Zidisha

A smaller microloan organization that has been using an online peer-to-peer direct lending model since 2009. This organization is the first of its kind. The repayment rate is 0.38 percent. So far they’ve distributed about $130,000 in the 2 years since its inception.

URL = https://www.zidisha.org/index.php

Description

Zidisha is a nonprofit peer-to-peer microfinance internet platform that allows people to lend small amounts of money directly to entrepreneurs in developing countries.

By comparison, Kiva doesn't really apply real p2p lending, but as of late 2011 began to pilot direct p2p microloans based on Zidisha's model.

Discussion

Sander Van Damme, in his master's thesis on Peer to Peer Microfinance:

"This platform is the only true peer to peer microfinance website which we came across in our research. It offers lenders the opportunity to directly send funds to developing nations' entrepreneurs, without any intermediaries. It is a direct financing tool that gives the investor decision power on whether or not loans will be disbursed and at which interest rate they will be funded. And these are the borrowers themselves who are responsible for putting information online about their performance and any difficulties they might encounter. This different approach is due to the fact that they started off from a different assumption than other platforms; they target the computer-literate entrepreneurs in developing countries that already have credit history through previous microcredit. It is the next step, where the poor, after having built up a credit rating through successfully repaying previous microfinance loans, now have access to cheaper credit. All Zidisha does is connect the peers and verify the borrowers’ credit history." (https://www.zidisha.org/editables/news_docs/Louvain.pdf)

Interview

With Julia Kurnia, Director and Founder:

"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.

The repayment rate is very high. How important is keeping defaults low to growing a p2p microfinance service? Do you perceive overall risk level in p2p microfinance to be rising or decreasing?"

Like any financial service, peer-to-peer microfinance relies on the trust of clients in its integrity – and keeping defaults low is essential to maintaining that trust. If defaults are consistently high, the program’s due diligence and/or incentive structure probably need to be adjusted. I would say that the overall risk in p2p lending is decreasing: as the industry matures, poorly designed or managed platforms go out of business, and those that remain improve their risk management based on earlier experiences." (http://www.wiseclerk.com/group-news/countries/us-interview-two-years-zidisha-part-one/)

"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." (http://www.wiseclerk.com/group-news/countries/us-interview-2-years-zidisha-second-part/)

Status

"What goals does Zidisha have for 2012?

Zidisha’s long-term objective is to become a universally available lending platform, whereby highly motivated entrepreneurs, regardless of geographic location, can access the capital they need to grow their businesses and improve their standards of living, limited only by their own performance and track record of responsible credit repayment. Zidisha’s goal for 2012 is to continue to grow its lending volume, while maintaining quality loans that have a high social impact, high repayment rate, and good communication with lenders." (http://www.wiseclerk.com/group-news/countries/us-interview-2-years-zidisha-second-part/)

More Information

• Master's thesis: Peer to Peer Microfinance: The Case of Zidisha.org. Sander Van Damme.

URL = https://www.zidisha.org/editables/news_docs/Louvain.pdf