
Help me distribute $100,000 to new entrepreneurs in Africa - paul
http://paulbuchheit.blogspot.com/2014/03/help-me-distribute-100000-to-new.html
======
dchs
Neat idea. I love that the repayments are going back in to funding Zidisha
itself - a unique way to raise ~$100k! Congrats on the funding round Julia :)

------
newfund
Note: Kiva has a program called Kiva Zip where you can make direct loans to
entrepreneurs in Kenya at 0% interest:
[https://zip.kiva.org/](https://zip.kiva.org/)

------
yunfang
I think this is a great idea. (Disclosure I have been a supporter for Zidisha
for a while). This is a great best-of-two world approach of GiveDirectly (pro
borrower) and traditional Microfinance (pro intermediary/lender).

The traditional microfinance has been a mess because it creates a lot of over
powerful institutions and the usurious rates don't necessarily make lives in
Africa better.

The GiveDirectly's direct handout model can be easily abused on the borrower
side.

Zidisha bridges the gap between the two with technology. I think it's great
disruption.

I do think the international aid microloans need to be subsidized so their
rate is affordable but it's good for borrowers. I think even American small
business loans need to be subsidized too. It would be very expensive if you
make everything determined by market forces. That's why OnDeck and Kabbage get
away with their 50% APR loans. But I think it's bad for the small businesses
and bad for the economy.

------
factcheck12
A few facts about Zidisha and Kiva that got erased from Paul's blog yesterday,
so reposting here for the benefit of the community.

Kiva launched a new model a few years back: KivaZip.org. Like Zidisha, it
allows you to make direct loans to underserved businesses. Starting in Kenya
and the U.S., you can make 0% interest loans directly and converse with the
entrepreneur.

Unlike Zidisha, the repayment rate is much higher (90% ontime repayment on
KivaZip vs. a 40% ontime repayment on Zidisha) and Kiva Zip has nearly double
the loan volume through which risk management can be refined.

Both models are early stage.

Further, when you lend through Zidisha, there's a chance that you will not be
able to withdraw your money (given SEC regulation). Kiva Zip has been cleared
by regulators since it does not let you earn a rate of return, but you can
withdraw your principal.

Both models are early days, but nonetheless important factors to consider when
thinking about Kiva and Zidisha. Want to applaud effort by Paul, YC and the
community to direct more talent, energy and resources to great problems of the
world.

------
Zidishalender
You should be aware before putting money into Zidisha that current non-
repayment on Zidisha is ca 30%, and that to break even when lending on Zidisha
you need to charge flat interest rate to 32% break-even.

Zidisha is also giving huge credit bonuses to borrowers who invites new
borroers, this also gives a danger of increasing default rate.

So I advice not to put more into Zidisha than you are prepared to loose.

------
dror
Julia,

Awesome work.

Paul, great that you recognized it and contributed.

I sometimes despair about how much negativity and nit picking there is around
people who are doing, or at least trying to do, things that really change the
world.

In my mind this is way ahead of Whatsapp getting all the money, yet there was
very little negative reaction to that event.

------
lukasm
Loans are way much better form of helping, but investing with a partnership
and advisors is a better option. Money is the key ingredient, but the some
ventures do require lot of knowledge. Are loans preferred due to regulatory
issues? How do you overcome "This is just money from rich western guys to dump
the guilt" mentality? Are you going to build alumni network in similar vein to
YC?

~~~
jkurnia
Hi lukasm, an online investment / advising service that bridged the
international wealth divide would add immense value. We did not attempt it at
Zidisha due to the difficulties in monitoring and policing such a system at
scale.

Most of our borrowers seem to feel a strong obligation to repay their lenders
despite the disparity in wealth and culture. Maybe this is because they see
the lenders as individuals like them.

Our members, borrowers and lenders, communicate with each other regularly
through the website, and sometimes meet in person as well - for example,
Zidisha members in Nakuru, Kenya, held a conference last week. It would be
interesting to try to develop that into a network more focused on sharing
advice and help, like YC.

------
davidw
You could try sending some email around. Something like this:

"Hi, please allow me to introduce myself. My name is Paul, and I have recently
come into a large amount of money that I would like invest in your country as
soon as possible. Due to unforeseen circumstances, I am unable to invest this
money myself, and seek your partnership in order to invest the money
profitably. I ask your complete discretion so that the money does not fall
into the wrong hands.

Please, sir, kindly treat as urgent and strictly confidention. I assure you
that this is a 100% risk free transaction."

------
wehadfun
Why not just give the entrepreneurs the $200?

The money they would be paying back they could use to build up their business.

I doubt anyone would do this investment for a return.

