

How Can I Invest in Microfinance? Part 2: My Zidisha Experience - jkurnia
http://blog.microfinancetransparency.com/how-can-i-invest-in-microfinance-part-2-my-zidisha-experience/

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

~~~
nmrm
The author concludes that he made a very modest profit, which only counts as a
net loss if a one-time fee to Paypal is counted.

Is there a way to put money into a Zidisha account without paying processing
fees? What's the cheapest way to put money into a Zidisha account?

On the lender's end, I think about microfinance more as a "renewable donation"
than as an "investment". So, it would be nice if 100% of the donation went to
the operation of the charitable organization or the charitable act itself.

edit: less ambiguous question.

~~~
jkurnia
We don't currently offer a way to put small amounts into a Zidisha account
without paying credit card / PayPal fees. That said, most of our lenders
recycle their funds over multiple loans, rather than cashing out immediately
when they are repaid. When the 3.5% transaction fee is spread out over many
loans, the cost per loan becomes less significant.

~~~
chrisduesing
Have you looked in to Balanced Payments? They enable ACH transactions at 1% +
$.30 capped at $5.

~~~
joshstrange
I've used Balanced Payments before but they didn't have the $5 cap. I can
confirm they now offer it but do you know when that started? My googling
hasn't turned up any blog posts, currently going through all of their posts.

~~~
chrisduesing
I can't say when they started, but we've been using it for our marketplace for
a little over 6 months and it has been capped the whole time.

~~~
joshstrange
Thanks! I looked through their blog archives but didn't see anything.

------
orware
I remember back at UC Berkeley I went to a little informational session about
a company called Prosper...looks like they're still around :-):
[http://www.prosper.com/](http://www.prosper.com/)

If I remember correctly, the lady presenting was with eBay while Meg Whitman
was there and at the time (back in 2006) this was a new venture she had become
involved with. Seemed pretty neat back then.

~~~
jkurnia
Prosper was one of many inspirations for Zidisha. The attorney that led
Prosper's legalization deal with the SEC advises Zidisha pro bono.

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briholt
I am invested in microfinance and want to invest more, but there's a constant
news stream of problems with the providers and I'd really like to know who I
should invest with.

This article references a few complaints about Kiva's lack of transparency.
Two weeks ago there was an HN article on Zidisha's lack of transparancy [0].
Zidisha's website lists their repayment rate at 74.31% [1], which seems very
low compared to other providers which report 90%+. This author likes MyC4, but
they appear to focus on European investors (given the Euro currency symbol).

If anyone has any solid suggestions on who I should invest with, I'd love to
hear them.

[0]
[https://news.ycombinator.com/item?id=7546394](https://news.ycombinator.com/item?id=7546394)
[1]
[https://www.zidisha.org/index.php?p=43](https://www.zidisha.org/index.php?p=43)

~~~
jkurnia
It is true that 74% of loans whose final repayment due date has passed have
been repaid. We expect the ultimate repayment rate of those loans will be
higher than that, because many loans are repaid after their due dates.

In addition, most of the loans covered by the historical repayment rate
displayed in our website were issued over a year ago. Our repayment
performance has improved substantially in the past year, such that risk level
of loans currently being issued is lower than our historical repayment rate
suggests.

Zidisha is still not a safe place to store savings or a lucrative investment
opportunity, but I think it's reasonable to expect that the value of lending
funds can be preserved over the long term, while offering financing
opportunities at dramatically lower cost to the borrowers. As a nonprofit
philanthropic platform, that is Zidisha's purpose.

~~~
briholt
It'd be really nice if you offered more detailed stats, especially a CSV of
all loans with all relevant info. (Maybe you do have this and I just didn't
see it on the site). I'm sure there's a lot of data scientists who could pull
a lot of useful information.

Kiva has both an API and a graphical search of all loans. I did some simple
analysis on Kiva's loans and that influenced some preliminary investing. I
don't intend to make any money, but applying stats is part of the "fun" for
me.

~~~
jkurnia
We do offer access to the data that makes up the graph depicting trends in on-
time repayment rates at Zidisha:
[https://www.zidisha.org/index.php?p=114](https://www.zidisha.org/index.php?p=114)

It generates a simple table with the repayment performance of each of the
6000+ loans that have been funded through our platform, with links to the
individual loan profile pages.

We'd definitely like to offer an API similar to Kiva's, when web development
resources allow.

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BobbyH
mfheretic, you're counting "active loans" as cash in the bank, but I think you
have some active loans that are likely to default and cause losses...

This is the account I looked at:
[https://www.zidisha.org/microfinance/profile/Jessica.html](https://www.zidisha.org/microfinance/profile/Jessica.html)
That account gave a 20% loan to Hellen Festo, made 40 loans, etc., as you
mentioned in your blog post.

