Interview with Julia Kurnia, Director

Last week I published a short overview on the new p2p microfinance service Now Julia Kurnia, Director and Founder of answers my questions. What is Zidisha about?

Julia Kurnia: Zidisha uses internet and mobile phone technology to connect entrepreneurs in the world’s most isolated, impoverished areas with the international P2P lending market.  Zidisha supplies the key services needed to overcome the geographic barrier between lenders and borrowers – local credit history verification, low-cost electronic money transfers, independent tracking of borrower performance history – then gets out of the way and lets lenders and entrepreneurs interact directly.  Zidisha’s philosophy is similar to that of eBay, which really advanced the opportunities of small entrepreneurs in the US by supplying a regulated venue in which business growth is limited only by entrepreneurs’ own creativity and track record of responsible conduct.

P2P lending has vast untapped potential to open up better economic opportunities for motivated people in low-income countries.  Africa in particular is home to a growing class of entrepreneurs who, while economically disadvantaged, are computer-literate and have verifiable credit histories with local microfinance institutions – all of which can be tapped to supply many of the communication and record-keeping services traditionally performed by local banks and microfinance institutions.  Zidisha is designed to serve this type of borrower.  In this sense, it is complementary to services such as Kiva and MyC4, which allow more marginalized borrowers without computer access to fund loans via local intermediary microfinance organizations. How do African Entrepreneurs react to the possibility of posting a loan application online and getting it funded by strangers?

Julia Kurnia: I think this is best answered by Ms. Ndeye Sarr, a lady in West Africa who single-handedly supports a family of five sewing clothing by hand.  She is raising a loan on Zidisha to buy an electronic sewing machine, which will allow her to meet client demand faster and grow her business to where she can support her household comfortably and keep her kids in school through college.  Last week Ms. Sarr stopped by a local cybercafé to check on the progress of her loan application and upload some photos of the traditional clothing she produces, and she posted the following comment:

“I have just visited the Zidisha website, and see that the lenders are still continuing to support me, so that I can really start up a proper business activity. I would like to thank all those who are helping to finance my enterprise. I’m so happy to see that people on the other side of the world are willing to lend a hand to those who do not have the resources to earn their own honest living.“  (translated from the original French) Will borrowers report on how their business is progressing, allowing lenders to read first hand experiences?

Julia Kurnia: Each Zidisha borrower has a profile page, which contains a weblog-style comments forum along with verified “pre-Zidisha” local credit history and transaction feedback ratings and comments assigned by any Zidisha lenders who have had dealings with the borrower.  Zidisha borrowers are required to be computer-literate, or to have a friend or family member who is able to assist them in interacting with lenders via the website.  The comments forum allows lenders to post questions and comments, and for the borrower to respond.  Borrowers are encouraged to engage with lenders as much as possible via these tools; we expect that quality of communication as well as credit history will affect a borrower’s ability to raise future loans through Zidisha. I am surprised that there are credit scores and credit history available. One of the lessons from was that it was not possible to get reliable data – as investors were told it is not available in these markets?

Julia Kurnia: Yes, this is accurate. Zidisha compensates for the lack of formal credit scores in African countries by requiring borrowers to have successfully repaid loans to local banks or microfinance institutions, and having their self-reported credit histories independently verified before allowing borrowers to post loan applications on the Zidisha site.  The verification is performed by a reputable independent microfinance institution or private credit bureau, which contacts each lender cited by the applicant and verifies the reported loan history item by item.  The local loan repayment record becomes the basis for the borrower’s Zidisha “feedback rating”, a system similar to that used by business platforms such as eBay and Amazon, in which each lender is invited to post a comment and approval rating upon completion of a loan, and borrowers with high, positive feedback ratings will find it easier to raise larger amounts at lower interest rates in the future. With Paypal fees for transfers both ways it will be rather hard to make a profit for lenders. Do you have plans to address this mid-term?

Julia Kurnia: If a lender withdraws his funds after making only one loan, then he would effectively lose almost 6% to PayPal and would need to bid at an interest rate higher than that in order to make a profit.  But if Zidisha lenders are like lenders on other altruistically-motivated P2P platforms they will tend to finance loans repeatedly, rather than withdrawing their cash after one loan.  In this case, their profit margins will be much higher.

For example, say you upload 100 US$ and the amount credited to your account net of PayPal fees is 97 US$.  You lend the funds at an interest rate of 10%, and end up with 106.70 US$ when the loan is repaid.  If you then withdraw the funds, then the amount cashed out net of PayPal fees will be 103.50 US$ and you would have made a profit of 3.5% on the transaction.  If instead you finance three loans at 10% before withdrawing the funds, the balance in your Zidisha account would compound to 129.11 US$, with a cash-out value of 125.23 US$ net of PayPal fees.  That represents a profit margin of 25% on the original 100 US$, or an average of about 8% per loan.

That said, once Zidisha is operating at a larger scale, we will be eligible for lower PayPal transaction rates and the savings will be passed on to lenders.  We will probably also introduce the option for US lenders to upload and withdraw funds via check in the future. I don’t doubt that you will attract many lenders. But how do you attract borrowers, if there are no intermediaries?

Julia Kurnia: Local microfinance and NGO volunteers in Senegal and Kenya are marketing the site to the first set of borrowers.  Going forward, word of mouth is expected to continue to attract new borrowers to Zidisha.  This form of marketing is preferable as current borrowers can orient new ones to the service, and show them how to use the website. Do you plan any marketing measures to target lenders?

Julia Kurnia: At this point we’re focused on building up a solid track record of successful loans, and enhancing the web platform in response to feedback from lenders and borrowers.  If lenders’ experience with Zidisha is positive, we hope they’ll continue to lend to Zidisha entrepreneurs and pass the word on to others. What was the greatest challenge in the course of launching Zidisha?

Julia Kurnia: Setting up a quick, low-cost system for transferring loan funds between individual lenders and borrowers was probably the greatest challenge.  In Kenya loan funds are transferred via M-PESA, a mobile banking service that allows ordinary people to send and receive cash via SMS messages on their cell phones.  This allows a web user in the US to upload 20 US$ via PayPal and have it sent electronically to a small business owner in Olooloimuitia, a remote settlement in Kenya’s Masai Mara game park with no paved roads, electricity other than small generators, or banks for a day’s journey in any direction.  The borrower receives the loan disbursement via a secure SMS message to his cell phone, which he exchanges for cash from the local M-PESA outlet.  He sends his loan repayment installments back to Zidisha’s account via M-PESA, so that there is no need to outsource loan funds management to local intermediaries at all.  To access the Zidisha website, he might visit a cybercafé during trading journeys to nearby towns, or pay a few cents to borrow a mobile modem-equipped laptop powered by a generator right in Olooloimuitia.  This sort of grassroots technology can connect people in ways that would have been unthinkable even five years ago. Where do you see Zidisha in 3 years?

Julia Kurnia: As mobile phone banking becomes commonplace outside Kenya, we intend to make Zidisha available in more countries in Africa, and eventually Asia and Latin America as well.  Zidisha is designed to operate at scale, and we aim to facilitate a high volume of lending on the platform while maintaining sufficient incentives for responsible use by lenders and borrowers.  We are a nonprofit organization, and our primary purpose is to facilitate win-win transactions between lenders and borrowers in a way that advances the economic opportunities of highly motivated entrepreneurs in impoverished areas.  We will have reached our goal when Zidisha develops into a widely available ladder to prosperity for any deserving entrepreneur, regardless of geographic location.

Thank you for the interview.

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