~~~
jkurnia
Hi wehadfun, that is a valid question. There are a few reasons we facilitate
loans instead of gifts:

1\. Loans once repaid can be lent out repeatedly, thereby helping many more
people.

2\. Repaying a loan at a reasonable interest rate puts lender and entrepreneur
on a more equal footing, and is therefore more dignified for both.

3\. Loans encourage a proactive and independent mentality on the part of the
entrepreneur, rewarding success rather than neediness.

------
Nellyjpkrr
Please click on my zidisha link
below>[https://www.zidisha.org/microfinance/loan/Nellyjpkrr/6136.ht...](https://www.zidisha.org/microfinance/loan/Nellyjpkrr/6136.html)

------
netcan
I like the idea of p2p financial services. However everything development
related is complicated qnd the stories describing projects are often
romanticised.

There was a great podcast recorded during the initial microfinance boom. One
surprising conjecture is that most small like ans are for consumption, not
seed capital and that this is rational.

[http://www.econtalk.org/archives/2011/04/munger_on_micro.htm...](http://www.econtalk.org/archives/2011/04/munger_on_micro.html)

~~~
jkurnia
I think the use of loans depends a great deal on the location and microfinance
program in question.

At Zidisha, we don't restrict the purpose of loans (other than requiring that
it be legal and ethical). The vast majority of applications nevertheless
feature small businesses. This may be because the applicants are simply
telling the lenders what they think the lenders want to hear, but the business
uses of the loans have usually been confirmed when our volunteers visit the
borrowers. (See this blog kept by an intern in Kenya last year for some good
examples
[http://talkingstorykenya.wordpress.com/.](http://talkingstorykenya.wordpress.com/.))

When funds have not been used for revenue-generating purposes, this is usually
due to an unplanned contingency, such as a health emergency in the family or a
time of financial scarcity coinciding with school tuitions falling due.

I personally would not object to more loans being used for purposes such as
tuition or home improvements, but understand that it is often too risky for
individuals without regular sources of income to use debt to finance assets
that do not generate revenue.

------
bayesianhorse
You normally see requests for help distributing money the other way around...

------
bliti
This is a fantastic thing to do. I do have one question. Do you plan to do the
same thing (maybe in a smaller scale) in the US? Say, help people in some
impoverished area of the country with some small funding to help them get
micro businesses going. Not arguing against the choice to do so in Africa (its
great), just interested if there would be a push to do it "locally".

~~~
jkurnia
Hi bliti, we do not have any plans to offer lending services in the US. Not
because Americans are less deserving, but simply because it is not our area of
expertise or focus.

If you would like to lend to entrepreneurs in the US, I would recommend
checking out Kiva Zip, which does lend to Americans as well as Kenyans.
[https://zip.kiva.org/](https://zip.kiva.org/)

------
OoTheNigerian
Hi Paul,

First of all, I would like to commend your worthy contribution to the good
work the people at Zidisha are doing.

There is something I want to draw to your attention to(searched and did not
find your email)

I am wondering how to balance the stereotyping to the "African Entrepreneur"
while at the same time not forgetting the millions of small scale business
owners in Africa.

When I first saw the headline, I was excited that finally, a top tech investor
would be investing in African startups. Only to look and see yet another (VERY
COMMENDABLE)but "charity like" donation.

