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Dear all - I'm Julia, the founder of Zidisha. I'd welcome comments and questions from anyone who would like to learn more about our P2P microlending platform.

by jkurnia 13y ago

Dear all - I'm Julia, the founder of Zidisha. I'd welcome comments and questions from anyone who would like to learn more about our P2P microlending platform. If you'd like to hear more about my own journey and the experiences that lead to the founding of Zidisha, see http://www.huffingtonpost.com/julia-kurnia/why-i-founded-zidisha_b_4885629.html http://www.huffingtonpost.com/julia-kurnia/why-i-founded-zid...

pilom 13y ago
How do you distribute funds and receive payments on loans? The reason some of your competitors use local banks is because it is extremely difficult to manage loans in some parts of the world and it requires boots on the ground. How do you address this difficulty?
- jkurnia 13y ago
  Hi pilom, It was extremely difficult to send payments to individuals in pretty much all developing countries until about five years ago. Since then, mobile phone payment services, which allow funds to be sent via secure SMS message, have proliferated in a few countries, especially in Africa. Kenya is at the center of the mobile phone payment revolution with its M-PESA service, and is the reason Zidisha was first piloted in Kenya. Thanks to M-PESA, Kenya is still our largest country today. Most Zidisha loan payments are transferred via mobile phone. For example, we use M-PESA in Kenya to transfer funds from our US bank account electronically to a bank account in Kenya, and from there to the mobile phone M-PESA account of the recipient. The recipient can exchange the M-PESA credits for cash at a local M-PESA kiosk. We receive repayments the same way. In countries where mobile payment services are less developed, such as Burkina Faso, we transfer payments by sending a disbursement order to the local bank account where our funds are held. This is a much less scalable solution than mobile phone payments, and is one reason our growth is more rapid in the countries - Kenya, Ghana, and Indonesia - where mobile phone-based payments are enabled.
deleted 13y ago
[deleted]
David 13y ago
In the Huffington Post article, you wrote: "Years of working with NGOs and government aid programs were convincing me that handouts are a dead end, temporarily soothing the acuteness of the injustice but taking donor and recipient down a path of dependence that ultimately makes the international wealth divide even wider." Do you feel that way about a universal basic income? Does your statement only refer to single-recipient donations, that tend to cause dependence? I can't claim any personal experience, but from what I've read in e.g. [1] and [2], an unconditional basic income has positive effects on the community. The lesson I've taken from such pilot studies is that direct, conditionless donations are a very effective way to help the poor. I'm curious if I've learned the wrong lesson, and the benefits only appear if it's happening for a large population (or perhaps even that's not effective, and the studies are flawed or misleading). [1] http://www.bignam.org/BIG_pilot.html http://www.bignam.org/BIG_pilot.html [2] http://www.dominionpaper.ca/articles/4100 http://www.dominionpaper.ca/articles/4100
- jkurnia 13y ago
  Hi David, this is a complex question and I agree with you that a lot depends on the circumstances and details. My understanding is that many cash transfer programs have had measurable positive economic effects, both when they are targeted and when they are offered to an entire community. And there are obviously situations of humanitarian catastrophe, such as a natural disaster or a famine, where direct distribution of aid is the right answer. My objection to most handout programs is based on the negative psychological effects I experienced time and again while working with development assistance grants in Africa and Asia. The resources we distributed would certainly result in an economic boost, but they also fundamentally changed the way the recipients saw themselves, and the way we saw them. Handouts caused the recipients to view themselves as dependents whose fortunes were subject to the whims of luck and on pleasing donors, rather than on themselves as drivers of their own lives. When repeated enough, this psychological side effect can be devastating not only for the individual recipient, but for the broader community that has come to depend on the handouts. The dynamics in microfinance loans are much healthier in my experience - especially in a market-oriented community like Zidisha, where borrowers offer their own loan terms and lenders base their lending decisions on the borrowers' own demonstrated performance with past loans. It feels more like a business partnership than a handout.
minimax 13y ago
On the Zidisha statistics page† it says you have roughly 10% default rate but only 5% average interest rate. So if I make 10 loans of $1000 each, I expect to make $450 in interest and lose $1000 in principal to a default. That is a negative expected return. Why are Zidisha lenders willing to accept such terms? It seems like the interest rates should be higher given the risk of delinquency or default. †https://www.zidisha.org/index.php?p=43 https://www.zidisha.org/index.php?p=43
- lincolnq 13y ago
  According to their FAQ [1], Zidisha is a charity, not a place to put your money if you want to get a return. (It would be interesting to compare social-impact-per-dollar of Zidisha versus, e.g. GiveDirectly [2], one of the best-known ways of doing good in the developing world [3].) [1]: https://www.zidisha.org/microfinance/faq.html https://www.zidisha.org/microfinance/faq.html - look for the question "Why does the Zidisha website not track the precise financial returns earned on my loans?" [2]: http://givedirectly.org/ http://givedirectly.org/ [3]: http://www.givewell.org/charities/top-charities http://www.givewell.org/charities/top-charities
  - kanamekun 13y ago
    Actually I just looked at Zidisha's website to see how it works, and their terms of use [1] basically state that once you make a loan, the money is no longer yours: << Zidisha makes no guarantee or representation that funds lent through its website will be repaid to lenders, regardless of whether the loans financed with lender funds are repaid to Zidisha. Any cash payouts are promotional gifts offered solely at Zidisha's discretion. >> So basically, I make a loan and then if the entrepreneurs makes a repayment, Zidisha can choose to give me my money as a "promotional gift." But wouldn't lenders have to pay taxes on their "promotional gifts"? And aren't I getting taxed on my entire loan (principal and interest), not just my interest income like with a normal loan? I don't get it... why structure things this way? [1] https://www.zidisha.org/index.php?p=5 https://www.zidisha.org/index.php?p=5
