
Show HN: Impact Investment Funds – Growth-Enabled P2P Lending Donation Funds - jkurnia
https://p2p-microlending-blog.zidisha.org/2016/11/24/introducing-impact-investment-funds/
======
jkurnia
I'm Julia, the founder of Zidisha (YC W14 nonprofit). This is the first time
in two years we've offered a loan fund that is designed to grow in value over
time. I'd welcome feedback on the appeal of a compounding-value donation fund
and on our implementation of it.

~~~
qwrusz
Hi Julia,

Congrats on the success so far! Wishing your team and the entrepreneurs you
are helping even greater success to come.

I don't know all that much about microlending, but I do know quite a bit about
investment funds, so I clicked the link hoping to learn more and maybe help
offer some feedback if relevant.

After reading your blog post I still didn't fully understand it so I went to
your main site to try to learn more. I read through the FAQs too, but still
have a couple questions:

For example: while exploring some of the projects on your site I came across
Ms. Mwangi from Kenya asking for a loan to buy shoes and clothes for her
clothing line. [https://www.zidisha.org/loan/shoes-clothes-for-my-
clothline-...](https://www.zidisha.org/loan/shoes-clothes-for-my-clothline-
bokiewear)

 _Ms. Mwangi is asking to borrow $509.00

The cost of the loan details show:

-Service Fee: 5% of $509.00 = $25.47

-Lifetime membership fee: $50.95

-Optional Pay into Zidisha Members Loan Fund in return for a higher starting credit limit: $428.02

The costs total: $504.44_

To me this looks like costs and fees totalling $504 in order for her to borrow
$5?

So my sincere apologies for any misunderstanding on my part. I realize
microlending has unique risks and challenges compared to other types of
lending. And of course a practical amount of money needs to got to Zidisha to
help cover costs and expenses of the good work you guys are doing.

But how can costs and fees be $504 for a $5 loan? Is that correct? The costs
to loan value seem _very high_ to say the least. If you see this, I'd really
appreciate a bit of clarity and info on these details. Thanks

~~~
jkurnia
Thanks for taking a look and for your feedback. The default starting loan for
first-time borrowers without a track record is very small (around $10). If a
first-time borrower opts to start with the small default amount, there is no
Members Loan Fund deposit required. But if a first-time borrower is confident
they can repay larger amounts, we offer the option of depositing the
difference between the ~$10 default first-time loan amount and the desired
starting credit limit into the Members Loan Fund upon joining Zidisha. The net
amount received for the first loan is still $10, but after successful
repayment of the first loan, the borrower may take out larger loans
commensurate with the starting loan they have repaid.

The Members Loan Fund deposit may be withdrawn at any time the borrower does
not have an outstanding loan. It may also be used to pay off the remaining
balance of an outstanding loan, if the borrower requests it. If the loan goes
into arrears, it is used to reimburse lenders for the amount they had lent.

The lifetime membership fee is currently zero, but at the time this borrower
joined, it was 10% of the starting credit limit chosen by the applicant. (So
someone choosing the default starting credit limit of $10 would pay a lifetime
membership fee of $1.)

The above costs are only paid once, at the time a borrower first joins
Zidisha, and entitle the borrower to lifetime access to raise loans. You can
learn more about why we developed a lending model that front-loads costs here:
[http://www.huffingtonpost.com/julia-kurnia/the-story-of-
zidi...](http://www.huffingtonpost.com/julia-kurnia/the-story-of-zidisha-
dram_b_9580894.html)

The 5% service fee is a flat percentage of each loan amount, and is
independent of the loan term. If Ms. Mwangi opts to hold the loan for two
years, she would still pay only $25.47.

We'll aim to make this clearer in the cost breakdown explanation. Thanks
again!

~~~
qwrusz
Thank you for the reply.

1\. Part of the reason I found the Members Loan Fund confusing was the
terminology in the FAQ wasn’t clear it’s a deposit which could be withdrawn if
the borrower no longer has an outstanding loan.

2\. I understand depositing the difference of first loan into the MLF helps
facilitate future larger loans at a higher credit limit. Though how it works
seems to involve a borrower receiving a ~$10 loan, but then being asked to
“repay” the lender a very different loan amount in some cases hundreds of
dollars – over the course of only a few weeks...These entrepreneurs able to
turn $10 into $100s in profits so quickly would be very impressive. Maybe
repayments come from another source.

3\. There may be more behind this part but it looks like when good borrowers
pay back their loans in full and they eventually move on from Zidisha they
would take their MLF deposit with them as they leave. At the same time there
are the borrowers who take out loans and default on repayment and don’t come
back; they end up creating a loss as their MLF deposit doesn’t cover the full
loan value.

Basically this sounds like a system exposed to some moral hazard and adverse
selection but without a mechanism for good actors to help offset any losses
from bad actors. ie people leaving Zidisha are either ~neutral to the fund or
they created a loss, no one ever moves through leaving a net positive. It's
comparable to insurance company model and doesn't sound sustainable if this is
what's happening - and made more difficult if the biz model involves spending
the principal and keeping the interest instead of spending interest and
keeping the principal.

With that said, I do want to mention I read the huffpo link. It’s awesome the
way you guys are iterating based on observations and innovating as you build
this - making it more efficient. It's really exciting to see this happening on
this level in the non-profit space.

I realize you have a challenging two sided market to grow that requires
balancing info and experience for many people across many countries. It seems
really complicated too how to handle the different messaging that lenders and
borrowers need here respectively and then also keeping things consistent as
one platform. And it's P2P lending which brings with it all kinds of hurdles
and biases. And it's also non-profit work! Which nobody seems to get is real
work and too many crazy people love to complain about (PS I hope you are not
underpaying yourself for this role, I see way too many underpaid non-profit
workers). Basically what you are building looks darn hard to do, and it's
super impressive what's been built so far, a ton of respect from me. Best of
luck.

