Interview – 4 Years Zidisha

I have been following and using Zidisha for years. Today I am glad to be able to publish another interview with Julia Kurnia, Director and Founder of Zidisha Microfinance. An earlier interview conducted 2011 is here.

Zidisha celebrates its fourth birthday. What is the current status?

Four years ago, Zidisha launched as the first direct P2P lending platform to bridge the international wealth divide: We linked economically disadvantaged individuals in some of the world’s poorest places directly with individual lenders and allowed them to transact each other directly.

This went against conventional wisdom because it had always been assumed that this demographic could not use web-based services and needed local organizations to serve as a go-between.  For example Kiva, which pioneered online fundraising for microfinance, contracts with intermediaries in each country to manage the loans and communicate with lenders on the borrowers’ behalf.  Before Zidisha, nobody had attempted to connect people in developing countries to the international P2P lending market.

What we have learned in the past four years is that direct P2P lending across the international wealth divide is not only possible, but that the benefits are even greater than that of domestic P2P lending services.  Banking services in developing countries are so inefficient that borrowers routinely pay interest rates of 50% or more, if they can access loans at all.  With Zidisha, borrowers pay a transaction fee of 5% and can then choose to offer interest of 0% to 15% to lenders.

We’ve funded over 3,000 loans in the past four years, and so far their repayment rates are a bit better than those of small business loans in the United States.  To date, 90% of the loans that are due to have been repaid have been repaid with interest, 5% are repaying late, 2% have been forgiven by lenders who opted out of repayments and 3% have been written off due to default or catastrophe suffered by the borrower.

Compared to p2p lending services Zidisha’s growth/loan figures are moderate. What reasons do you see for this difference?

The moderate pace of growth is mainly due to the fact that we are pioneering something that has never been tried before: a P2P lending community that connects people directly, without any intermediaries, across previously impregnable barriers of location, social group and culture.  There is no precedent for this, no established best practice to follow.  So we are scaling slowly, and continuously adjusting our lending model in response to experience.

How difficult is it to enter a new country to allow more borrowers to use Zidisha?

That varies a great deal, depending on the ease with which we can integrate with local money transfer services in each country.  In Kenya, we use the M-PESA mobile banking service to send the loans directly to our members’ cell phones, and that is really an ideal solution.

We do not have brick-and-mortar offices or employees in borrowers’ countries; all of our application review and payment transfer services are provided remotely over the internet.  Volunteers – both international interns and local community members – frequently visit borrowers and offer information sessions, but they do not manage loan transactions in the way traditional loan officers would.  So once we are able to open a cost-effective electronic payment channel, that is really all we need to enter a new country.

Is the currency risk an important factor in Zidisha’s operations?

At Zidisha, lenders assume currency risk: they can lose money if the borrower’s currency depreciates against theirs over the course of the loan.  One would expect that this would cause lending volume and interest rates to rise and fall in response to exchange rate fluctuations, but this had not happened for the most part.  I think the reason is that lenders consider participation in Zidisha to be a philanthropic activity.  They pay more attention to the social impact of the loans than the financial returns.

Continue reading

Win a Copy of Zidisha’s New E-Book

Zidisha has just published the Kindle E-Book ‘Venture: A Collection of True Microfinance Stories‘. Authored by Zidisha staff and volunteers, the book is a rich and readable collection of real-life portraits of Zidisha entrepreneurs worldwide.
Venture is written for Zidisha supporters and anyone else who would like to better understand the realities faced by the poor and the aspiring middle class in the world’s least developed countries, the range of factors that affect their prospects for working their way out of poverty, and how microfinance can impact their lives. There are 34 stories of individual borrowers.

Zidisha founder Julia Kurnia told P2P-Banking.com that all proceeds will go to cover Zidisha’s operating costs.

Note to other p2p lending/p2p microfinance services: Do you have interesting inside stories to tell? Have you considered distributing them in e-book format? The marketing effect could be good compared to other marketing channels. For maximum exposure you might even offer the e-book for download free of charge. If you tried this method, tell us, so we can write about your experiences.

Here is how you can be one of 10 winners of a free copy of the new E-Book

Are you interested in Microfinance? Maybe you have used Zidisha already? Regardless of what triggered your interest in the subject, you have a good chance to win, because the only thing you have to do is: be quick!

The first 10 readers to leave a comment (any comment) under this blog post will win a free copy, courtesy of Zidisha. You need to leave your email address when commenting in the designated field. The email addresses will NOT be publicly visible. The email addresses of the 10 winners will be given to Zidisha. Zidisha will distribute the copies. And after you read it, please do come back and post a comment here how you liked it, so other readers can have some guidance on whether they should go ahead and purchase it. Thank you.

Interview: 2 Years Zidisha – Part II

Read part one of the interview first

This is the second part of an interview with Julia Kurnia, Director and Founder of Zidisha Microfinance.

Does the Euro crisis in any way impact Zidisha’s business?

