
Microlending platform Zidisha (YC W14 nonprofit) bypasses third parties - jkurnia
http://www.startupdaily.net/2015/09/microlending-platform-zidisha-bypasses-third-parties-to-keep-interest-rates-down-for-people-in-impoverished-communities
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ClintEhrlich
I wish the team at Zidisha nothing but success, but I'm skeptical that micro-
lending is a practical solution for relieving poverty in the developing world.

If a viable opportunity for making small loans existed, then I would expect
local financial institutions to fill that need. When those institutions do not
exist, there is usually a reason, such as the lack of an adequate legal and
financial system for recovering debts. Without the ability to enforce payment
obligations, the line between lending and charity becomes rather slim.

It's also unrealistic to expect most people receiving micro-loans to operate
effective businesses, given their limited educations and lack of direct
exposure to Western entrepreneurial values. Perhaps their living conditions
could be improved more efficiently by a non-profit that gave away the right to
operate franchise businesses using a proven model?

I don't have the expertise to know what kind of business would be optimal for
people with limited resources. But when I see the success of immigrant-run
franchises within the United States, I can't help but imagine that the
underlying principle could be harnessed to generate wealth for needy people
overseas.

~~~
krastanov
You are describing your "gut feeling", but allegedly micro-lending has been
proven to work in theory and practice by actual economists.

On the other hand I am criticizing you for doing "armchair economics" without
giving the references to support my previous statement :)

~~~
ClintEhrlich
That's a fair point. But my view is informed by my (limited) review of the
scholarly literature on microfinance. I was impressed by the economist David
Roodman, who has done a lot of work on how the actual empirical evidence
suggests that micro-loans are not effective at relieving poverty.

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jnmandal
A lot of the overhead from 'traditional' microfinance (the model popularized
by Mohammed Yunus in the 70's-80s) comes from creating social/community-based
incentives for repayment, referred to as social capital. This is considered
the alternative to regular loans since in non-collateral lending the borrower
loses nothing monetarily if they don't repay.

According to their site, the repayment rate for Zidisha is under 50%... thats
pretty dismal in an industry where you normally consider a healthy MFI
(microfinance institution) to be operating at high 90 percentiles of
repayment.

~~~
tlb
Where do you get "under 50%"?

If you're looking at
[https://www.zidisha.org/statistics](https://www.zidisha.org/statistics), you
might be confused by

    
    
      Principal repaid: $607,262 (44.9% of amount disbursed)
    

This is for all loans made within the last year, many of which are very
recent. You should add the line

    
    
      Principal held by borrowers repaying on time: $581,565 (43.0% of amount disbursed)
    

to get 87.9% either repaid or in good standing.

~~~
jnmandal
Ah, I stand corrected.

