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...
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.  and , 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).
My understanding is that many cash transfer programs have had measurable positive economic effects, both when they are targeted and when they are offered to an entire community. And there are obviously situations of humanitarian catastrophe, such as a natural disaster or a famine, where direct distribution of aid is the right answer.
My objection to most handout programs is based on the negative psychological effects I experienced time and again while working with development assistance grants in Africa and Asia. The resources we distributed would certainly result in an economic boost, but they also fundamentally changed the way the recipients saw themselves, and the way we saw them. Handouts caused the recipients to view themselves as dependents whose fortunes were subject to the whims of luck and on pleasing donors, rather than on themselves as drivers of their own lives. When repeated enough, this psychological side effect can be devastating not only for the individual recipient, but for the broader community that has come to depend on the handouts.
The dynamics in microfinance loans are much healthier in my experience - especially in a market-oriented community like Zidisha, where borrowers offer their own loan terms and lenders base their lending decisions on the borrowers' own demonstrated performance with past loans. It feels more like a business partnership than a handout.
> 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.
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?
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.
It's also unfortunately too short term and micro-scale to really address the main criticisms which are (i) prices of basic goods in short supply and ground rents will rise to the point very poor people are often not better off, and sometimes worse off
(ii) trying to set the basic income sufficiently high to allow subsistence (which the Namibian study didn't) would cause massive economic instability even if it could effectively be funded (iii) without massive and relatively expensive administrative oversight, most of the money will be siphoned off by the corrupt in underdeveloped countries and regions and (iv) if you make payments for children you encourage even more excessive population growth and if you don't, families still suffer.
Kenya is at the center of the mobile phone payment revolution with its M-PESA service, and is the reason Zidisha was first piloted in Kenya. Thanks to M-PESA, Kenya is still our largest country today.
Most Zidisha loan payments are transferred via mobile phone. For example, we use M-PESA in Kenya to transfer funds from our US bank account electronically to a bank account in Kenya, and from there to the mobile phone M-PESA account of the recipient. The recipient can exchange the M-PESA credits for cash at a local M-PESA kiosk. We receive repayments the same way.
In countries where mobile payment services are less developed, such as Burkina Faso, we transfer payments by sending a disbursement order to the local bank account where our funds are held. This is a much less scalable solution than mobile phone payments, and is one reason our growth is more rapid in the countries - Kenya, Ghana, and Indonesia - where mobile phone-based payments are enabled.
I just finished reading http://www.amazon.com/exec/obidos/ASIN/0465016154/ which espouses the theory that the root of a lot of problems is that countries set up formal property systems that exclude most of their population, and then fail to capture the contracts that people actually live by. Because of this, people are unable to secure loans because they can't prove to the broader world that "their" property is theirs.
It is a classic, "Here is the problem, fix this and all else gets better" kind of prescription. I'm always suspicious of those.
But as an expert in this area, what do you think of this one? Is it as big an issue as they claim? How much would fixing it help?
More broadly, I do not think any one service - property reform, or business growth capital, or health or education for that matter - is a cure-all. All of these services are needed, and each works optimally when the others are present.
(It would be interesting to compare social-impact-per-dollar of Zidisha versus, e.g. GiveDirectly , one of the best-known ways of doing good in the developing world .)
: https://www.zidisha.org/microfinance/faq.html - look for the question "Why does the Zidisha website not track the precise financial returns earned on my loans?"
<< Zidisha makes no guarantee or representation that funds lent through its website will be repaid to lenders, regardless of whether the loans financed with lender funds are repaid to Zidisha. Any cash payouts are promotional gifts offered solely at Zidisha's discretion. >>
So basically, I make a loan and then if the entrepreneurs makes a repayment, Zidisha can choose to give me my money as a "promotional gift." But wouldn't lenders have to pay taxes on their "promotional gifts"? And aren't I getting taxed on my entire loan (principal and interest), not just my interest income like with a normal loan?
I don't get it... why structure things this way?
Your practice, as you describe it, treats them as such, and regulators are often prone to treat things as what they are in practice even if the contract between the two parties claims they are something else.
(This applies to securities authorities as much as to tax authorities.)
In some respects, having the up-front option to to waive any right to withdraw repaid loans might be better for people who actually have no intention of doing anything with repayments other than loan them to other Africans, assuming charitable donations whose use and re-use you're continually able to influence can still be legally tax deductible.
Tried to "read terms of service" > redirected to the main page.
Whois returned "not found"
dig returned a GoDaddy dns proxy.
Two Emails sent to me by them. The first a email confirmation.
21900 Muirfield Circle #302
Sterling, Virginia 20164
The second thanked me for joining their email list.
My profile page has several links like "Lend Fund", "Join a group".
Not sure what to do next...
Basically this meant i signed up for a mailing list
We'll try to make the next steps after creating a new lender account clearer. If you would like to make a loan, you can do this via the "Lend" page.
Would love to hear Kurnia's thoughts on this.
