Earn interest on your BTC by making small credit history building loans

This will all end in tears. Undecided

What sort of system is in place for collection on loans in default? Is there, or are their plans for, a system for asset backed loans?

Thanks for the question, it's a serious issue we're dealing with! However, please do note that we're in beta, so we don't have a solution for collecting on loans in default yet, i.e. the loans are unsecured. However, we're exploring solutions to allow us to collect on defaults or to partner with organizations that can easily collect on the borrowers (there are a number of those that already exist in the BTC community). We do know that our major competitor also has unsecured loans and people have funded over 15K worth of BTC loans through their system, so we know that unsecured lending occurs on a large scale. The major difference is that we have some skin in the game: we don't collect the loan fee (of 1%) until the payments start rolling in, so if a borrower defaults then we lose revenue.

But again, I want to emphasize that we know that a collection solution is needed and we will roll one out as soon as possible. Furthermore, we're also looking to make strategic partnerships with other institutions which will provide us with more borrowers whose loans can be secured through the partnering institution. All in due time of course, but it's one of those huge things on our radar.

Ouch. Prepare for a volley of dumb joeys!

We take great care to outline the risks and yes: there is substantial risk and we don't recommend that people go investing without really understanding that risk. There are ways to mitigate that risk:

Invest in many loans with small increments instead of few loans with large sums. (i.e. don't invest more than, say, .3 BTC per loan).
When making a loan offer, then make the interest rate sufficiently high to cover potential defaults on other loans.
Consider the borrowers credit history when making a loan and adjust the interest rate accordingly.
Communicate with the borrower to get clarifications on the loan and to reduce fraudulent loans.
Consider the verification steps the borrowers have completed: ID, Address, Social verifications (Google/Facebook) and soon to come LinkedIn social verification and proof of income.

The list goes on, but I think that there are few good rules of thumb there and they largely apply in this forum as well.