Zidisha (YC NP W14) Launches A Micro-Lending Platform for Developing Nations
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-As a lender, I can request the funds be given only to the business itself, right? In many of these places, it can be incredibly difficult, time-consuming, and expensive to create a formal "business". How does Zidisha help with that, if at all?
We use a different local payment channel in each country to transfer funds directly to the borrower. In Kenya, for example, we use the M-PESA mobile money service to electronically transfer cash into the mobile phone account of each person. M-PESA has an online interface, so we can do this transfer entirely online. Our first loans back in 2009 were disbursed to Masai nomad communities located over a day's journey from any paved road or electricity. It was an amazing experience to send cash electronically from our US bank account to the mobile phones of people in such a remote place, which had been unreachable even by local banks in Kenya. Recent innovations such as mobile phone-based payments are what make a platform like Zidisha feasible.
To address your second question, yes, 100% of lender funds go directly to the entrepreneur that you fund. (We accept optional tips from lenders, and borrowers also pay a 5% service fee for the loans to cover our operating costs.)
It is true that it is incredibly expensive and time-consuming in most developing countries to register a formal business with the government. Most of the entrepreneurs fundraising at Zidisha are in the "informal sector" - though they do very often employ others as a result of the loans.
Zidisha does not provide any kind of business or other training services. We are purely platform for direct P2P interaction, closer to eBay than to the Grameen Bank.
> 100% of lender funds go directly to the entrepreneur that you fund ... and borrowers also pay a 5% service fee
Are 'borrowers' not the same as the 'entrepreneurs' that are funding? Is this 5% not paid until after the loan is repent, aka "interest"?
I realize now that was unclear - thanks! Yes, the 5% service fee is paid to Zidisha at the same time interest is paid to lenders, as the loan is being repaid.
We have a separate registration fee that borrowers pay upon joining Zidisha, but it is only paid once and only in the event the borrower raises a loan.
I like the basic principle behind their approach too: its ultimately philanthropy in the sense that you're unlikely to see a positive ROI on loans you make, but at the same time the repayment requirement ultimately encourages the recipients to invest the money and means the same cash can potentially help more people than gifting.
I'd go one step further and say that microloans are a great form of philanthropy because they are psychologically healthier for everyone involved. Rather than a charitable handout, they can be structured as a business transaction that benefits both sides. See my post at http://www.huffingtonpost.com/julia-kurnia/about-to-send-a-d... for more thoughts on this.
I'd welcome everyone's opinions / questions about Zidisha.
I'm surprised there aren't more p2p loan services in general, especially for those of us in the USA, etc.
edit: Just found out about Kiva Zip. So I guess they're making some attempt there.
Yes, thanks for bringing that up. In the US we have large commercial P2P lending services like Lending Club and Prosper.
Then there is Kiva Zip, which also does P2P loans in the US but at zero interest and an emphasis on human connection and social impact.
Kiva Zip was originally inspired / advised by Zidisha (see https://zip.kiva.org/blogs/4). Our models have some major differences though:
- Kiva Zip offers loans in the US and Kenya. Zidisha offers loans in Benin, Burkina Faso, Ghana, Guinea, Indonesia, Kenya, Niger, Senegal and Zambia, and we have no plans to enter the US market.
- Kiva Zip is interest-free. Zidisha allows borrowers to offer interest rates of their own choosing which are then bid upon by lenders.
- Kiva Zip has an office with staff in each borrower country, and works with local partners called trustees. Zidisha has no local staff at all, and no local intermediaries - we deliver everything online.
- Kiva Zip is well resourced. Zidisha is lean to an extreme, so that the cost of making the loans is just about 5%.
- Zidisha is managed by a global network of about 60 volunteers. We are a virtual organization with no physical office.
