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Hello Julia,

As founder of Microfinance Transparency, I know very well how confusing pricing can be, due to a combination of confusion of what definition we are using and because of the biases each speaker uses in choosing a definition.

Annualized rates like APR were designed to avoid both flaws. No ambiguity about sentences like "when they tell us they want to borrow $100 at 10% interest, they mean that they wish to repay $110." An APR gets around the ambiguity of how long the client has $100. An APR gets around the ambiguity of if they have the $100 for the entire time or are paying back some of it.

It is an undeniable fact that lenders did not invent flat interest to make things easier for borrowers. They invented flat interest to make the price look cheaper to borrowers. When that abuse comes to light, Truth-in-Lending legislation comes in to defend clients. I expect Zidasha believes more in defending clients than spinning the data for both funders and the clients, but the current policies are arguably more like spin.

I suggest one path forward on this, as I did when you and I spoke March of last year - MFT can provide a legitimate and unbiased method for Zidasha to use to calculate prices, so that the prices you publish more closely reflect true prices.

Regards,

Chuck Waterfield CEO, MFTransparency.org

Hi Chuck,

Thanks for this comment. I'd welcome the help of MFT to develop an APR calculation tool for Zidisha loans. I've just sent you an email, and look forward to discussing further.

I just wanted to say that I think this might well be the best possible solution to the problem.

When I first visited Zidisha's site (a couple of weeks ago) I spent some time reading through the fine print and discovered the same thing that ModernMicrocredit did: that the way you presented things was highly misleading about actual prices paid by borrowers. (The fine print, of course, was accurate, or I assume it was.) But your choices were made in order to convey things more clearly (to a different audience).

Presenting rates two different ways: using your existing system system based on flate rates AND ALSO an "APR" (calculated according to Western banking practices and including both interest and fees) might meet the needs of both audiences, so long as you can present it in a way that is not confusing. Similarly, show "Average Lender Interest" but also nearby show "Average Borrower Interest".

By the way, at the time I did NOT invest through Zidisha (although I made a note to come back later and reconsider). I am interested in microfinance, and the way you were running it seemed quite appealing; the main reason I did not immediately participate was this issue of misleading presentation of the loan costs to the borrower.

Hi mcherm,

Thanks for sharing this. What if we were to continue to calculate interest and fees using our current flat method for the time being, but display the equivalent APR to lenders and borrowers? As a prospective lender, would this have addressed your concerns about transparency?

Isn't this pretty much how all loans are presented in the USA?

Yes, as a prospective lender I would be satisfied if I saw the interest and fees as a flat interest rate (and clearly labeled as such), but ALSO displayed the rate that the borrower was paying in terms that were familiar to me, such as an APR.

I work in the US mortgage industry where advertising of "APR" rates is mandated so consumers can easily compare different offers. Mortgages are still permitted to have all kinds of odd financial arrangements: fees and fee-like structures (points), negative fees (cash-back refinancing, negative points), different payment schedules (interest accrued in advance or in arrears, monthly or biweekly payment schedules), and much stranger things (balloon mortgages, even reverse mortgages), and also many things vary from loan to loan (for instance: some costs vary according to which county you live in).

All of that complexity gets baked into the APR. Fees are amortized over the life of the loan (or sometimes a shorter period). Various kinds of rates get boiled down into an annualized APR. This is far from perfect: no single number can make all that complexity truly comparable, but it roughly does it's job. Each individual loan has an APR calculated once its rates and fees have been set, and marketing messages must quote APR using a sort of "typical loan" for that lender. I think you could develop a definition for "APR" that handled the flat payment method but made it comparable for someone like me.

Please don't.

I'm a consumer finance attorney who has worked for several years with people from all over the income spectrum who have trouble with finances. No one -- and I mean no one, not federal judges, not banking attorneys, no one -- really understands what APR actually means. It's useful in the US, though, because it means that all borrowing products are calculated the same way, so a consumer can compare the cost of credit from one product to another and it's truly apples-to-apples.

Keep the flat interest. As you say, this is what your customers are used to and it will allow them to make meaningful comparisons with sources of credit in their own markets. An APR will only confuse people and be misleading.

For what it's worth, I'd take the one-time application fee out of the cost of credit calculation and put it down below with an asterisk, like "if this is your first loan with us, there's also a one-time fee of $11 to cover the costs of ___."