Note that most borrowers offer interest well above 5%, and lenders are free to fund the loans at or below the offered rate. In my experience, many lenders have opted to fund at low or even zero interest because they wish to offer their selected entrepreneurs low-cost loans, rather than make a profit. The rate paid by the entrepreneur is more important to them than their own rate of return.
We don't interfere in our users' interest rate decisions, other than to limit the maximum interest to no more than 25%. Our platform accommodates all lending philosophies, from those who do not believe in charging interest to those who believe the best way to help entrepreneurs is to structure transactions in a way likely to generate positive financial returns for both lender and borrower.
Before I get to my questions, I want to applaud your and Paul's efforts. It's great to see resources being spent in pursuit of causes that really matter.
First, what basis do you have for believing that micro lending is an effective means of poverty alleviation? I've yet to come across a well-respected study that proves it is, but have read a few  that question its efficacy.
And second, given your stance on aid, I'm curious why you structured Zidisha as a non profit? Couldn't an argument be made that the same negative effects you claim handouts have on the poor , also negatively impact Zidisha if you accept donations to run your organization?
Thanks for your responses.
I have personally known many people who have dramatically improved their living standards thanks to Zidisha loans. Here is one example: https://www.zidisha.org/microfinance/loan/nbsarr/408.html (see the comment area for updates on the results of her loans).
Over and beyond measurable economic effects, I would argue that having access to the chance to raise affordable financing is transformative because it changes the way a person views the range of opportunities for advancement in life. For example, all Zidisha entrepreneurs know they can progress to raise up to $10,000 if they maintain a solid track record of repayments over time. Simply knowing that opportunity exists removes the ceiling people would otherwise put on their own ambitions. The result is intangible, but no less important because we cannot measure it.
We structured Zidisha as a nonprofit because our mission is genuinely philanthropic. Nobody is in it to make money. At heart, we are a cause-driven group of people and the nonprofit structure is a natural fit for that. Also, we do not want to be in a position where equity holders might oblige us to charge high fees to generate profits. Finally, our nonprofit status reinforces the message that lending through Zidisha is a philanthropic, not a financial investment activity.
Why do we accept donations to run our organization? We provide a valuable service to lenders in developing and maintaining the web platform and community that allows them to connect with the entrepreneurs they wish to support. We could charge lenders a fixed fee to cover the cost of this service, but we decided to structure it instead as an optional tip made while funding loans. The optional tip allows lenders who can afford more to donate generously.
Currently about half of our income comes from service fees paid by borrowers, and the rest comes from lender tips. We view both as payment for service we are providing, rather than a free handout.
The main alternatives to debt that I am aware of are forms of Islamic financing, such as rent-to-own and profit-sharing models. We have explored the possibility of offering a profit-sharing financing product, but failed to come up with a feasible way of implementing such a model. The successful implementations of profit-sharing models seem to rely on strong information verification systems and intensive interaction with local staff, which we as an online service cannot offer.
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.
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.
For a lending charity, rate caps reduce interest income. This, in the long run, depletes the charity's capital base. An interest rate (>5%) lower than the expected default rate (~10%), as it appears to be here, amplifies the effect. That said, the decision could make sense. If "non-usurious lending" increases donor interest enough, it could offset the capital depletion effect.
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.
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:
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.
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
<< 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...
IP is also in Mountain View, where Zidisha is working this quarter http://www.ip-adress.com/reverse_ip/18.104.22.168 https://www.zidisha.org/forum/threads/zidisha-launches-at-y-... — Preceding unsigned comment added by Djbrusca (talk • contribs) 17:01, 3 March 2014 (UTC) >>
At the very least, you should always disclose your affiliation with Zidisha when making edits:
<< COI (Conflict of Interest) editing is strongly discouraged. COI editors causing disruption may be blocked. Editors with COIs who wish to edit responsibly are strongly encouraged to follow Wikipedia policies and best practices scrupulously. They are also encouraged to disclose their interest on their user pages and on the talk page of the article in question, and to request the views of other editors. If you have a conflict of interest, any changes you would like to propose that might be seen as non-neutral should be suggested on the relevant talk page or noticeboard. >>
That's pretty much spot on policy for Wikipedia.
"Despite being born and raised in the rural parts of Kenya, I have managed to train and get tech savvy. I grew up with no electricity and i first saw a computer when i was 19years old when i enrolled for further studies. I put in long hours after classes just to be able to catch up with my peers. I learnt to create programmes and i had my first commercial software in the second year of campus. In my fourth year of campus, I had to drop out of school because of lack of school fees. I got a job that enabled me to save up enough money to clear my studies."
If anyone reading this is interested check out the book "Success in Africa" to get an in depth look into the perception of Africa as a single homogenous place.
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/ 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/ (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.
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.
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...
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.
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.
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...
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.
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 :)
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.
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/.)
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.
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.
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.
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.
"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."
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/
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.
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.
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.
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.
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.