4 ms·

Microlending platform Zidisha (YC W14 nonprofit) bypasses third parties

30 points by jkurnia 11y ago

jnmandal 11y ago
A lot of the overhead from 'traditional' microfinance (the model popularized by Mohammed Yunus in the 70's-80s) comes from creating social/community-based incentives for repayment, referred to as social capital. This is considered the alternative to regular loans since in non-collateral lending the borrower loses nothing monetarily if they don't repay. According to their site, the repayment rate for Zidisha is under 50%... thats pretty dismal in an industry where you normally consider a healthy MFI (microfinance institution) to be operating at high 90 percentiles of repayment.
- hayksaakian 11y ago
  hypothetically: if the traditional overhead is very expensive, a 50% repayment rate might still be more profitable.
- tlb 11y ago
  Where do you get "under 50%"? If you're looking at https://www.zidisha.org/statistics https://www.zidisha.org/statistics, you might be confused by Principal repaid: $607,262 (44.9% of amount disbursed) This is for all loans made within the last year, many of which are very recent. You should add the line Principal held by borrowers repaying on time: $581,565 (43.0% of amount disbursed) to get 87.9% either repaid or in good standing.
  - jnmandal 11y ago
    Ah, I stand corrected.
- jkurnia 11y ago
  Our repayment rate is currently in the 85 - 90% range. We also have a reserve fund service, which compensates lenders for loan defaults.
ClintEhrlich 11y ago
I wish the team at Zidisha nothing but success, but I'm skeptical that micro-lending is a practical solution for relieving poverty in the developing world. If a viable opportunity for making small loans existed, then I would expect local financial institutions to fill that need. When those institutions do not exist, there is usually a reason, such as the lack of an adequate legal and financial system for recovering debts. Without the ability to enforce payment obligations, the line between lending and charity becomes rather slim. It's also unrealistic to expect most people receiving micro-loans to operate effective businesses, given their limited educations and lack of direct exposure to Western entrepreneurial values. Perhaps their living conditions could be improved more efficiently by a non-profit that gave away the right to operate franchise businesses using a proven model? I don't have the expertise to know what kind of business would be optimal for people with limited resources. But when I see the success of immigrant-run franchises within the United States, I can't help but imagine that the underlying principle could be harnessed to generate wealth for needy people overseas.
- krastanov 11y ago
  You are describing your "gut feeling", but allegedly micro-lending has been proven to work in theory and practice by actual economists. On the other hand I am criticizing you for doing "armchair economics" without giving the references to support my previous statement :)
  - ClintEhrlich 11y ago
    That's a fair point. But my view is informed by my (limited) review of the scholarly literature on microfinance. I was impressed by the economist David Roodman, who has done a lot of work on how the actual empirical evidence suggests that micro-loans are not effective at relieving poverty.
- jkurnia 11y ago
  I can say from personal experience that investing a lump sum of a few hundred dollars in a business that earns a couple dollars a day is often enough to double profits. It's illustrative to browse through the loan recipients' own progress updates: https://www.zidisha.org/project-updates https://www.zidisha.org/project-updates

30 points by jkurnia 11y ago

A lot of the overhead from 'traditional' microfinance (the model popularized by Mohammed Yunus in the 70's-80s) comes from creating social/community-based incentives for repayment, referred to as social capital. This is considered the alternative to regular loans since in non-collateral lending the borrower loses nothing monetarily if they don't repay. According to their site, the repayment rate for Zidisha is under 50%... thats pretty dismal in an industry where you normally consider a healthy MFI (microfinance institution) to be operating at high 90 percentiles of repayment.

hayksaakian 11y ago
hypothetically: if the traditional overhead is very expensive, a 50% repayment rate might still be more profitable.
tlb 11y ago
Where do you get "under 50%"? If you're looking at https://www.zidisha.org/statistics https://www.zidisha.org/statistics, you might be confused by Principal repaid: $607,262 (44.9% of amount disbursed) This is for all loans made within the last year, many of which are very recent. You should add the line Principal held by borrowers repaying on time: $581,565 (43.0% of amount disbursed) to get 87.9% either repaid or in good standing.
- jnmandal 11y ago
  Ah, I stand corrected.
jkurnia 11y ago
Our repayment rate is currently in the 85 - 90% range. We also have a reserve fund service, which compensates lenders for loan defaults.

ClintEhrlich 11y ago

I wish the team at Zidisha nothing but success, but I'm skeptical that micro-lending is a practical solution for relieving poverty in the developing world. If a viable opportunity for making small loans existed, then I would expect local financial institutions to fill that need. When those institutions do not exist, there is usually a reason, such as the lack of an adequate legal and financial system for recovering debts. Without the ability to enforce payment obligations, the line between lending and charity becomes rather slim. It's also unrealistic to expect most people receiving micro-loans to operate effective businesses, given their limited educations and lack of direct exposure to Western entrepreneurial values. Perhaps their living conditions could be improved more efficiently by a non-profit that gave away the right to operate franchise businesses using a proven model? I don't have the expertise to know what kind of business would be optimal for people with limited resources. But when I see the success of immigrant-run franchises within the United States, I can't help but imagine that the underlying principle could be harnessed to generate wealth for needy people overseas.

krastanov 11y ago
You are describing your "gut feeling", but allegedly micro-lending has been proven to work in theory and practice by actual economists. On the other hand I am criticizing you for doing "armchair economics" without giving the references to support my previous statement :)
- ClintEhrlich 11y ago
  That's a fair point. But my view is informed by my (limited) review of the scholarly literature on microfinance. I was impressed by the economist David Roodman, who has done a lot of work on how the actual empirical evidence suggests that micro-loans are not effective at relieving poverty.
jkurnia 11y ago
I can say from personal experience that investing a lump sum of a few hundred dollars in a business that earns a couple dollars a day is often enough to double profits. It's illustrative to browse through the loan recipients' own progress updates: https://www.zidisha.org/project-updates https://www.zidisha.org/project-updates