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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.




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.


>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...


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.


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 :)




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