I took a look at the first ten active loans listed on that profile. Four loans
in particular are way behind on payments. If those loans default, you'd be out
$160. On $1,000 in principal, that would represent a loss of 16%, instead of
breaking even. That's more in line with Zidisha's write-off rate of 18.65%:
[https://www.zidisha.org/index.php?p=43](https://www.zidisha.org/index.php?p=43)

~~~
mfheretic
Completely accurate, which is why I state "I am basing this entire analysis on
a number of large assumptions. Firstly, that my current outstanding loans will
be repaid with the same reliability as my completed loans", and a number of
other assumptions in addition. Nor do I know the extent to which previous
loans, which may now be 100% repaid, may have dipped into default and
subsequently recovered, which also incur a marginal cost in terms of
opportunity cost of capital etc. My analysis is very much "cash based", which
is limited, but this is the data I have available. A quick look through some
of the 100% repaid loans suggests that at certain points in the cycle these
were also overdue. Perhaps I could obtain the individual repayments versus due
dates for each loan and work this out with greater accuracy, but I haven't
bothered so far. To what extent are my current loans likely to default at the
18.65% rate you suggest? I have no idea. To what extent did my previous loans
default to this extent? I have no idea. This is why I simply take a bird's eye
perspective and look at net cash flows. However, as you accurately imply, for
me to genuinely do this with precision I should wait until all current loans
have been repaid, which either means I have idle funds on the platform, or I
have to complicate the analysis by considering my average outstanding balance,
which I have assumed for simplicity is $1000, which it has been to date
roughly.

However, are you considering the gross interest income I will earn on the
loans that don't default over the forthcoming period? This will partially
offset some of the defaults, I can't say with precision to what extent. I
count only principal outstanding, not interest income due. So, to some extent
this will lessen the impact of possible defaults.

Finally, I have done a couple of new bids since my cut-off date of April 6th
when I downloaded the data, so the numbers might not add up 100%. Oh, and
Jessica is my wife, she started on Zidisha first, before I took over!

At the end of the day I am hesistant to say resolutely that Zidisha is a
break-even venture. It has been so far, but subject to certain assumptions
which I hope I have stated clearly. 18 months is a decent trial-period, but
it's not a perfect analysis. And if I do subsequently lose a few percent on
$1000 that is tolerable. Would I put $10.000 on the platform? No. And comments
warning that Zidisha needs to tighten delinquency are completely accurate, and
to an extent I am gambling on their ability to do just that - progress seems
good so far (in 2014). What intrigues me is the innovation in the business
model. It is disruptive. It is a first-mover in this space. Does that mean the
model is perfectly refined and cannot be improved? I doubt it, and I look
forward to seeing how they develop. But I think it is worth giving them a
chance, which is what I have done (to a modest extent), and waiting to see
what happens. I will update my blog periodically when more data comes in.

~~~
BobbyH
I take your point. It's just that if those four loans default, you will be
down 16%. If that happens, you will lose your principal and also not earn
interest on those defaulted loans. So even though you charged an 8.4% APR, you
will only earn interest on 84% of your loan balance. So unless a miracle
happens, it doesn't seem likely that you will break even.

Here are some details on those four loans:

* Alex made one late partial payment ($1.17) on his $100 loan and is 108 days late on his second payment: [https://www.zidisha.org/microfinance/loan/Macbul/3583.html](https://www.zidisha.org/microfinance/loan/Macbul/3583.html)

* Margret hasn't "rescheduled" her loan even though she hasn't made a payment for four months: [https://www.zidisha.org/microfinance/loan/margret-muthoni/34...](https://www.zidisha.org/microfinance/loan/margret-muthoni/3491.html)

* Cynthia missed her first four payments, rescheduled her loan, and is now two months behind: [https://www.zidisha.org/microfinance/loan/cynthia1988/3090.h...](https://www.zidisha.org/microfinance/loan/cynthia1988/3090.html)

* Soknya missed three months of payments, rescheduled, and is now 67 days late: [https://www.zidisha.org/microfinance/loan/sdndiaye/1908.html](https://www.zidisha.org/microfinance/loan/sdndiaye/1908.html)

------
nrub
Serious question here. Is microfinance a good thing? What do we know about how
it affects the borrowers? Most of the things I have read have been from a
lenders perspective. About profit, and investment. Is that really the goal?

~~~
mfheretic
It's the most serious question of all. The evidence is extremely mixed. I love
David Roodman's Time Magazine quote for its brevity:

"On current evidence, the best estimate of the average impact of microcredit
on the poverty of clients is zero"

[http://content.time.com/time/world/article/0,8599,2103831,00...](http://content.time.com/time/world/article/0,8599,2103831,00.html)

Needless to say the debate rages on. The Zidisha discussion detracts from this
central point, but on valid grounds. To some extent the shortfalls of
microfinance may be due to the high interest rates charged, the restrictive
loan conditions, the profit motivation, the aggressive intermediating MFIs
etc., some of which Zidisha addresses. However, if you read the work of
Milford Bateman, for example, he raises more fundamental questions about
microfinance. In the P2P space profit is not really an option, and in
Zidisha's case it is debatable whether one can even break-even. But look at
the higher levels, the profits accumulating to Accion in the IPO of
Compartamos; the millions made in the IPO of SKS, or at some of the
microfinance investment funds - these are the big boys, and at that level yes,
there are vast profits to be made. Motivation is a hard thing to prove, but
you are right to suggest that profit has come to play an unhealthy role in the
debate. The sector is extremely opaque, transparency is rare, there are
rampant conflicts of interest and ill-aligned incentives. It is largely
unregulated in practice, despite endless window-dressing to the contrary. And
when some new start-up promotes microloans for poor people to connect their
houses to the drinking water supply, as sensible and this might superficially
seem, isn't this a public good that the government should provide?

Reading the standard microfinance mantra one could be forgiven for concluding
that all the world's problems can be solved with loans, and that profit
maximisation is the best structure to arrange this. We are familiar with the
theory, but the evidence is sorely lacking.