They can present the payment schedule table clearly so even if you didn't know what APR was, you would see "I pay this amount of interest on this day" with a total at the end of the term the entire amount of interest. This is what lenders in the US do. That's called transparency. Everything else is playing games to confused people into thinking their loan is cheaper.

I can go to any mortgage calculator online and plug in some simple numbers and get a breakdown of my payments every month, interest on the payments, and total interest paid and I now know how much I am and will pay. This isn't hard, when it isn't done it is to hide information from the consumer.

That's like saying nobody should save because nobody understand compound interest. It is true that hardly anyone understand compound interest (and how amazing it is).

As you further investigate this, you may want to look at the UK's requirements for APR calculation for consumer loans. A few nice features:

1. All cash flows which are non-optional from the borrower's perspective are included. This includes one-time registration fees.

2. The rate in annualised to make loans of different lengths easily to compare.

3. Advertisements must include the APR that 66% of borrowers who respond to that specific advert will get. For example, if you expect that a specific advert would generate 100 customers, and the resulting loan offer APRs would be evenly split between 20%, 25%, 30% and 100%, then you would quote 30% APR on your advert.

Excluding one-time registration fees from the APR and total cost illustration is IMO misleading if an ad is mainly targeting new borrowers. The same goes for weighting the APR by loan amount, as this weighted rated can be far from the APR for new borrowers (who, because they are more risky, will get smaller loans).

I have no specific knowledge of your company, and my comments above apply equally to any consumer lending business.

Julia, I think you need to spend some more time considering MMC's analysis and hopefully some more significant changes to how you present and market the costs of these loans.

I had never heard of 'flat rate' vs 'declining balance' interest rates. As far as I'm concerned, it's abusing the word to call your fees an 'interest rate' because they are not. They lack the necessary property of a 'interest rate', that is, being based on balance over time. What you are charging is a fee, based on the starting balance and period. I think you should stop calling this an interest rate, and I'd be surprised if it's not illegal to do this anyway.

It sounds like your 'service fee' is ALSO a flat rate fee based on the starting balance and period, which makes splitting it out and consistently footnoting it in your marketing seem deliberately misleading. The reason we insist on APR is because you can't hide anything from it. When lenders make up terms and market them, it's almost invariably because they are trying to hide costs. Somehow this cost hiding is always couched as 'better for the borrower'.

The "it's only 63 cents" trick won't work with this crowd. Because we understand how "interest rates" are supposed to work. If it's just 63 cents, then easier to refund it than write the blog post. But 5% of $2m is $100,000 so lets get real.

MMC includes a screenshot showing 'About this Loan' a few times during the article;

  Amount Requested:      USD 50.00
  Repayment Period:      6 weeks
  Grace Period:          1 week
  Offered Interest Rate: 25.00%
  Service Fee:           5.00%
  One-Time Reg Fee:      USD 11.78

  Total Amount (Including
  Interest and Transaction   USD 51.73 (30.00%)
  Fee) to be Repaid:

It was confusing to me, even with the explanation in parenthesis, that the 'Total Amount' did not actually include all the fees. You should call it a 'Partial Amount' if you want to leave parts of the total amount out. Otherwise, it should actually be, you know, the total amount.

If you can get users to pay the 'Registration Fee' completely independently of getting a loan, then by all means, have them pay it separately, and keep it out of the loan statement. But, what I imagine really happens is, users pay this fee to get a loan, then it's a loan fee, and you have to include it when you do things like report your total loan costs!

Hi zaroth,

Am I understanding correctly that you are suggesting we not use the term "interest", but instead call the amounts borrowers pay to lenders a fee?

That is worth considering. It would avoid much of the confusion over flat rates versus APR, and would still be clear to borrowers that the amount represents the cost of the loans.

I'd be interested to hear others' perspective on whether Zidisha ought not to use the term "interest" at all, but instead replace it with "fee" or some other term.

Are your fees based on an interest rate?

They have a "Service Fee" and an "Offered Interest Rate" both of which are calculated the same way, based on the starting balance, and the loan period.

I think the problems run deeper than that, because you have multiple different groups you are trying to communicate with, and some of them are getting incorrect information here.

If borrowers want to know how much they are paying in interest rate, then I think you should tell them in terms of APR. If borrowers want to know how much they are paying in terms of dollars, then that's easy, just tell them.

