There is this site called prosper.com and I've done quite a researched in it. The top lenders make an ROI (after all the late payments and defaults in calculations) of around 9 percent. Is my money better off to mutual funds?

This is somewhat less than the long-term average of large-cap stocks (which is approximately 10%), so the meaningful question is the amount of risk involved in microlending - which I personally suspect is higher than that of owning an index fund. It is also worth considering that interest income is fully taxible, whereas equity investments are subject only to the lower capital gains and dividends rates (in the US).

Lending out personal loans in this enviroment of housing foreclosures might not be the best thing ... Sure people can make 9% when the economy is good but if the economy really sours then you'll learn how difficult the loan business can be ... I'm often short GM and my thesis is very simple:If GM can't make money over a 20 year period when the economy is very good then what going to happen if we have any kind of real recession ?My answer is stick to the tried and true methods and owning the stock market over time is the best way to be invested.

Really depends on what you're hoping to accomplish, but my guess is there are some big risks here. You might want to talk with a financial planner - I found mine at http://www.plannerconnect.com