P2P microfinance service Milaap (see earlier coverage on P2P-Banking.com) raised 1.1 million US$ from Jungle Ventures (Singapore), Toivo Annus,Lionrock Capital, Jayesh Parekh and Unitus Seed Fund. The current round of funds will be utilized to expand engineering and marketing investments for enhancing the online product experience, and to invest in scaling up marketing and outreach efforts.
Milaap says that so far 100% of the microfinance loans originated have been paid back.
P2P microfinance service Milaap.org reports the milestone of 10 million indian rupees (approx 190,000 US$) lent in 18 months with a repayment rate of 100% so far. Good news right in time for Christmas!
Kiva Zip is an experimental site facilitating direct p2p microfinance loans without any intermediaries. The original Kiva model relies on MFIs (microfinance institutions) which locally validate borrower request and disburse the money and collect the repayments.
Kiva Zip eliminates the intermediaries directly connecting lender and borrower in person to person microlending. This will reduce interest rates for the borrowers (which during the initial testing phase of Kiva Zip pay 0% interest). The use of direct electronic and/or mobile payments further reduce the costs of the loan transactions.
On the other hand Kiva expects that these loans carry increased risks for lenders. Continue reading →
Today I am glad to be able to publish another interview with Julia Kurnia, Director and Founder of Zidisha Microfinance. As the interview text is a bit long for a blog post, I have split the interview in two parts.
Nearly 2 years have passed since our first interview. In that time Zidisha has grown considerably. Looking back, how satisfied are you with the achievements?
Two years ago, few believed that low-income individuals in developing countries could successfully participate in a genuine peer-to-peer lending community. The conventional wisdom was that people in remote, impoverished communities would not benefit from or repay loans unless the loans were administered in person by expensive local bureaucracies. As a result, the world’s poorest borrowers pay some of the world’s highest levels of interest and fees – between 35% and 40% is the global average for microfinance loans in developing countries.
Though there are quite a few other microlending websites that allow individuals to fund loans in developing countries, all of them rely on local microfinance organizations to communicate with lenders, create loan applications and collect repayments. In these intermediated microlending platforms, the communication is all one way, so that the borrower is often completely unaware of the lenders who funded his or her loan. And the intermediaries pass on their high overhead costs to borrowers, so that even when loans are financed at zero interest by charitable lenders, borrowers end up paying well over 30% in fees and interest. Such high rates reduce borrowers’ profits, sometimes to the point of making them poorer than they were before they received the loan.
Unlike the postings on other microlending platforms, the loan applications and comments posted on Zidisha’s loan pages are written by the borrowers themselves. This opens the way for dialogue between lenders and borrowers, so that lenders can receive answers to their inquiries about the loan and business directly from the entrepreneur they are funding. At the same time, the direct peer-to-peer connection reduces the administrative cost of loans by automating and outsourcing to borrowers and lenders themselves many of the record-keeping and credit-screening functions traditionally performed manually by local microfinance institutions. As a result, the average Zidisha borrower pays about 8% in annual interest and fees, including interest paid out to lenders. Over the past two years we’ve facilitated over 100,000 US$ in microloans for low-income individuals in four countries. Zidisha borrowers have maintained a repayment rate of 99.5% for ended loans – disproving the notion that the working poor in developing countries cannot be trusted to repay loans without the support of expensive local organizations.
How is the borrower feedback? Are there any suggestions for points to improve?
Last month we completed the first survey of all Zidisha members worldwide. In contrast to lenders, who gave a variety of reasons for choosing to join Zidisha, borrowers were unanimous in citing our low interest rates as the principal benefit of borrowing with Zidisha. Other benefits cited by borrowers included: no forced savings or collateral requirements, flexible credit conditions and repayment schedules, and the fact that Zidisha lenders place trust in their integrity and rewards responsible conduct rather than relying on legal protections alone to ensure repayment. 100% of borrower survey respondents said that they are actively recommending Zidisha to others – and indeed, we have never needed to advertise our platform in order to attract new borrowers.
When asked for suggestions for ways we can improve our service, a majority of respondents proposed the ability to raise larger loans. Zidisha currently limits maximum loan sizes based on amounts applicants have successfully repaid in the past, in order to ensure that they have the ability to repay the loans comfortably. However, some borrowers clearly feel that this loan size limitation policy constrains the growth of their businesses unnecessarily. Continue reading →
CARE International UK runs the p2p microfinance platform Lendwithcare.org. For a minimum investment of 15 GBP anybody can help funding a loan to entrepreneurs in Africa or Asia.
Lendwithcare has partnered with local MFIs in Benin, Togo, Philippines, Cambodia and Indonesia that disburse the loan to the borrower. Lenders do not receive interest. Aside from the default risk (Lendwithcare claims less than 2% bad debt) lenders also bear the currency exchange rate risk. Lenders do fill their account via Paypal or credit card, withdrawels are through Paypal.
Though the concept closely resembles Kiva’s, it is interesting to see the approach used by a long-time established aid and development organisation. The site shows the experience CARE has with marketing and fundraising. It looks much more flashy (at least compared to the old Kiva page).
Lendwithcare was launched in April 2010. Since then 243 loans were funded. At the moment there are about 32 loan request by entrepreneurs listed.