In general, you do not see VCs from the west investing in African startups.
That door is almost always closed. When they do it has to be under the
category of impact investment and/or a "social enterprise"

Why do you think this is so?

Two years before the WhatApp acquisition, a Ghanaian startup SAYA
[https://www.saya.im/](https://www.saya.im/) came for disrupt but they could
not get any funding. Even with hundred thousands waiting signups. Almost like
they were not worthy to tackle high tech.

I am very certain that if these guys had built an SMS app to remind farmers of
prices in the market (or something along that line) they would have got
funding.

Thankfully, things are changing a bit as Dropifi
[http://www.dropifi.com/](http://www.dropifi.com/) (from Ghana) got funding
from 500 Startups.

PS: I want to make it clear that what you are doing is very worthy and
commendable and this is not meant to be a criticism of you or this action in
ANY way.

PPS: I will be in SF from Wed-Sunday this week and would be very happy to chat
with people who want to learn about the tech scene in Nigeria (yes and that
includes 'Nigerian scams' et al :)).

Oh. I also do not mind surfing on your couch if available too :). You will be
paid in Nigerian beer (I brought some).

my email is in my profile.

~~~
paul
Part of what I like so much about YC is that we are open to entrepreneurs from
anywhere in the world. In fact, the latest batch has founders from 23
different countries:
[https://twitter.com/paulg/status/411897120572989440](https://twitter.com/paulg/status/411897120572989440)

I think we've had Nigerian founders in the past, and I'd love to see more
African entrepreneurs in the program. I believe it benefits everyone to have a
more diverse set of perspectives in the batch.

Obviously the big problem for many is getting past the American immigration
system. We'd all like to reform that system, but unfortunately those changes
take a long time. Maybe some day we'll expand the program to a location that
has better international accessibility.

~~~
notahacker
It would be great to see more programs targeted at entrepreneurs from
developing countries actually in those countries themselves. There seems to be
a big gap in FDI in developing countries between support for lifting
micropreneurs out of poverty and major infrastructure projects supported by
multinationals or the World Bank, and I doubt it's one which is generally well
supported by local financial institutions or investors. And I suspect it's the
smart _ambitious_ locals that could generate the highest returns on that
support if they got it. Ultimately the resulting business models may look
different - fewer exit options than SV but also drastically lower medium-term
funding requirements and untapped regional markets.

Then again, reforming the business environment in many developing countries to
make it an attractive destination for modest-sized equity investments in SMEs
might prove a even bigger challenge than reforming US immigration...

------
Nellyjpkrr
[https://www.zidisha.org/microfinance/loan/Nellyjpkrr/6136.ht...](https://www.zidisha.org/microfinance/loan/Nellyjpkrr/6136.html)

------
nsxwolf
Sure! I'll make sure it gets to them. Where can I pick up the money?

------
brandonb
How incredibly cool!

------
coltr
Wow this is awesome. Love the charity:water esque updates idea.

------
stefek99
Adding your enterprise to the list: [http://bit.ly/africa-
hackpad](http://bit.ly/africa-hackpad)

------
michaelmior
Just a note that the default tweet is actually too long and needs to be
manually edited.

~~~
paul
Oops. Fixed! I've never been good with that 140 character thing :)

thanks

------
phantom_oracle
Interest is the worst thing you can use in a continent like Africa.

Why didn't you guys opt for the profit-sharing philosophy?

Contract laws in some countries can turn some entrepreneurs insolvent because
of interest, but profit-sharing won't have such a devastating impact.

I'd help, but not under compound interest restrictions.

~~~
jkurnia
Hi phantom_oracle, we've investigated profit-sharing models, and consulted
with some experts in Islamic microfinance about the feasibility of
implementing a profit-sharing form of financing for Zidisha. This was
attractive to us because it addresses the unfairness of being left to repay a
debt when one's business investment has failed.