    - jkurnia 13y ago
janj 13y ago
Have you experienced any places or cultures that have not yet adopted a debt based economy? I don't know if any still exist but if so is there any concern for introducing a debt based economy in an area that has so far resisted it? I guess your service wouldn't have much value in an area that doesn't already have a debt based infrastructure in place. Do you have any particular thoughts or opinions about economies based on debt? Can other modals exist?
- jkurnia 13y ago
  Hi janj, I am not familiar with any place where debt is not used in some form or another. (See http://www.amazon.com/Portfolios-Poor-How-Worlds-Live/dp/0691148198 http://www.amazon.com/Portfolios-Poor-How-Worlds-Live/dp/069... for a really thorough exposition of the variety of debt strategies low-income households use to manage their finances.) The main alternatives to debt that I am aware of are forms of Islamic financing, such as rent-to-own and profit-sharing models. We have explored the possibility of offering a profit-sharing financing product, but failed to come up with a feasible way of implementing such a model. The successful implementations of profit-sharing models seem to rely on strong information verification systems and intensive interaction with local staff, which we as an online service cannot offer.
btilly 13y ago
I have an unrelated question, which you might have strong opinions on or information about. I just finished reading http://www.amazon.com/exec/obidos/ASIN/0465016154/ http://www.amazon.com/exec/obidos/ASIN/0465016154/ which espouses the theory that the root of a lot of problems is that countries set up formal property systems that exclude most of their population, and then fail to capture the contracts that people actually live by. Because of this, people are unable to secure loans because they can't prove to the broader world that "their" property is theirs. It is a classic, "Here is the problem, fix this and all else gets better" kind of prescription. I'm always suspicious of those. But as an expert in this area, what do you think of this one? Is it as big an issue as they claim? How much would fixing it help?
- jkurnia 13y ago
  Hi btilly, I am not an expert in property law in general. I understand it is a contentious issue in much of Latin America, Hernando De Soto's area of focus. I can tell you that many Zidisha borrowers do have formal legal title to farming plots and homes, but they do not use this property as collateral for loans because they cannot afford the risk of losing it. More broadly, I do not think any one service - property reform, or business growth capital, or health or education for that matter - is a cure-all. All of these services are needed, and each works optimally when the others are present.
cktsai 13y ago
Julia and the Zidisha team are awesome. Their customer support and product experience rival those of the best internet startups :)
smithm9 13y ago
Hi Julia, Before I get to my questions, I want to applaud your and Paul's efforts. It's great to see resources being spent in pursuit of causes that really matter. First, what basis do you have for believing that micro lending is an effective means of poverty alleviation? I've yet to come across a well-respected study that proves it is, but have read a few [1] that question its efficacy. And second, given your stance on aid, I'm curious why you structured Zidisha as a non profit? Couldn't an argument be made that the same negative effects you claim handouts have on the poor [2], also negatively impact Zidisha if you accept donations to run your organization? Thanks for your responses. [1] https://www.givedirectly.org/pdf/DFID_microfinance_evidence_review.pdf https://www.givedirectly.org/pdf/DFID_microfinance_evidence_... [2] http://m.huffpost.com/us/entry/4623503 http://m.huffpost.com/us/entry/4623503
- jkurnia 13y ago
  Hi smithm9, I also do not know of any study that definitively "proves" that microfinance alleviates poverty. I think one reason is that it is hard to decouple the effects of microfinance from the many random events that determine household income in developing countries. Another reason is the high interest rates charged by most traditional microfinance programs. I have personally known many people who have dramatically improved their living standards thanks to Zidisha loans. Here is one example: https://www.zidisha.org/microfinance/loan/nbsarr/408.html https://www.zidisha.org/microfinance/loan/nbsarr/408.html (see the comment area for updates on the results of her loans). Over and beyond measurable economic effects, I would argue that having access to the chance to raise affordable financing is transformative because it changes the way a person views the range of opportunities for advancement in life. For example, all Zidisha entrepreneurs know they can progress to raise up to $10,000 if they maintain a solid track record of repayments over time. Simply knowing that opportunity exists removes the ceiling people would otherwise put on their own ambitions. The result is intangible, but no less important because we cannot measure it. We structured Zidisha as a nonprofit because our mission is genuinely philanthropic. Nobody is in it to make money. At heart, we are a cause-driven group of people and the nonprofit structure is a natural fit for that. Also, we do not want to be in a position where equity holders might oblige us to charge high fees to generate profits. Finally, our nonprofit status reinforces the message that lending through Zidisha is a philanthropic, not a financial investment activity. Why do we accept donations to run our organization? We provide a valuable service to lenders in developing and maintaining the web platform and community that allows them to connect with the entrepreneurs they wish to support. We could charge lenders a fixed fee to cover the cost of this service, but we decided to structure it instead as an optional tip made while funding loans. The optional tip allows lenders who can afford more to donate generously. Currently about half of our income comes from service fees paid by borrowers, and the rest comes from lender tips. We view both as payment for service we are providing, rather than a free handout.

