

Zidisha (YC W14 Nonprofit) Changes Microfinance Equation - lalwanivikas
http://blogs.wsj.com/venturecapital/2014/08/25/y-combinator-nonprofit-zidisha-changes-microfinance-equation/

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vjvj
Great to see organisations like Zidisha going through YC.

This is more evolutionary than revolutionary as far as microfinance is
considered (for reasons below), and that's a good thing because there is no
need to reinvent the wheel.

1) Repayment rates over 90% are not uncommon among existing microfinance
lenders. Grameen Bank's rate is 97.6% - [http://www.grameen-
info.org/index.php?option=com_content&tas...](http://www.grameen-
info.org/index.php?option=com_content&task=view&id=453&Itemid=527))

2) Unlike mortgage providers who have a wealth of credit information for
applicants, microfinance initiatives do not have this. Traditionally this has
been solved by lending to groups and if any one person in the group defaults,
the entire group is barred from future payments. This enables the MF lender to
harness information held about individuals to screen non-creditworthy
individuals.

It's a clever mechanism and I'd like to know more about how Zidisha uses
facebook data to similar effect.

~~~
jkurnia
Companies like Kabbage (in the US) and Lenddo (Philippines, Colombia) use
social graph data pretty extensively to predict credit risk. At Zidisha thus
far, we're only using Facebook data to verify online identities of the
applicants.

~~~
TapMan
Lenddo has an API that some P2P companies are using. it is much richer than
just Facebook.

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jkurnia
I'm Julia, the founder of Zidisha. I'd be happy to respond to questions and
comments.

~~~
lquist
Hi Julia! A few questions:

* How much is Zidisha levered?

* A 10% default rate is very high. Can you get this down?

~~~
lalwanivikas
Zidisha is working very hard to bring down the default rate. But as this is a
relatively new approach, a lot of things can only be learned through
experimentation. So far the results are encouraging and if this trend
continues default rate should come down even further. You can read about some
of the efforts here: [http://venturebeat.com/2014/08/20/y-combinator-backed-
zidish...](http://venturebeat.com/2014/08/20/y-combinator-backed-zidisha-has-
been-stomping-down-non-performing-loans-with-some-extra-tech/)

Hope it helps and do share any feedback/suggestions you have. Thanks!

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crazypyro
Does Zidisha view having the broken (obviously because its not their first
language and this is not a criticism of the borrowers) English in the
descriptions as a benefit over descriptions that have been edited to be more
readable? I could see arguments for both sides and wonder if they have
experimented with giving a proofreader to every potential borrower, if only to
improve readability. I'd imagine they haven't done it because it removes some
of the human connections, but I'd be interested in A/B testing of it.

~~~
jkurnia
A good argument can be made either way, but I doubt we'd ever use a
proofreader as so much of our identity is in keeping the lender-borrower
communication direct and authentic.

That said, we do allow our users to post translations of non-English content,
while leaving the untranslated versions accessible - you may view an example
here:
[https://www.zidisha.org/microfinance/loan/SALIMATA2/9512.htm...](https://www.zidisha.org/microfinance/loan/SALIMATA2/9512.html).
We also sometimes edit the titles of loan projects for clarity.

~~~
nowarninglabel
Heh, looks like the same wording and effect I wrote on Kiva lender pages
(e.g., [http://www.kiva.org/lend/756762](http://www.kiva.org/lend/756762)) to
show the original language version :)

It'd be good to connect with you sometime on sharing knowledge on the tools
used for allowing for user-based translations. I'm not sure if you saw the
tools we use at Kiva, but I imagine there's some overlap where we could
probably work together to create a more generic tool focused on translating
loan descriptions that would work for both of us and other micro-finance
organizations out there. There's some decent open-source stuff out there but
nothing that's worked for us without heavy customization.

------
ajiang
Congrats Julia and Zidisha! Great to see an awesome nonprofit leverage
technology to change the game for microfinance.

------
frenchman_in_ny
"[B]orrowers in Kenya, for example, have a 10% annualized cost on Zidisha’s
loans, compared to roughly 50% interest on typical microfinance loans in the
country"

Out of curiosity, is there's no differentiation in interest rate based on risk
models? Is this true direct lending, vs. what Kiva generally does (ignoring
Kiva Zip)? What is your recourse if the loan defaults, and what kind of
monitoring do you (can you) do without feet on the ground?

~~~
jkurnia
We actually don't set any interest rate. Zidisha charges a flat 5% fee per
year the loan is held (for example a $100 loan held for three months would
cost $1.25). In addition to that, we allow each lender to choose the interest
to receive, if any - up to a maximum cap of 15%. If the loan is
oversubscribed, the portions with the lowest interest are retained. The
average rate chosen by lenders is around 5.5% per year, but there's a lot of
variation, as borrowers with the longest positive repayment histories tend to
attract lower interest rates.

Yes, this is true direct lending. In fact it's more direct than Kiva Zip,
because the latter uses local organizations called "trustees" to help vet
borrowers, and the trustees frequently post content in place of the borrower,
especially outside the US. Zidisha does not use trustees or any other
intermediary, and the content in the loan profile pages is written directly by
the borrowers. You can view a sampling of the sort of comments our borrowers
post here:
[https://www.zidisha.org/microfinance/testimonials.html](https://www.zidisha.org/microfinance/testimonials.html).

Our best recourse against default is prevention, as it is very hard to collect
a loan once it has become delinquent. Most of our credit risk protection
happens at the application stage: things like a referral program that
incentivizes borrowers to invite only trustworthy acquaintances to join
Zidisha, machine learning tools to detect fraudulent accounts, and a credit
limit progression system that incentivizes members to maintain high on-time
repayment rates.

We spend a lot of time on fraud protection, but the most frequent cause of
default at Zidisha is simple financial hardship. We're lending to a
demographic whose income is not only low but also erratic, and lacks
substantial savings, insurance or government safety nets. A big part of our
credit risk protection is recognizing that reality and accommodating it
through mechanisms like allowing borrowers to choose their own repayment
schedules and adjust their installment amounts up or down to adapt to their
financial situation.