I think itemizing out fee A, fee B, fee C, is just a silly game. If you go back to your "About this Loan" table, what you call 'Service Fee' and 'Interest Rate' are the same thing, just combine them. Then, if I want to know how much they actually cost, I have to look at Total and subtract $50? But then it's still missing the "one-time fee".

What if the table did say; (and I'm not saying you should do this)

  Loan Date:        April 14, 2014
  Repayment Date:   June 2, 2014   (7 weeks)

  Amount Requested: USD 50.00
  Loan Fees:        USD 13.51  (200% APR)
  Total Amount:     USD 63.51

Of course your system knows if I'm a repeat borrower, and can automatically charge the $11.78 or not. Look, it's a hard truth that the first loan has terrible terms because of the registration fee, but you can't hide from it.

The only problem with this is it doesn't really help me understand how much it's going to hurt if I need more than 7 weeks to repay. But I don't know enough about your payment model to really comment on that.

Hi zaroth,

This makes sense, and we are already doing some of that.

In the loan application form that borrowers see, the 5% fee to Zidisha and the interest offered to lenders is in fact combined. Borrowers choose any combined rate from 5% up to a maximum of 30%, with a text description indicating that the first 5% of this is paid to Zidisha and the rest is paid to lenders.

The loan application page also indicates the registration fee, as a cost separate from the combined interest / fee rate that the borrower selects.

We separate the service fee from the lender interest in the loan applications that are displayed to lenders, because the intent is to indicate the maximum interest that they can expect to receive from each loan proposal.

Maybe it can say:

  Loan Date:        April 14, 2014
  Repayment Date:   June 2, 2014   (7 weeks)

  Amount Requested: USD 50.00
  Loan Fees:        USD 1.83  
  One time fee:     USD 11.68 (one time life membership fee)

  Total Amount:     USD 63.51

Well, if you called it a fee, then it could be just as easily misleading, depending on what you included in (or excluded from) that fee. In fact, it may confuse things even more.

That is, the real issue here is that the true rate/cost is not reflected clearly in the interest as currently presented. So, the real solution here is not to introduce a new, ambiguous term, but to use the traditional and well-understood term for conveying the true cost of a loan; that being "APR".

Of course, by definition, you'd then necessarily include in that number the true costs of the loan.

I like this response.

The one-time registration fees seem like the most suspect thing to me. As you're a non-profit, would it be possible to raise more money from foundations and other donors if you got rid of the registration fee? Do borrowers find the registration fee onerous? Does it serve some other purpose (limiting nuisance registrations, etc)?

Hi rdl,

It would certainly be possible to eliminate the registration fee, and make up the difference with a slightly higher recurring service fee. (We are not yet supported by any major foundations.) There are two main reasons we have not done so:

1. As a small nonprofit with limited financial resources, one of the measures we've adopted to ensure that we always have enough cash to cover our costs as we grow is to couple service fees closely with actual expenditures. There was historically a large up-front cost to admitting new borrowers, as we used to contract with local partners to verify applicants' credit histories with local lenders. We no longer work with local verification partners, but even today there is an up-front cost in Skype and SMS charges, as we verify the information of new borrowers with local contacts. Coupling registration fee income with the cost we incur to admit new borrowers ensures we will always have enough revenue to cover our costs, regardless of the pace at which Zidisha grows.

2. Shifting a portion of the costs borrowers pay to join Zidisha to a lifetime membership fee paid up front makes strengthens the incentive to participate responsibly with Zidisha over the long term, because costs of borrowing decrease as members build up a track record of on-time repayments over time.

Regarding point #3: Are you saying that if someone has a loan for less time, he/she will pay less? That seems to be an inherent property of "interest". Likewise, one could turn this argument around and claim "those 5% of a $50 loan can be 10% of the amount if you hold the loan for 2 years! Exorbitant!".

Could you clarify?

Hi UweSchmidt,

Yes, that is true: loans held for less time pay less, and a loan at 5% held for 2 years would pay 10% of the principal.

Using flat rates instead of APR does result in loans that cost disproportionally little when held for short periods, and disproportionally much when held for long periods. The greatest concern are cases in which a loan for an initially large amount is held for a long time after most of the initial amount has been repaid, resulting in interest calculated as a flat percentage of the original amount being applied even though most of it is no longer outstanding with the borrower. Avoiding such situations is probably the strongest argument for changing from a flat rate to an APR methodology.

We have not done so because such cases are not very frequent, and because we judged that the value of having a simple and intuitive cost calculation method outweighed the value of having a more precise model that the majority of our members would not understand in practice.