The Euro is the home currency of many of our lenders. To the extent that the Euro crisis causes it to depreciate against the US dollar (in which Zidisha account balances are denominated) and against the borrowers’ currencies in which loan values are fixed, it will increase financial returns when these funds are converted back to Euros.
That said, lending with Zidisha is intended to be a philanthropic activity, and most of our members seek to generate social benefits in a way that is financially sustainable. Zidisha loans typically allow economically disadvantaged households to expand their cash businesses to the point where incomes are increased by 150% to 200%. The additional cash is very often invested in the children’s education – both by providing sufficient living income so that teenagers do not need to drop out of school to support their families, and by covering the costs of continued schooling. The return to society from this kind of investment in education of the next generation of the rural poor in developing countries is impossible to quantify. This will continue to be true regardless of currency fluctuations.

A week ago Zidisha got a new design. What is new?

Our new design reflects feedback from the Zidisha community, and the growth of our organization. We opted for a clean, modern style and an uncluttered, simple layout that is in keeping with our values of directness and transparency. The new site is more effortless to navigate, easier to learn and read about Zidisha entrepreneurs, and simpler than ever to make a loan. We’ve also included more social media buttons so that visitors can conveniently share Zidisha with friends and family, and connect with us via Facebook and Twitter.

Zidisha is doing direct p2p lending. Do you think it is likely that there will be a substantial shift from indirect p2p lending (like Kiva does) to a direct model without MFIs in the future?
Yes, I think that is the future of online microlending. As Zidisha has proven that the concept is viable, I’m sure that we will inspire many similar initiatives. I expect to see other organizations – both new start-ups and established platforms – experiment with direct P2P lending across the international wealth divide. This will be a welcome development, generating positive social impact beyond the reach of our organization, valuable learning opportunities for P2P lending and microfinance practitioners, and useful variety for our clients. Continue reading

Interview: 2 Years Zidisha – Part I

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

New Study on P2P Microfinance and Zidisha

Sander van Damme has written the master thesis ‘Peer to peer Microfinance: the case of Zidisha.org‘ at the Louvain School of Management (Belgium). The 70 page study dives deep into analysis of Zidisha‘s complete loan portfolio (Q4 2009 – Q1 2011). It offers a very comprehensive overview on the p2p microfinance operations of Zidisha, the motivations of lenders and borrowers and developments of the interest rates on the marketplace.

Excerpt from the conclusion:

When looking at the trends in social media, the propagation of the internet and the innovations in mobile banking, we believe this website offers us a glimpse of what the future of aid and banking will look like. Although not necessarily a mainstream tool for everyone on this planet, it will surely become part of many a person’s portfolio. Rather than donating anonymously to some big NGOs who will use the money for projects we do not know about; people want to see their impact and be able to connect with each other across the globe.
Whereas we set out to discover whether peer to peer microfinance was a viable solution in the first place, we came across a business model that in the long run could allow both investors and entrepreneurs to profit from their exchange.

P2P Lending Year-End Review 2010

As the end of 2010 approaches here is a selection of main peer-to-peer-lending news and developments covered by P2P-Banking.com:

(Photo by paul (dex))

Does P2P Lending Work for Microfinance? Lessons from Zidisha Inc.

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

Interview with Julia Kurnia, Director Zidisha.org

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

P2P-Banking.com: 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.

P2P-Banking.com: 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) Continue reading

Zidisha – P2P Microfinance Directly to the Entrepreneur

Based on her experience in founding SEM Fund, Kiva’s oldest filed partner in Senegal, Julia Kurnia believes there is a vast untapped potential for p2p lending in microfinance.

To tap it she launched Zidisha.org, a non-profit that makes two changes in the process. First: There are no intermediaries. Lenders lend directly to computer literate entrepreneurs in Africa (currently Senegal and Kenya). Second: Only entrepreneurs with a credit history that have in the past paid back a loan by a bank or a financial institution successfully are eligible (this is verified).

Julia Kurnia told P2P-Banking.com:

Lending through local intermediary microfinance organizations creates high costs for borrowers (Kiva borrowers pay an average of 35.25% in interest to Kiva field partners, according to the Kiva website statistics).  Outsourcing loan management to local intermediaries also puts P2P platforms at risk of pyramid schemes, in which unscrupulous partners use funds disbursed for new loans to mask embezzlement of repayments due to lenders.  Kiva and MyC4 did very well when they operated at small scale, but as time passed and they added large numbers of partners, the cost of controlling intermediary fraud ballooned and may make their models unsustainable at a large scale.

Lenders at Zidisha upload money via Paypal (fees apply) and then can browse listings, written by the entrepreneurs themselves. Lenders do get paid interest, whoever “the principal purpose of Zidisha’s lenders in funding loans is to help finance these entrepreneurs, and not to make a profitable investment.” according to the FAQ. During bidding lenders can underbid each other with the result of the entrepreneur profiting from a sinking interest rate.

I am looking forward to use Zidisha. I plan to publish an interview with Julia Kurnia next week. If you have a question you want asked you are invited to email it to me or post it as comment below.