We did not end up introducing profit-sharing at Zidisha because even in
consultation with experts, we did not manage to come up with a viable way to
ensure the profit verification on which this model rests. Zidisha is purely an
online service, without local loan officers, and our understanding is that
applications of profit-sharing models to microfinance rely on extensive
personal monitoring of the funded businesses.

~~~
phantom_oracle
>Zidisha is purely an online service, without local loan officers, and our
understanding is that applications of profit-sharing models to microfinance
rely on extensive personal monitoring of the funded businesses.

Based on this, I would think that giving entrepreneurs money isn't the only
way to help them become successful. Most successful startups in the
US(especially SV) rely on much more than just money to be successful. Those
"old boy" networks, mentors, etc. all play a big role in building successful
companies. So why not give stranded African entrepreneurs the same
opportunity?

I'd be more than happy to make out a profit-sharing loan and nurture an
entrepreneur who hasn't had the luxury to get an advanced education in some
field.

Perhaps money isn't all they need...

~~~
jkurnia
I certainly agree that entrepreneurs need more than money to succeed.

Our concern with a profit-sharing model is that there seems to be no practical
way to enforce truthful reporting and sharing of the profits. Relying on self-
reporting alone would result in a system where honest people are penalized (by
having to make payouts based on their honestly reported profits) and dishonest
ones are rewarded. At best, it would degenerate into a simple handout program.

If we at Zidisha had a way to provide advice and contacts that are
sufficiently localized as to be useful to the entrepreneurs, we certainly
would do so. However, my experience is that Western business advice is useless
or nearly so to most people surviving on a dollar or two per day in Africa or
Asia. The best results I have seen come about when people are connected with
resources in a market system, and allowed to decide for themselves how to
leverage those resources.

~~~
phantom_oracle
Valid counter-arguments. I cannot disagree on those scenarios.

It will definitely be a mission to get honest reporting done (as you will have
to "yak shave" to get to that point).

The only method I could think around it, would be to assist an accounting
startup and make the local entrepreneurs form a cooperative, so that their
'books' are in order.

I wish you guys all the best :)

------
ghouse
"Distribute" or "Invest"?

~~~
mcherm
Well, Zidisha appears to mix those two.

Lenders are encouraged to charge an interest rate they find acceptable, but
the average interest rate is lower than the default rate... so that means
lenders (as a whole _) are losing money! This would not be a particularly good
investment, but it may be an excellent way to do donations.

_ \- the lenders who select more reliable recipients and those who charge more
will make more income, so I am sure many lenders are actually making a profit
even if the sum total of the loans by Zidisha is not.

------
rdl
I love the idea, but I have one concern, which may or may not be real.

I think 5% is below market rate for what you are doing. By establishing 5% as
the rate, you crowd out any local investment options which would need to
charge above 5% (but not 60%). By making the subsidy non explicit, you make it
even harder for local lenders to compete.

I don't know what a market rate for this kind of loan would be, but in the US,
it would be more like 10%. Some kind of explicit discount due to social
benefit or something like that, or marketing to launch a new business, or
whatever, could make sense, but I really don't want to see the same situation
where USAIS dumps free or subsidized goods and services and crowds out the
local producer.

At the same time, sacrificing the (not yet extant) p2p lending sector in Kenya
might be ok if it helps enough other businesses -- similarly communication and
security being subsidized might be a net good.

~~~
jkurnia
Hi rdl, the question of which interest rate will result in the best social
impact is one of the most frequently debated topics among Zidisha users.

We allow borrowers to offer any interest rate they wish, up to a maximum of
25%. Lenders are then free to fund the loans at any rate up to the maximum
offered by the borrower. Many lenders opt to fund loan applications at well
below the offered rate, resulting in an overall average of around 5%.

We have not taken a position on the "optimal" interest rate, other than
limiting it to no more than 25%. It will be interesting to see whether the
average interest rate changes over time and as we continue to grow.

~~~
GFK_of_xmaspast
25% is still pretty usurious.

~~~
jkurnia
I think many people would feel the same way. We usually see 25% rates offered
for small loans for new members, which are only held for a short time. For
example, a new borrower may request $50 at 25% interest and hold it for one
month, and total interest payments would be $1.04. Even then many lenders
normally opt to fund the loan at less than the rate offered.