My personal preference would be a single number for the interest rate, with everything calculated in, accounted daily (difficult to implement, easy to understand and fair to the customer).

Many of the new cool SaaS businesses try to do that. Most banks, mobile phone shops etc. don't.

Edited as I'm seeing that you're kinda defending your company from some strongly worded allegations. I just commented on the general state of the world, and didn't mean to attack you or your service.

It would be awesome if your "What are the fees and interest?" section on your borrower page was this explicit and clear about what the fees and interest rates are.

Hi devinmontgomery,

Do you mean this page? https://www.zidisha.org/microfinance/borrow.html

How would you suggest modifying this to make it more transparent?

That's the page. Something like "No fee to apply. You chose 5-30% interest rate. $12 registration fee applied to first successful loan."

A calculator like Shipwire uses to help people calculate the cost of their fulfillment services: http://www.shipwire.com/pricing would be ideal, but you'll run into very old browsers in those internet cafes. So even a more demonstrative infographic would help borrowers see just what's being offered.

I really hope you guys succeed, I've just worked with people who could use what you're offering and have seen them disappointed too many times by offers that were either misleading or that they just didn't understand.

This is the text we currently display in that page:

You can propose any interest rate between 5% and 30%. The first 5% goes to Zidisha to cover money transfer fees, and anything above that goes to lenders. Lenders who find the proposed interest rate reasonable can choose to fund the loan at or below your proposed interest rate.

In addition, new applicants who succeed in raising a loan pay a one-time registration fee, which is deducted at the time the first loan is disbursed. View current registration fees

"View current registration fees" displays a modal box with the registration fees applied in local currency in each borrower's country. (These are currently about $12 in Kenya and Burkina Faso, and zero in the other countries in which Zidisha operates.)

Our loan application form does provide a cost calculator to borrowers, though it does not use the term APR. The loan application form works as follows:

1. The applicant specifies the amount he/she would like to borrow, and the combined interest and fee rate he/she would like to offer.

2. The applicant specifies the local currency amount he/she prefer to pay each week or month. (Our website advises selecting the largest installment amount one can comfortably pay in order to minimize interest cost.)

3. The applicant chooses the day of the week or month he/she would like to make payments.

4. Based on this, our site generates a display of the local currency principal and fee/interest amounts that will be due, along with a projected repayment schedule.

5. The applicant can go back and modify the proposed loan parameters until he/she is satisfied with the cost and repayment schedule displayed, and can then publish the loan application on our website.

6. Lenders can fund the loan at rates between zero and the applicant's offered rates. In practice, many lenders opt to fund loans at low or zero interest, such that most applicants receive the loans at lower interest than what they had proposed.

I just went to page for lenders to donate / lend 50$ to a guy in Kenya. First you say this:

> You can propose any interest rate between 5% and 30%. The first 5% goes to Zidisha to cover money transfer fees, and anything above that goes to lenders.

but then, on the next page you say that I need to pay 1.75$ for money transfer fees. What is the problem there? Why do I have to pay this fee multiple times? Will I also be charged that fee again when people start paying off?

Look, the idea of microfinancing is nice, but the way you play with the numbers in order for them to "look better" is just to scammy. In the end of the day, I just can't trust you anymore that the money really goes where you says it goes if you can't come up with the clear upfront cost breakout without playing games. If you are not playing games, but simply not understand how this looks like, then please just shut down and stop poisoning the good idea with atrocious presentations.

I understand applying a fee for money transfers to both lenders and borrowers looks misleading when compared side by side in this way.

These are two separate costs. The fee for lenders offsets the cost of receiving their funds via PayPal or credit card. It is set to match as closely as possible the average transfer fees that our organization pays to PayPal and Stripe.

The 5% charged to borrowers covers international money transfer costs, and the cost we pay to local payment services in each borrower country. This fee is also set to match the average money transfer cost we pay across all countries.

We use two separate fees because it allows us to ensure that we receive income at roughly the same time costs are incurred. This helps ensure we always have enough cash flow to cover our costs, no matter how quickly the organization grows.

Thanks for your response. The #1 issue I have is that you have been repeatedly comparing your (low) flat rates to Microfinance institutions' (higher) average costs. But that is comparing apples and oranges. Your rates are low because they are flat rate numbers. If you converted them into APRs, they would roughly double.

