Will you ever lend money to someone you never had a beer with?

Most probably not. And it is quite understandable. In my lifetime, I only gave loans to few of my best friends who I know for decades and have full trust. Without knowing they have the capability and commitment to pay, how can one have the gut to open the wallet?

But how can those payday loan outlets happily hand over cash to anyone applies for a personal loan, and still make a profit?

You may argue that those payday loan shops verify credit information, and have the wielding power to put a dent to one's credit history. So the question is: if you have the credit information, and have the power to destroy the borrower's credit profile if he does not pay back to you on time, will you want to be in the business of making personal loans?

A booming web site Prosper.com is committed to empowering you to be the next loan shark by letting your money earn much more than the best rates from a savings account, and at the same time, reducing the cost of funding for people in need.

A personal loan transaction at Prosper.com is usually completed this way:

• A borrower makes an application to the community by stating how much money is needed, which rate s/he is willing to pay, why s/he needs the money and how s/he plans to pay back. All applications are for 3-year, fully amortized, unsecured loans up to $25,000.

• All potential lenders in the community can browse these personal loan applications and alongside the core elements of borrower's credit profile, including credit score range, length of credit history, number of current delinquent accounts, number of delinquencies in last 7 years, number of credit lines, and recent credit application history.

• If a lender is interested in a particular loan application, s/he can make a loan commitment in lots as little as $50, and name a minimal interest rate s/he can accept.

• There is no need for one lender to fund an entire loan. When a personal loan application attracts enough lenders' interest, Prosper.com will pool money from bidding lenders and channel the funds to the borrower, and from that point on, administrating the repayment process. All loans are currently

• In the event that a payment is behind, Prosper.com will take a series of actions to attempt to collect the money in the first month, then refer the loan to a collection agency after one month. After four months, delinquent loans will be sold to debt buyers and borrower's credit history will be impacted.

This is a pretty neat business model -- Prosper.com makes money by charging a service fee from the lender and a loan closing fee from the borrower, and at the same time, benefits both the borrowers' and lenders' community by removing frictions in the market.

Of course, for lenders to make a sizeable profit (defined as much higher than the savings rate), one needs to diversify the portfolio to dozens or even hundreds of individual personal loans, and take possible charge-off as a normal part of business. After all, even a loan shark will occasionally fail to recover the money.

Disclosure: I'm currently having $2,500 deposit at Prosper.com seeking profitable opportunities. Keep reading PFBlog and I will track my adventure.