~~~
rdl
I don't think the percentage rate is that big a deal, even at 25% (although
I'd probably go for ~15-20%, assuming 10% default rate and 5% cost of capital)
-- the area where I'd try to subsidize or otherwise avoid passing through
cost/profit is fees.

I'm fine with short term loans at 25%. As you say, $50 at 25% for a month is
$1.04. The problem is when a $1-5 fee is applied on top of that, giving
interest rates >100% annualized. That's the kind of usury which has been
common in the US payday advance industry (although better now in most states
after regulatory action), rent-to-own, etc.

------
nanijoe
I find the effort here commendable, but it will probably not take a very long
time for these guys to realize that "Africa is not a country" . I'm Nigerian,
and I have been to a few African countries. First of all the challenges you
have to overcome while doing business in Nigeria alone, varies wildly from one
City to another. Now comparing that to East Africa for example, the difference
is night and day. It may serve these guys well to begin their venture in one
African country they find most familiar / friendly, then expand their efforts
from there.

~~~
jkurnia
Hi nanijoe, we have not yet had the chance to offer a program in Nigeria, but
hope to soon.

We chose Kenya as the first country to pilot Zidisha, largely because it was
the world leader in mobile phone-based payments, which we use to disburse the
loans and receive payments electronically. Also, internet and Facebook
penetration was especially high in Kenya, and that made it easy for many
people to adopt and share our service.

We currently offer loans in these countries:

Benin Burkina Faso Ghana Guinea Indonesia Kenya Niger Senegal Zambia

~~~
nowarninglabel
Julia,

One thing to note is Kiva has been doing direct lending in Kenya for about 2
years now using M-PESA via Kiva Zip. Zidisha still has some differences, but
I'm surprised at the confrontational tone a lot of Zidisha posts have taken
towards Kiva. We're both trying to solve some of the same problems, would be
great if instead of negativity, we could work together on doing that, share
learnings etc. Anytime I get the chance, I share learnings or offer to help
Watsi, and I'd like to think I could feel the same way towards Zidisha.

~~~
jkurnia
Hi nowarninglabel, I did publish a post last week comparing our service with
Kiva Zip: [http://www.huffingtonpost.com/julia-kurnia/zidisha-vs-
kiva-z...](http://www.huffingtonpost.com/julia-kurnia/zidisha-vs-kiva-
zip_b_4854516.html)

I wrote this to provide greater clarity to our users and the public, who
frequently asked how our services were different. Some readers had the
impression that the post was meant to attack Kiva Zip. That was not my
intention.

In fact, Kiva Zip and Zidisha have helped each other, and exchanged lessons
learned, for over two years now. See
[https://zip.kiva.org/blogs/4](https://zip.kiva.org/blogs/4)

~~~
kanamekun
Was just reading up on Kiva and Zidisha on Wikipedia, and noticed this on the
Kiva talk page. Looks like someone at Zidisha (from a Mountain View IP) edited
Kiva's Wikipedia page to add criticism of Kiva and plug Zidisha. Is this part
of the "help" you're referring to above?

<< Zidisha Edits

Removed the lengthy section spotlighting a known competing organization,
Zidisha from the interest rates section. The information is consistent with
Zidisha marketing language and the editor IP is attached to a series of edits
inserting Zidisha into other pages. Seems like clear COI:
[http://en.wikipedia.org/wiki/Special:Contributions/67.188.17...](http://en.wikipedia.org/wiki/Special:Contributions/67.188.179.148)

IP is also in Mountain View, where Zidisha is working this quarter
[http://www.ip-adress.com/reverse_ip/67.188.179.148](http://www.ip-
adress.com/reverse_ip/67.188.179.148)
[https://www.zidisha.org/forum/threads/zidisha-launches-
at-y-...](https://www.zidisha.org/forum/threads/zidisha-launches-at-y-
combinator.572/) — Preceding unsigned comment added by Djbrusca (talk •
contribs) 17:01, 3 March 2014 (UTC) >>

~~~
jkurnia
Hi kanamekun, thanks for bringing up the point about Zidisha being a competing
organization with Kiva. Do you think it would be better for readers if they
were not aware of Zidisha as an alternative way of addressing the high
interest rates charged by Kiva partners?