If you displayed your flat rate numbers into APRs, then I wouldn't have any problems with your marketing. You could compare your average Zidisha APR of 25% to the average industry average of 35%, and lenders could make their own informed decisions.

I agree that deleting that interest rate diagram is appropriate. However, you have repeatedly compared your low flat rates with high APR rates elsewhere on your site. For instance, in this page on your site, you say, "While other microfinance services charge borrowers interest rates upwards of 40% or more, our direct peer-to-peer microlending model reduces the cost of Zidisha loans to just a fraction of this." [1]

Statements like these lead to articles comparing your low flat rate to others' higher APRs. [2-5]

To me, comparing your flat rate numbers to other people's APRs feels like a deeply misleading comparison.

I'd like to hear your side of the story here. Perhaps I'm missing something.

[1] https://www.zidisha.org/microfinance/why-zidisha.html [2] http://www.dailykos.com/story/2012/08/27/1124759/-Kiva-vs-Zi... [3] http://techcrunch.com/2014/01/23/zidisha-launches-a-kickstar... [4] http://www.techrepublic.com/article/10-things-to-know-about-... [5] http://www.huffingtonpost.com/julia-kurnia/zidisha-vs-kiva-z...

Hi modernm,

Thanks for commenting here. I wish you had asked for our side of the story before publishing these allegations.

I agree that flat rates should be compared to flat rates. It would indeed be misleading to compare Zidisha's flat interest rates with another microfinance provider's APR rates.

In my experience, flat interest and fee rates of over 30% are common in microfinance, and that was the basis for the comparisons I have made with the cost of Zidisha loans. It is hard to find reliable data on the average APR of microloans worldwide, because many microfinance organizations underreport the full cost of their loans, and those that do opt for full disclosure on sites such as Microfinance Transparency and the MIX Market tend to be those with the lowest rates.

This article provides a good overview of some of the complications involved in measuring the cost of traditional microfinance loans: http://blog.givewell.org/2010/04/02/microfinance-interest-ra...

Dear director of Zidisha,

I don't know much about finance, however something that's always struck me as odd is that companies such as your own don't have a simple graph - with money owed on one axis (everything the borrower would be expected to pay you, fees, interest etc) and time on the other, perhaps with options to adjust the graph for different payment schedules.

You could still include the usual stats about interest rates and so on alongside this - but it seems to me that way of looking at things would make it simpler for those who have difficulty calculating the effects of fees, various ways of interpreting interest rates, and so on.

Thanks for your time :)

Julia,

Great reply. I am a fan of Zidisha and what it is trying to do. Having grown up in a third world country to very poor parents with minimal education, I am fan of any initiative that helps the poor and the willings everywhere. I wouldn't be where I am today without the support of a few benefactors who came along in my life time to time.

I hope you will not make any major changes to your service based on comments and blog post. Bystanders shouldn't drive your business decisions.

If your borrowers understand flat interest rate better then you should be using flat interest rate with your borrowers.

From traditional lending perspective, registration fee is nothing more than application and origination fee. Actually, your fee is much lower than 3-5% origination fee charged in lending.Though your service fee (loan administrative fee) of 5% is two to three times more than traditional 1-2% administrative fee. Considering how expensive international money transfer is your service fee is reasonable.

As for lenders, if they want to see feel good stories of how their money helping someone that is what you should show. If lenders are also looking to make some profit along the way, then you should show them the returns they are getting.

There is no reason for you to reconcile the information presented to lenders and borrowers unless your stakeholders (bystanders are not your stakeholder) demand the information.

I really like how Lending Club as a for-profit peer to peer lending platform has managed both borrowers and lenders expectations. They are a good role model to follow.

Keep up the good work.

IMO "average lender interest" means the average amount of interest paid to lenders over the life of all loans made on the site. I see nothing intentionally deceitful here. It does not say APR because they do not mean APR. My understanding is that the length of each loan is variable, and because of that, the effect of the site's fees on "APR" will vary with each specific loan. "Average lender interest" is more meaningful to lenders than it is to borrowers, and I would imagine that it was a term coined for them.

I haven't been through the loan process on the site, but I cannot imagine that the exact terms and fees are not fully disclosed on a site like this. I just don't see anything wrong here given that the site deals in loans with many variables. At worst they are guilty of advertising a number that does not have a lot of meaning to borrowers, but again they have two sets of constituents: borrowers and lenders. This number does have meaning to lenders.

