

Zidisha (YC NP W14) Launches A Micro-Lending Platform for Developing Nations - kevin
http://techcrunch.com/2014/01/23/zidisha-launches-a-kickstarter-style-micro-lending-platform-for-low-income-entrepreneurs-in-developing-countries/

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ipince
-How to the funds reach the borrower? Zidisha is essentially doing the work that the local partners do in the Kiva model, right? How is that scalable across different countries?

-As a lender, I can request the funds be given only to the business itself, right? In many of these places, it can be incredibly difficult, time-consuming, and expensive to create a formal "business". How does Zidisha help with that, if at all?

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jkurnia
Hi ipince,

We use a different local payment channel in each country to transfer funds
directly to the borrower. In Kenya, for example, we use the M-PESA mobile
money service to electronically transfer cash into the mobile phone account of
each person. M-PESA has an online interface, so we can do this transfer
entirely online. Our first loans back in 2009 were disbursed to Masai nomad
communities located over a day's journey from any paved road or electricity.
It was an amazing experience to send cash electronically from our US bank
account to the mobile phones of people in such a remote place, which had been
unreachable even by local banks in Kenya. Recent innovations such as mobile
phone-based payments are what make a platform like Zidisha feasible.

To address your second question, yes, 100% of lender funds go directly to the
entrepreneur that you fund. (We accept optional tips from lenders, and
borrowers also pay a 5% service fee for the loans to cover our operating
costs.)

It is true that it is incredibly expensive and time-consuming in most
developing countries to register a formal business with the government. Most
of the entrepreneurs fundraising at Zidisha are in the "informal sector" \-
though they do very often employ others as a result of the loans.

Zidisha does not provide any kind of business or other training services. We
are purely platform for direct P2P interaction, closer to eBay than to the
Grameen Bank.

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heynk
Hey! So excited to see what you're doing. I'd appreciate a little more clarity
about this point:

> 100% of lender funds go directly to the entrepreneur that you fund ... and
> borrowers also pay a 5% service fee

Are 'borrowers' not the same as the 'entrepreneurs' that are funding? Is this
5% not paid until after the loan is repent, aka "interest"?

~~~
jkurnia
Hi Heynk,

I realize now that was unclear - thanks! Yes, the 5% service fee is paid to
Zidisha at the same time interest is paid to lenders, as the loan is being
repaid.

We have a separate registration fee that borrowers pay upon joining Zidisha,
but it is only paid once and only in the event the borrower raises a loan.

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notahacker
Interesting to see an established (albeit young) nonprofit taking the YC
route.

I like the basic principle behind their approach too: its ultimately
philanthropy in the sense that you're unlikely to see a positive ROI on loans
you make, but at the same time the repayment requirement ultimately encourages
the recipients to _invest_ the money and means the same cash can potentially
help more people than gifting.

~~~
jkurnia
Hi notahacker, I'm Julia from Zidisha. I agree that microloans are more
efficient than donations, as they can be recycled over and over as they are
repaid and disbursed as new loans, and there is a built-in incentive to invest
the funds in something that generates revenue.

I'd go one step further and say that microloans are a great form of
philanthropy because they are psychologically healthier for everyone involved.
Rather than a charitable handout, they can be structured as a business
transaction that benefits both sides. See my post at
[http://www.huffingtonpost.com/julia-kurnia/about-to-send-
a-d...](http://www.huffingtonpost.com/julia-kurnia/about-to-send-a-
donation_b_4623503.html) for more thoughts on this.

I'd welcome everyone's opinions / questions about Zidisha.

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mrjatx
I like Zidisha. I was looking for ways to do micro loans and everything I read
about kiva and the way they work through a middleman was a big turn off. Lots
of reports about swindling and what not.

I'm surprised there aren't more p2p loan services in general, especially for
those of us in the USA, etc.

edit: Just found out about Kiva Zip. So I guess they're making some attempt
there.

~~~
jkurnia
Hi mrjatx,

Yes, thanks for bringing that up. In the US we have large commercial P2P
lending services like Lending Club and Prosper.

Then there is Kiva Zip, which also does P2P loans in the US but at zero
interest and an emphasis on human connection and social impact.

Kiva Zip was originally inspired / advised by Zidisha (see
[https://zip.kiva.org/blogs/4](https://zip.kiva.org/blogs/4)). Our models have
some major differences though:

\- Kiva Zip offers loans in the US and Kenya. Zidisha offers loans in Benin,
Burkina Faso, Ghana, Guinea, Indonesia, Kenya, Niger, Senegal and Zambia, and
we have no plans to enter the US market.

\- Kiva Zip is interest-free. Zidisha allows borrowers to offer interest rates
of their own choosing which are then bid upon by lenders.

\- Kiva Zip has an office with staff in each borrower country, and works with
local partners called trustees. Zidisha has no local staff at all, and no
local intermediaries - we deliver everything online.

\- Kiva Zip is well resourced. Zidisha is lean to an extreme, so that the cost
of making the loans is just about 5%.

\- Zidisha is managed by a global network of about 60 volunteers. We are a
virtual organization with no physical office.

\- Perhaps most importantly, Kiva Zip retains Kiva's historic expertise in
liaising with local entities (hence the trustee-based organization of the
loans). Zidisha's core expertise is in person-to-person communication, and we
are really passionate about keeping that direct P2P connection untainted. We
interfere as little as possible in the transactions between borrowers and
lenders, while providing the marketplace infrastructure that makes direct P2P
lending across the international wealth divide possible.