~~~
jkurnia
I see now that somebody has removed the mention of Zidisha as a lower-interest
alternative and left a discussion of Kiva Zip in its place.

~~~
kanamekun
It looks like someone reverted your conflicted edits, and posted about the
edit to the Talk page:

[http://en.wikipedia.org/w/index.php?title=Kiva_(organization...](http://en.wikipedia.org/w/index.php?title=Kiva_\(organization\)&action=history)

[http://en.wikipedia.org/wiki/Talk:Kiva_(organization)#Zidish...](http://en.wikipedia.org/wiki/Talk:Kiva_\(organization\)#Zidisha_Edits)

That's pretty much spot on policy for Wikipedia.

------
jkurnia
Dear all - I'm Julia, the founder of Zidisha. I'd welcome comments and
questions from anyone who would like to learn more about our P2P microlending
platform.

If you'd like to hear more about my own journey and the experiences that lead
to the founding of Zidisha, see [http://www.huffingtonpost.com/julia-
kurnia/why-i-founded-zid...](http://www.huffingtonpost.com/julia-kurnia/why-i-
founded-zidisha_b_4885629.html)

~~~
David
In the Huffington Post article, you wrote: "Years of working with NGOs and
government aid programs were convincing me that handouts are a dead end,
temporarily soothing the acuteness of the injustice but taking donor and
recipient down a path of dependence that ultimately makes the international
wealth divide even wider."

Do you feel that way about a universal basic income? Does your statement only
refer to single-recipient donations, that tend to cause dependence? I can't
claim any personal experience, but from what I've read in e.g. [1] and [2], an
unconditional basic income has positive effects on the community. The lesson
I've taken from such pilot studies is that direct, conditionless donations are
a very effective way to help the poor. I'm curious if I've learned the wrong
lesson, and the benefits only appear if it's happening for a large population
(or perhaps even that's not effective, and the studies are flawed or
misleading).

[1]
[http://www.bignam.org/BIG_pilot.html](http://www.bignam.org/BIG_pilot.html)
[2]
[http://www.dominionpaper.ca/articles/4100](http://www.dominionpaper.ca/articles/4100)

~~~
yummyfajitas
In the pilot studies, about 10% of people who would otherwise be working
choose not to work and instead become dependent on the BI. So the BI pilot
studies do agree with Julia's impression.

[https://decorrespondent.nl/541/why-we-should-give-free-
money...](https://decorrespondent.nl/541/why-we-should-give-free-money-to-
everyone/31639050894-e44e2c00)

~~~
rjtavares
That is a gross misrepresentation of the results:

> The total amount of work hours decreased by only 13%. Breadwinners hardly
> cut down on their hours, women used the basic income for a couple of months
> of maternity leave and young people used it to do some extra studying.

> Forget’s most remarkable discovery is that hospital visits went down by
> 8,5%. This amounted to huge savings (in the United States it would be more
> than $200 billion a year now). After a couple of years, domestic violence
> rates and mental health also saw improvement. Mincome made the entire town
> healthier. The basic income continued to influence following generations,
> both in terms of income and health.

~~~
yummyfajitas
You are correct - it was hours worked, not # of workers. Thanks for the
correction.

I'm not sure how it's a gross misrepresentation - Julia's impression was that
free money induces people to become dependent and work less. How does the
distinction in hours worked vs # of workers change that?

~~~
rjtavares
Taking care of a baby for a few months or getting back to studying is hardly
becoming dependent on free money.

Also, notice the last sentence: "basic income continued to influence following
generations, both in terms of income and health." That was long after the
pilot ended.