Wow, this is really complex. You needed so much text to explain your fee structure.

I'm not saying that is unusual, for a lender. Financial products always come with a lot of smallprint, with actual important things hidden amongst it.

But aren't you supposed to be disrupting this industry? Being different? Isn't this a great opportunity to do it?

You have a whole bunch of fees and rates. Presumably, you do things this way to incentivize good borrowing behavior, and present the loan as cheap to compete with people doing the same.

How about rolling all these fees and rates into a single fee and a single interest rate? Why charge new customers extra? The simpler the terms, the more rational a decision the user can make. If the user knows they can afford it, your chance of defaults is lower...

RE number 5, you seem to be mistaken. Those random loans were all repeat borrowers. "I calculated the APRs for these 20 random Zidisha loans, and the average APR for the loans was 25.22%. The Zidisha APRs for these 20 random loans went as high as 49%"..."And that's just for repeat borrowers (by sheer chance, none of the 20 random loans was from a first-time borrower)."

That said this looks like an awesome response. I think you're net good, but I know what happens down the revolving credit pothole, if you're helping people avoid that its fantastic.

One other concern, your fee structure and business model seem to encourage repeat loans, how do you avoid the situation where that goes horribly wrong?

Hi mcintyre1994,

Thanks for noticing that. I am not finding the quote "And that's just for repeat borrowers (by sheer chance, none of the 20 random loans was from a first-time borrower)." in the blog post now.

I did take a look at the borrower profiles that were linked below the photo collage, and the majority of them were indeed first-time loans. These can be identified in that only second and subsequent loans include the link "View previous loans" below the on-time repayment rate displayed in the profile pages.

First paragraph under section 3, "Not Including Borrower Fees in Zidisha's Interest Rates".

I see it now. I believe the blog post author is mistaken though: the majority of the examples he provided were first loans.

I doublechecked and didn't see any mention of a one-time registration fee on any of those 20 loans?

I'll go back and look at the 20 loans with your tip in mind, and recalculate APRs separately for both first-time borrowers and repeat borrowers, and update the post.

Hi modernm,

I see what you mean. This is confusing because our website is programmed to display the registration fee only for applicants who have not yet had a loan disbursed. Once a loan is disbursed, the fee is paid and is no longer displayed in the loan profile page as part of the amount due to be paid by the borrower.

The second and subsequent loans contain a link "View previous loans" under the "On-Time Repayments" record in the right panel. All the loans that do not have that link are first loans.

"One other concern, your fee structure and business model seem to encourage repeat loans, how do you avoid the situation where that goes horribly wrong?"

We do our best to ensure loans do not cause over-indebtedness by starting with very small amounts initially, and increasing credit limits only if high on-time repayment rates are maintained over time. In order to minimize the risk of borrowers taking out local loans in order to repay Zidisha loans, we do not allow credit limit increases if a large percentage of Zidisha loans are repaid in a short period of time.

In my experience, repeat loans have been a vehicle for increasing assets and revenue over time, not for increasing indebtedness. Here are a few among many examples:

http://p2p-microlending-blog.zidisha.org/2014/03/15/spotligh...

http://p2p-microlending-blog.zidisha.org/2014/03/29/spotligh...

http://p2p-microlending-blog.zidisha.org/2014/04/06/an-agele...

Thanks for replying! That seems completely reasonable to me, I think that separates you from evil predatory loans in my mind regardless what issues there may be with your marketing. :)

> We do our best to ensure loans do not cause over-indebtedness by starting with very small amounts initially, and increasing credit limits only if high on-time repayment rates are maintained over time.

Brilliantly, breathtakingly cynical! Charge a bunch of flat up-front fees, then cap loan amounts based on some opaque criteria.

>much as new eBay sellers offer the first few items at a discount

You don't understand eBay.

