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Comment by mcherm | Hacker News Reader

I notice the ongoing trend toward more transparency by Zidisha (for instance, the change the article describes in August of 2012 which started listing non-paying loans as a loss of principle). This is an excellent step. I want to see the whole story -- even if parts of it are ugly -- because that builds my trust that those running the system have taken the best possible options and are running things reliably. Apparently there is much more that could be achieved here -- better information about rescheduled loans, for instance.

The trend is good; it should continue.

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To clarify: I actually think that the article's main complaint (a large loan loss rate) may be ACCEPTABLE if it is made clear up-front.

Zidisha is not a place for lenders to make huge profits. It is a place for lenders to support others making a difference for themselves. If the loan default rate can be lowered enough that it is covered by lending rates, then it could ALSO be a place where the lenders' money can support others over-and-over through repeated loans (and even be withdrawn by the lender at some point) -- and that would be GREAT. But it is not necessary: what is necessary is clear and honest communication.

I would agree with these statements: Zidisha is a platform for philanthropy.

We're optimized for giving disadvantaged entrepreneurs in the world's poorest places the chance to improve their lives, not for storing financial assets. I think we make that distinction abundantly clear to prospective lenders. See for example our first FAQ for lenders, "Is Zidisha a safe place to store my savings?" (https://www.zidisha.org/microfinance/faq.html), or the first paragraph of our Trust and Security page (https://www.zidisha.org/index.php?p=123).

That said, repayment rates at Zidisha are increasing steadily as we continuously improve our lending model in response to experience. The 18% writeoff rate includes mostly loans that were issued over a year ago (which have had time to mature).

Our credit risk control mechanisms have improved dramatically since that time, such that I think it's reasonable to expect that the value of lending funds can be maintained over time without erosion for the loans that are being issued today. That said, Zidisha is still not a safe place to store funds one cannot afford to lose, and we do not market it as such.

"Our credit risk control mechanisms have improved dramatically since that time, such that I think it's reasonable to expect that the value of lending funds can be maintained over time without erosion for the loans that are being issued today."

To achieve that at the max interest rate you allow (~10% APR), you would need a 2.4% loan loss rate. That's an order of magnitude below where Zidisha is now. That would be an incredible achievement and I would gladly cover it as a huge story!

Is Zidisha on track to deliver a 2.4% loan loss rate?

I agree that the way we present information about rescheduled loans can be improved. We do not consider them to be in arrears, because at Zidisha borrowers have the flexibility to reschedule loans to repay either later or earlier than planned, and rescheduling does not necessarily indicate greater likelihood of default.

When web development resources allow, we aim to improve our Statistics page to use a single metric to encompass both ended and current loans, and allow users to filter the data by date disbursed.

> rescheduling does not necessarily indicate greater likelihood of default

That is simply untrue. Look, I work for a credit card company, and we have a great deal of experience with evaluating customers and predicting risk of default. A customer choosing to reschedule a loan does not necessarily mean that they WILL go in default, but it is almost certainly an indicator that increases the probability that they will. I am not suggesting you should consider them in arrears (they aren't!) but that you should take payment rescheduling into account as a leading predictor of future default rates on cohorts of loans that have not yet reached default.

> we aim to improve our Statistics page to use a single metric to encompass both ended and current loans...

Depending on how well that metric is designed, that might actually LOSE information.

> ...and allow users to filter the data by date disbursed.

That will definitely be useful. In my experience, graphing key indicators (like default rate, repayment rate, loan profit, number of loans made, and leading indicators of default) by cohort (grouping by start date) is a really good way to view your data to determine whether changes in lending policy are having the intended effects. Since your policies have changed recently, this sort of view may prove very useful.

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