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Comment by jkurnia | Hacker News Reader

I'm Julia, the founder of Zidisha. I'd be happy to answer questions here.

What was your strategy for acquiring borrowers, and building your network of in-country volunteers?

When we first open a lending program in a new country, a local volunteer or visiting international intern typically finds an initial group of borrowers by making presentations at NGOs, pitching Zidisha to local cybercafe owners, etc. After that, growth happens almost exclusively by word of mouth.

Most in-country volunteers (we call them "Volunteer Mentors") are also Zidisha borrowers. They learn about the mentoring program via a note in the borrower account interface of our website, and apply via email.

I haven't followed Zidisha too closely, but just from this post, you mention "cost of lending" at the beginning but then the returns are before operating expenses. Without revealing anything too proprietary, how much cost savings do you have versus other microlending operations, and what does make up your costs (administrative or other site/engineering costs)?

Traditional microlending operations are expensive. For example, the average microfinance organization needs to charge borrowers 35% interest for capital borrowed at zero interest from Kiva.org, to cover its overhead costs. (Source: https://en.wikipedia.org/wiki/Kiva_(organization)#Current_in...)

Zidisha's overhead costs average about 10% of the value of the loans we facilitate. The costs are fully covered by borrower fees and optional lender tips. Borrower fees include a lifetime membership fee of $12 paid when the first loan is disbursed, and a flat fee of 5% of each loan funded per year the loan is held.

>and a flat fee of 5% of each loan funded per year the loan is held

interesting definition of flat fee. It sounds to me like additional 5% interest, isn't it?

> It sounds to me like additional 5% interest, isn't it?

Interest accrues as a function of time. Yes, one could model this fee as an interest rate by taking into account the loan's expected term. But the 5% is not compensation for the time value of money or risk of lending–it is a facilitation payment. As such, calling it a fee seems acceptable.

Since the 5% doesn't change with the amount lent, or other factors, "flat" seems an appropriate adjective (though it is more commonly used to refer to a fixed dollar, versus percentage, amount).

EDIT: since the "fee" does appear to vary with a loan's term, yes, I think this would be correctly characterizable as interest.

>Interest accrues as a function of time.

"per year the loan is held" sounds exactly this.

>Since the 5% doesn't change with the amount lent

that is the definition of a '%' sign, isn't it? :)

Using '%' with "per year" is a definition of interest, isn't?

Edit: wow, i just now recognized another possibility - charging 5% x [expected years] upfront - that would be "fee", yes. One fr!cking large fee. Who in sane mind is going to pay it? That sounds like preying on people who have no other choice.

Most loans are held for less than one year, so the fee ends up being less than 5% of the amount raised.

> "per year the loan is held" sounds exactly this.

I was not aware of this. You are correct - this looks more like interest than a facilitation fee.

> that is the definition of a '%' sign, isn't it? :)

Transaction fees are usually assessed as a fraction of the value transacted. A flat fee, within this context, is a non-varying percentage of the transaction value, e.g. 5%. A non-flat fee has moving parts, e.g. 5% for the first $100, 4% for the next, etc. (or 5% if the interest rate is less than 15%, 10% if above, etc.).

It is an ambiguous term. I try to avoid it. Instead of calling a fee "flat" to emphasise its simplicity, make it simple.

This is intended as a service fee, not interest. It is set at a level that, along with registration fees and lender tips, just covers our operating costs. (For example, in the first quarter of 2014 our average operating costs were $8,225 per month. Our average monthly revenues were $8,507.)

It might be more precise to structure the service fee as a fixed percentage of the loan amount regardless of the term. We opted to structure it as an annual rate mainly for simplicity: it can be added to lender interest so that loan applicants can see the full cost of the loan in a single rate, without any other unexpected fees.

Have you considered adding bitcoin support to your product? Assuming the receiver has a way to convert bitcoin to/from their local currency, this may remove some friction in transfering value between individuals. btcjam.com is doing something like this with bitcoin.

What use would that be? Far more people in the world have not used bitcoin than the percentage that has, it looks like it might be a cheap PR win but in actual usage it will amount to a small fraction of nearly nothing. And then you still have to convert them with associated costs and repay the lender in some ridiculously volatile currency.

Supporting bitcoin (unless you are a bitcoin start-up) seems like a silly thing to do for a company that needs to prioritize due to resource constraints.

1) People without bank accounts can receive BTC, and sell them for cash

2) Sending BTC internationally is simpler than sending fiat

How will they sell them for cash without using an exchange and/or a bank account?

I can't just convert a bitcoin sitting in my wallet to something I can give to someone else to exchange for cash without a whole pile of guarantees.

The only people I can trade bitcoin with for cash is other bitcoin users, which - as I noted above - are few and far between.

Yes, sending BTC internationally is simpler, but that does not mean the recipient can do the same things with them as they can do with fiat, and as such it just shifts the problem to the recipient. When you send cash (using for instance western union) it is almost instantly available as well, without all the downsides of having to find someone that will trade your bitcoins at something approaching their market value.

Western union will often take over 5% of a transfer through fees and extremely greedy exchange rates. A BitCoin transfer on the other hand is virtually free.

IMHO there will be a high overlap between people using a lending startup and Bitcoin users, as both are modern bank alternatives.

In my humble experience exchanging Bitcoins for cash was hard a couple of years ago, but not today. All my geek friends and colleagues use it.

We did consider adding bitcoin support, but opted to refrain for now because:

- we did not identify a straightforward way to convert bitcoins to cash in borrower currencies

- it seemed from our informal research that supporting bitcoin has not resulted in many new supporters for most nonprofits that have tried it

- supporting another payment method would add overhead weight to our organization

- so few of our lenders use bitcoin that we estimated the savings in transfer fees wouldn't be worth introducing more complication in our payment options

We're keeping an eye on bitcoin and may begin supporting it if these conditions change.

Do you guys have an API available?

We don't at the moment, because our programming resources are limited and we have been prioritizing development of our lending platform. We will likely be able to make our data available in an API within a year.

You can view the data used to generate the repayment graph here: https://www.zidisha.org/index.php?p=114

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