Two weeks ago Inuka.org launched into public beta. Inuka’s initial focus will begin in East Africa, where it has partnered with several microfinance Institutions that will be responsible for sourcing loans, uploading them on Inuka’s online portal, performing credit reviews on potential borrowers and collecting repayments. Inuka has selected two microfinance partners in East Africa after a detailed on-site due diligence process.
Lenders do not earn interest on loans financed. Asked what differentiates Inuka from other p2p microfinance services like Kiva, Babyloan or MYC4, founder Kanini Mutooni told P2P-Banking.com:
– We only lend to female entrepreneurs in sub-saharan Africa which means were very much focused on a niche sector rather than just lending to anyone
– Our loans are interest free which means that there is more of a philanthropic social element in lending as opposed to MYC4…
When I looked today, there were 11 loan request from Kenya online.
Although women play a major role in the economic development of emerging economies, they have the least access to capital and credit compared to their male counterparts. Giving more credit to women has been mooted as one of the fastest ways to reduce poverty in emerging economies. The virtues of female entrepreneurship have been extolled over the last few years although a lot still needs to be done to make this a reality: without capital or credit entrepreneurship is hardly possible so this means that solutions need to be found that enhance this capacity rather than talk about it and do nothing about it.
Crowd funding is definitely one of the solutions that could be put forward that could increase the likelihood of increasing available capital to women. Crowd funding in this sense refers to the process of providing small loans to female owned businesses which enables them to expand and grow their businesses. This also means that they reinvest the proceeds of their business into the nutrition and education of their families which results in an increase in the quality of life of their society and community. This correlation has been supported by evidence from the World Bank and IFC stating that women reinvest 90% of their profits in the home whilst mean reinvest only 60-70%. Continue reading →
Guest article, by Julia Kurnia, Director Zidisha Inc.
Entrepreneurs in low-income countries often face a dilemma: their business activities don’t earn enough to support their families, but they lack the investment capital needed to make the businesses more profitable. Restrictive political and economic conditions and geographic remoteness make it expensive for local banks to lend to small business owners. Some of these borrowers are serviced by microfinance institutions, but individual business expansion loans often carry prohibitive collateral and interest requirements due to microfinance institutions’ high administrative costs. So the businesses don’t grow, and the families they support remain impoverished.
Charitable microlending platforms such as Kiva.org and MyC4.com aim to improve disadvantaged entrepreneurs’ access to capital by providing platforms for microfinance institutions to raise subsidized loans directly from web users in wealthy countries, on the assumption that the high cost of financial services in developing countries is due to the organizations’ limited access to affordable lending capital. Yet this solution does not address another crucial barrier to affordable financial services for small business owners in developing countries: the high cost-to-revenue ratio inherent in small loans offered in marginalized geographic areas. The average Kiva field partner institution must charge borrowers more than 30% interest on loans financed at zero interest by Kiva lenders. Even at these rates, most microfinance institutions simply cannot afford to extend services to the remote rural areas where access to financial services makes the greatest impact on people’s opportunities for economic advancement.
It is generally assumed that such high interest rates are a necessary cost of lending to entrepreneurs in isolated and impoverished areas. In the classic microfinance model championed by Nobel laureate Muhammad Yunus in the 1970s, loan officers go on the road to collect repayments in person from borrowers, who are required to attend training sessions and participate in compulsory savings exercises in order to ensure responsible conduct. Even today, most local microfinance institutions which raise capital from Kiva or MyC4 are based along this model, with loan officers visiting borrowers at their businesses and communicating with lenders on their behalf. It is assumed that the borrowers not only lack the necessary computer skills to communicate with lenders themselves, but also that they cannot be trusted to repay loans, as residents of wealthy countries do, without constant visits by loan officers.
Zidisha Microfinance is a nonprofit microlending platform that operates on very different assumptions. First of all, there are no local intermediaries: instead, the entrepreneurs themselves post loan applications on the website and communicate directly with lenders via Facebook-style profile pages as their business investments grow. To make this possible, Zidisha taps into the growing population of computer-literate, but still economically disadvantaged, small business owners and explosive growth of internet access that have transformed developing countries in recent years. Borrowers access the Zidisha website from cheap cybercafés, old laptops donated to local charities and schools, and even the internet-capable smart phones which have begun to proliferate in even the poorest locations, often with one handset being shared by an entire village. Current Zidisha borrowers assist new applicants with navigating the website, and enlist the help of younger tech-savvy relatives when needed. New client orientations and technical assistance is also provided by Zidisha’s Client Relationship Managers, young adults from the United States and Europe who relocate to the borrowers’ countries and liaise with borrowers on a volunteer basis. Continue reading →
The global recession or what has come to be known as the ‘great recession’ –in direct reference to the 1930s era Great Depression-has been with us unbelievably for the last 3 and a half years. It doesn’t seem like it does it? Many had predicted that it would turn out to be a ‘W’ or maybe a ‘U shaped or even a ‘double dip’ recovery by now, with most commentators assuming that we would most likely have seen its tail end with a year or two. Most- if not all of them- have been proved embarrassingly wrong! Countries such as the UK, US, Spain, Ireland, Hungary, Portugal –the list goes one and on and on and on- are still counting the cost of the recession in terms of lost jobs, productivity and in some cases, sovereign default! Recovery it seems, whatever alphabet sounds sexy, W or U shaped –is still yet to be seen in many cases.
Looking at the effects of the recession from the microfinance industry perspective however is what makes very interesting reading. Microfinance as such, is an industry that is curiously not correlated directly to the mainstream financial markets. Continue reading →