- Perhaps most importantly, Kiva Zip retains Kiva's historic expertise in liaising with local entities (hence the trustee-based organization of the loans). Zidisha's core expertise is in person-to-person communication, and we are really passionate about keeping that direct P2P connection untainted. We interfere as little as possible in the transactions between borrowers and lenders, while providing the marketplace infrastructure that makes direct P2P lending across the international wealth divide possible.
They both focus on our credit reporting system which in my opinion is an absolutely miserable metric of reliability. I don't like the thought of not being able to assist someone with their cause because they missed a few phone bills 3 years ago. It should be purely at the discretion of the person providing the loan.
From what I understand you can't even join Lending Club without a near impeccable credit score. And at that point, why would you join as opposed to heading to your credit union for a personal loan?
I just don't see the point in what they're offering.
Anyway, that's a tangent.
Domestic P2P lenders like Lending Club and Prosper may be able to shave a fraction of the cost of borrowing within the US. But I think the real windfall to be gained from P2P lending is where the local alternatives are most expensive and inefficient.
For small loans to low-income people in developing countries ("microfinance"), the global average interest rate is about 40%. It is not necessarily profiteering; their model is just incredibly inefficient.
Even zero-interest Kiva loans cost more than 30% on average to the borrower, simply because the local banks that manage the loans need to charge that much to cover their operating costs.
Zidisha bypasses all that by offering a do-it-yourself microfinance marketplace. Our operating costs are roughly 5% of the value of the loans, versus the 40% or so that is traditional in this sector. The savings get passed on to borrowers and lenders, who are free to negotiate the interest rates they find appropriate for each loan.
We are probably the most transparent microlending website in the world - you see exactly how much each borrower will pay for the loan, and you can dialogue directly with each borrower about how they are spending the funds and what the impact has been.
If you'd like a taste of the kind of dialogues that go on, you can also check out our universal comment feed for all the loan profile pages here: https://www.zidisha.org/microfinance/testimonials.html
What are your main challenges on the ground in different countries? Have you ever thought about incorporating bitcoin into your funding model somehow? Could that solve any potential issues with the transfers?
Thanks for your message. Kiva was a big source of inspiration for Zidisha.
I would say our biggest challenge is finding affordable local payment options that can be accessed over the internet, without needing to outsource funds transfers to local intermediaries. We've had the easiest time in countries, such as Kenya and Ghana, that have strong mobile-phone-based payment services.
The language barrier is quite a challenge in our francophone countries and in Indonesia. We are lucky to have a wonderful team of volunteers who provide translations of content posted by the non-Anglophone borrowers, and serve as the first line of contact whenever they need help using our platform.
That is a really good question. I know that in the case of Zidisha, we opted to be nonprofit because we did not want to have to charge higher fees to the borrowers in order to make returns for investors.
Best of luck!
Watsi and Zidisha are just the latest examples of a turning point in history: thanks to technology, people who happen to have been born in the world's poorest places are no longer condemned by geography. The internet is making location irrelevant.
We are pushing that revolution to the frontier, the developing countries where the internet has just recently become accessible to ordinary people.
Thanks for this honest feedback. Zidisha definitely isn't for everyone - it is really a do-it-yourself platform rather than a managed charity.
We do have an autolending tool, which gives lenders the option of having their repaid funds automatically recycled into new loans. However the vast majority of our lenders opt to choose their loans themselves, and some even develop online friendships with the borrowers - exchanging recipes and children's photos, like old-fashioned pen pals except the communication is instantaneous. Our platform is really optimized for getting directly involved with each individual loan.
The optimal interest rate is one of the most frequently debated questions among Zidisha lenders.
Zidisha doesn't set interest rates. Our platform allows borrowers to offer up to 25% interest, and lenders may fund at any rate they choose, up to the maximum offered by the borrower.
The borrowers who have the highest on-time repayment scores are displayed first in the "Lend" page, and these are generally able to raise loans at the lowest rates. Newcomers, or borrowers with less than stellar on-time repayment histories, usually need to offer higher rates in order to have their loans funded.