with long evenings and weekends in an attempt to satisfy the membership requests, listing composition help, and lender inquiries. It was a learning process to say the least, as I had to become an expert in how the rules work, how to set up listings, and etiquette between lenders and borrowers. There were so many dynamics to take in and mold into an internal process.

It's become easier as time has passed, though. I have automated some of the basic tasks that were really time-consuming in the beginning (screening members, processing requests for membership, lender inquiries, etc). I enjoy taking the time to help others with their needs and giving them a chance at funding something the banks would laugh at. (Trout fishing expedition to Alaska, anyone?)

Once the ball started rolling, I found that borrowers who had met with success were taking the time to help others who shared similar circumstances create listings and walk them through the process. The essence of community in action!

It helps when successful borrowers nurture struggling borrowers, since they have a view of things Group Leaders can't grasp unless they walk through the challenges of listing and lender commentary themselves. I am thankful for even one borrower, who knows nothing about another borrower — they're complete strangers — yet gives a recommendation for a tweak to a listing. Or maybe just offers encouragement. It can give that person, who is about to give up hope, a huge rally towards success. This is the essential communication circle that makes a group thrive. We have activity in our forums, on a daily basis, where people give input and advice to each other. We gave them the tools, and they are running with it!

I've become more bitter in my opinions of the misbehavior of not only payday loan companies, but credit card companies, insurance fraud, bad business partnerships, and all the rest. The horror stories I've heard are pretty impressive! People can't make this stuff up. I've held a pretty old-school view of credit and debt, especially since my wife and I struggled out of our own debt nightmare a few years ago. When people share their ordeals with us, it tugs at the fear we felt back then.

Prosper, though, allows someone to explain their past and express their dreams for the future beyond their credit score. Think of it as a personals ad for your credit history: "Hi, I'm a D rating, recently divorced, work two jobs, have two kids, a mortgage, and my hobbies are . . .."

Group Rewards... I would call it something else. I would call it a Group "tax" or "fee," as the word "reward" is deceiving. Group Rewards are basically a percentage levied into a loan which is determined by someone's credit ranking (AA, A, B, all the way down to HR). The better one's rating, the lower the impact of the reward on your listing's interest rate. A group's shared percentage will also impact your listing. "100% Shared" means nothing is given back to the Group Leader for his or her efforts (so they might not put out any effort). "0% Shared" means all the share goes to the group leader. This would mean that "0% Shared" on an HR-rated listing means 5% of the loan amount goes into the Group Leader's pocket. So caution is advised when seeking a group, as you could be taken to the cleaners!

What it comes down to is that you, as a borrower, must think about what you believe is fair for the time a Group Leader spends not only on your listing, but also in promoting the group amongst lenders and keeping the overall reputation healthy. All this helps keep rates within the group lower over time. Our group reinvests all group rewards back into the system in the form of new loans within the group. Loans creating more loans so everyone can "prosper." Put simply, Group Rewards are really a fee collected by the Group Leader. Don't let anyone tell you otherwise.

I'm allowed to "establish communication" and find out how things are with them. I cannot practice "soft collection" at all — I must tapdance over broken glass on the whole issue, as per the Prosper Group Leader agreement. I usually call and email them a set number of times, hoping to provoke a response and perhaps the status of their payment. They know what I'm inquiring about when I call or email, so I don't even have to mention the loan by name for them to automatically start talking about it. Prosper initiates the collection process early [i.e., when payment reaches 30 days late] so hopefully we can catch people before they fall too far into the hole with their payments.

They usually message me to see if I have initiated contact or find out what actions I have taken to establish contact. They have been, overall, very cooperative and supportive of the group. I keep a log of lates (my LOL file) with dates of contact and any other action items, updates, etc.. Makes life easier when a lender inquires about their investment. I pass information along to lenders, who had a concern about a payment, as soon as I obtain an update. They appreciate that follow-up.

I think Prosper's biggest benefit is the removal of a biased banker from a loan decision. Groups of complete strangers will give you a fair chance to explain your need and get it filled. If you can convince them you're on the level, they'll bankroll your concept, debt consolidation, dream vacation, whatever. Lenders come from all sorts of backgrounds, and this makes for some interesting decisions on their part as to where they put their money and how much they plug into the system. Whether they are a well-known sex-therapy-blogger or a recreational-fisherman-retiree-millionaire, they make the difference every day around here. The peer system works and will continue to spawn creative changes within the community of Prosper.

Drawbacks? I would have to say the biggest problem at the moment is the imbalance between number of lenders and borrowers. There are just not enough dollars in the system to meet all the reasonable needs. People need to realize that when they come to Prosper, they have to stand out as a great investment. They have to create that "buzz" with lenders that really drives them into the bidding wars we've seen on some amazingly composed listings!

I will give them one word:   Patience! It will take time. There is no one group that can guarantee your success. Be sure to work with your Group Leader. If they don't want to help you, fine — you're in the wrong group. Group Leaders are your tour guides and as such have a responsibility to give you all the opportunities and tools for success!

Create a strategy and stick to it. Diversification, which is sometimes the bane of Wall Street investing, is actually a good action plan in the Prosper portfolio. Say you want to bring in $5,000. Spread it out across 100 loans at $50 apiece. Your default rate will thank you for it. And find those listings that really appeal to you on a personal level. Are you a single mom? Then help a struggling one fund a car for work! Are you an enterprenuer? Find a concept or small business startup that you can bid on! Don't be afraid to ask questions. Get to know Group Leaders and befriend them. Tell them your thoughts and desires, and it will help you later on when asking about a loan or a listing you are curious about.

We had a recent success story in "atrustedbusinessman." He had struggled through multiple listings and lender barrages of defeatism. He plugged away, even when he was working on correcting a rather serious flaw on his credit record — it was showing 20 delinquencies! So patience, plus strategy, pays off with time.

Another success story was an entrepreneur in Atlanta who had a great idea of combining the community of a coffee shop with a fitness club. He gave lenders all the facts of his business plan, and we worked hard to get him funded over the ten exciting days of his listing! It was very close in the end, and the loan funded with just hours to spare! He's proven to be a great investment and will be opening his shop in about a month or so.

I hope to say that we helped make a difference beyond just one life. I would like to start an avalanche of people helping people. We have several borrowers who would love to help other borrowers down the road once they find the means to do so. They want to give future borrowers the same feeling, that rush of success, that they encountered here. I hope to see real change in service and attitude from the financial-services industry, which tends to view people as little more than numbers and profit margins. Let people help others reap the fruits of their efforts and get the joy one obtains from extending a fair hand.