Maybe when eBay was the wild west new sellers would offer a discount. This just doesn't happen anymore and not in many years. Why would they? The buyers know they are protected by eBay's buyer protection program so buying from eBay is very safe, it is safer than selling on eBay. Sellers need insurance on what they sell (or they self insure) because a buyer can claim they didn't get the package or it was damaged and eBay will always side with the buyer and burn the seller. This is a fairly well known scam. Feedback is almost completely meaningless anyway. I've been burned by eBay sellers who had 50,000 feedback. They sent me a beat up broken case DVD with possible water damaged when it was supposed to be brand new. When I complained to them they wanted me to either 1)ship it back at my expense or 2)keep it with a 30% refund. Neither are acceptable in eBay's eyes, so I opened up a dispute and got my money back the next day. I also bought mislabeled batteries that were advertised as a different (reputable) brand on eBay from a scam seller with thousands of feedback. The second I complained the seller refunded me. eBay is very clear on their buyer protections. So sellers would be cutting into their profit margins for what? Selling on eBay is already fairly expensive, there is lots of fees. Quite a few sellers don't make it a business, I know I just use eBay once in a while to get rid of some stuff I would get rid of anyway, so just trying to get a few bucks off of something I would otherwise get $0 for. If every seller who used eBay that way had to sell their stuff at a discount, it wouldn't be appealing to the sometimes-sellers.

If I saw a new seller with discounted merchandise, it would look shady, I would think it might be possibly stolen.

Don't compare it to something that doesn't exist.

>6. We use flat rates not in order to deceive, but simply because they are more intuitive to borrowers and lenders than APR.

So how come the US outlawed them with the Truth in Lending Act? Because they wanted to bring transparency to lending. Flat rates hide the true cost.

Edited to add:

You write:

>Zidisha has lowered the interest rate to borrowers throughout Africa and other developing nations to under 10 percent. There is also a 5 percent service fee, which covers messaging costs and and transfer fees.

Africa isn't a country, stop treating it like one.

I'm new to this conversation, but I have the same reaction as mark212. The purpose of quoting an interest rate is so borrowers can (a) predict how much they will have to pay back and (b) compare one loan against another. The first purpose is better served by the flat-rate quotation, and the second is also better served if most other lenders in their community also quote flat-rate interest.

Good to get a direct response. APR is still the right # to give Apples to Apples comparisons. Service fees should be included.

That said, these rates are no worse (and in many cases better) than other Microloan program. It highlights the dearth of credit for good projects when people can make a profit borrowing at such high rates.

This is a highly lucrative business.

"This is a highly lucrative business."

Zidisha's total revenue and operating costs are less than $10K per month. Only two people, myself and a web developer, receive a salary for working with Zidisha. (That salary is barely enough to cover the cost of a shared or low-income apartment.) Everyone else who works with Zidisha is an unpaid volunteer.

Can you tell us roughly what portion of the loans you offer are for established borrowers?

That is, are people really paying the registration fee once and then taking out multiple loans, or are most of your borrowers first-time borrowers?

Hi japhyr,

As of today, we've funded 5812 loans and have 4757 registered borrowers, so the majority of loans we've funded have been first loans. That said, we have almost no registered borrowers without loans. We don't have precise data but I would estimate over 95% of borrowers go on to raise additional loans after their first is repaid.

The reason for the high proportion of first loans is that our growth has accelerated in the past several months, and most of this growth has been a result of admitting new borrowers. We expect the large majority of these new borrowers will go on to raise multiple loans, as has historically been the case.

> 6. The vast majority of our borrowers are used to flat rates being quoted by local lenders

I hadn't considered the cultural differences of the target audience. This would be dishonest for a US market, but I understand it here.

>This would be dishonest for a US market, but I understand it here.

I don't know about this line of reasoning. If, as appears to be the case, flat rates were designed to mislead borrowers into thinking they were getting lower rates, then engaging in that practice doesn't seem to be any more just, simply because others in the market are doing it. APRs were mandated in the U.S. for a reason.

I get that they need to show competitive rates, which means showing APR vs. competitors' flat interest wouldn't work without additional explanation. However, there are fairly easy ways to educate their market and do so in a way that differentiates themselves even further, especially if their pricing is really significantly better.

For instance, if I were a potential client, I would greatly appreciate a quick lesson on APR, and a comparison to competitive programs that re-expresses their rates in terms of APR. You'd earn good will for transparency/benevolence and my business for the better rates.

If the people they are comparing to is giving flat rates, then if they get an APR they need to be able to convert one number to the other to understand which is cheapest. I suspect even most Western consumers who are used to credit would get that wrong a lot of the time.

The flat rate is horribly misleading if you are comparing the flat rate for a fixed period of loans with different repayment periods, which might be the case if relying on advertised rates intended to mislead. It's fine, on the other hand, if the potential borrower goes to lender A and B and requests a quote for a specific loan period.

But I agree with you that a quick lesson on APR and showing APR also would be great.