~~~
mrjatx
Thanks for the breakdown. I've looked at loaning on Prosper and Lending Club.

They both focus on our credit reporting system which in my opinion is an
absolutely miserable metric of reliability. I don't like the thought of not
being able to assist someone with their cause because they missed a few phone
bills 3 years ago. It should be purely at the discretion of the person
providing the loan.

From what I understand you can't even join Lending Club without a near
impeccable credit score. And at that point, why would you join as opposed to
heading to your credit union for a personal loan?

I just don't see the point in what they're offering.

Anyway, that's a tangent.

~~~
jkurnia
Hi mrjatx,

Domestic P2P lenders like Lending Club and Prosper may be able to shave a
fraction of the cost of borrowing within the US. But I think the real windfall
to be gained from P2P lending is where the local alternatives are most
expensive and inefficient.

For small loans to low-income people in developing countries ("microfinance"),
the global average interest rate is about 40%. It is not necessarily
profiteering; their model is just incredibly inefficient.

Even zero-interest Kiva loans cost more than 30% on average to the borrower,
simply because the local banks that manage the loans need to charge that much
to cover their operating costs.

Zidisha bypasses all that by offering a do-it-yourself microfinance
marketplace. Our operating costs are roughly 5% of the value of the loans,
versus the 40% or so that is traditional in this sector. The savings get
passed on to borrowers and lenders, who are free to negotiate the interest
rates they find appropriate for each loan.

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andrewpbrett
Just made two loans. I really love this idea and Zidisha does a great job of
giving you all the information about the project and the person you're making
the loan to. Congrats on the launch.

~~~
jkurnia
Hi andrewpbrett, thanks for joining us!

We are probably the most transparent microlending website in the world - you
see exactly how much each borrower will pay for the loan, and you can dialogue
directly with each borrower about how they are spending the funds and what the
impact has been.

If you'd like a taste of the kind of dialogues that go on, you can also check
out our universal comment feed for all the loan profile pages here:
[https://www.zidisha.org/microfinance/testimonials.html](https://www.zidisha.org/microfinance/testimonials.html)

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1dundundun
As a long time Kiva member, Kiva Zip Trustee & bigtime supporter of Watsi, I'm
really happy to see Zidisha getting some shine right now. It's an exciting
time for crowdfunding and microfinance. I didn't know you guys were in the DC
area!

What are your main challenges on the ground in different countries? Have you
ever thought about incorporating bitcoin into your funding model somehow?
Could that solve any potential issues with the transfers?

~~~
jkurnia
Hi 1dundundun,

Thanks for your message. Kiva was a big source of inspiration for Zidisha.

I would say our biggest challenge is finding affordable local payment options
that can be accessed over the internet, without needing to outsource funds
transfers to local intermediaries. We've had the easiest time in countries,
such as Kenya and Ghana, that have strong mobile-phone-based payment services.

The language barrier is quite a challenge in our francophone countries and in
Indonesia. We are lucky to have a wonderful team of volunteers who provide
translations of content posted by the non-Anglophone borrowers, and serve as
the first line of contact whenever they need help using our platform.

~~~
1dundundun
That's awesome.

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pbreit
Why are these things (Kiva included) frequently non-profit? Wouldn't for-
profit make much more sense both because a) I understand the business model is
sound and b) a for-profit venture would reinforce to all the constituents the
basic economic principles?

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jkurnia
Hi pbreit,

That is a really good question. I know that in the case of Zidisha, we opted
to be nonprofit because we did not want to have to charge higher fees to the
borrowers in order to make returns for investors.

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pchristensen
jkurnia, I just want to say that I'm really grateful you made this. Between
Watsi and Zidisha, you've made it easy and rewarding to help the health and
livelihoods of those in need.

Best of luck!

~~~
jkurnia
Hi pchristensen, thanks for your message.

Watsi and Zidisha are just the latest examples of a turning point in history:
thanks to technology, people who happen to have been born in the world's
poorest places are no longer condemned by geography. The internet is making
location irrelevant.

We are pushing that revolution to the frontier, the developing countries where
the internet has just recently become accessible to ordinary people.

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frozenport
The person to person model feels to involved. I want something that invests my
money and updates me on the good my koney is doing. Im not interested in
becomming a lender.

~~~
jkurnia
Hi frozenport,

Thanks for this honest feedback. Zidisha definitely isn't for everyone - it is
really a do-it-yourself platform rather than a managed charity.

We do have an autolending tool, which gives lenders the option of having their
repaid funds automatically recycled into new loans. However the vast majority
of our lenders opt to choose their loans themselves, and some even develop
online friendships with the borrowers - exchanging recipes and children's
photos, like old-fashioned pen pals except the communication is instantaneous.
Our platform is really optimized for getting directly involved with each
individual loan.

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kfk
It seems that in average one could expect a 4.2% interest rate (4.6% avg at a
8% faulty). I am wondering if a higher interest might be more beneficial?

~~~
jkurnia
Hi kfk,

The optimal interest rate is one of the most frequently debated questions
among Zidisha lenders.

Zidisha doesn't set interest rates. Our platform allows borrowers to offer up
to 25% interest, and lenders may fund at any rate they choose, up to the
maximum offered by the borrower.

The borrowers who have the highest on-time repayment scores are displayed
first in the "Lend" page, and these are generally able to raise loans at the
lowest rates. Newcomers, or borrowers with less than stellar on-time repayment
histories, usually need to offer higher rates in order to have their loans
funded.