by jkurnia 13y ago

pilom 13y ago

How do you distribute funds and receive payments on loans? The reason some of your competitors use local banks is because it is extremely difficult to manage loans in some parts of the world and it requires boots on the ground. How do you address this difficulty?

jkurnia 13y ago
Hi pilom, It was extremely difficult to send payments to individuals in pretty much all developing countries until about five years ago. Since then, mobile phone payment services, which allow funds to be sent via secure SMS message, have proliferated in a few countries, especially in Africa. Kenya is at the center of the mobile phone payment revolution with its M-PESA service, and is the reason Zidisha was first piloted in Kenya. Thanks to M-PESA, Kenya is still our largest country today. Most Zidisha loan payments are transferred via mobile phone. For example, we use M-PESA in Kenya to transfer funds from our US bank account electronically to a bank account in Kenya, and from there to the mobile phone M-PESA account of the recipient. The recipient can exchange the M-PESA credits for cash at a local M-PESA kiosk. We receive repayments the same way. In countries where mobile payment services are less developed, such as Burkina Faso, we transfer payments by sending a disbursement order to the local bank account where our funds are held. This is a much less scalable solution than mobile phone payments, and is one reason our growth is more rapid in the countries - Kenya, Ghana, and Indonesia - where mobile phone-based payments are enabled.

deleted 13y ago

[deleted]

David 13y ago

In the Huffington Post article, you wrote: "Years of working with NGOs and government aid programs were convincing me that handouts are a dead end, temporarily soothing the acuteness of the injustice but taking donor and recipient down a path of dependence that ultimately makes the international wealth divide even wider." Do you feel that way about a universal basic income? Does your statement only refer to single-recipient donations, that tend to cause dependence? I can't claim any personal experience, but from what I've read in e.g. [1] and [2], an unconditional basic income has positive effects on the community. The lesson I've taken from such pilot studies is that direct, conditionless donations are a very effective way to help the poor. I'm curious if I've learned the wrong lesson, and the benefits only appear if it's happening for a large population (or perhaps even that's not effective, and the studies are flawed or misleading). [1] http://www.bignam.org/BIG_pilot.html http://www.bignam.org/BIG_pilot.html [2] http://www.dominionpaper.ca/articles/4100 http://www.dominionpaper.ca/articles/4100

jkurnia 13y ago
Hi David, this is a complex question and I agree with you that a lot depends on the circumstances and details. My understanding is that many cash transfer programs have had measurable positive economic effects, both when they are targeted and when they are offered to an entire community. And there are obviously situations of humanitarian catastrophe, such as a natural disaster or a famine, where direct distribution of aid is the right answer. My objection to most handout programs is based on the negative psychological effects I experienced time and again while working with development assistance grants in Africa and Asia. The resources we distributed would certainly result in an economic boost, but they also fundamentally changed the way the recipients saw themselves, and the way we saw them. Handouts caused the recipients to view themselves as dependents whose fortunes were subject to the whims of luck and on pleasing donors, rather than on themselves as drivers of their own lives. When repeated enough, this psychological side effect can be devastating not only for the individual recipient, but for the broader community that has come to depend on the handouts. The dynamics in microfinance loans are much healthier in my experience - especially in a market-oriented community like Zidisha, where borrowers offer their own loan terms and lenders base their lending decisions on the borrowers' own demonstrated performance with past loans. It feels more like a business partnership than a handout.

minimax 13y ago

On the Zidisha statistics page† it says you have roughly 10% default rate but only 5% average interest rate. So if I make 10 loans of $1000 each, I expect to make $450 in interest and lose $1000 in principal to a default. That is a negative expected return. Why are Zidisha lenders willing to accept such terms? It seems like the interest rates should be higher given the risk of delinquency or default. †https://www.zidisha.org/index.php?p=43 https://www.zidisha.org/index.php?p=43

lincolnq 13y ago
According to their FAQ [1], Zidisha is a charity, not a place to put your money if you want to get a return. (It would be interesting to compare social-impact-per-dollar of Zidisha versus, e.g. GiveDirectly [2], one of the best-known ways of doing good in the developing world [3].) [1]: https://www.zidisha.org/microfinance/faq.html https://www.zidisha.org/microfinance/faq.html - look for the question "Why does the Zidisha website not track the precise financial returns earned on my loans?" [2]: http://givedirectly.org/ http://givedirectly.org/ [3]: http://www.givewell.org/charities/top-charities http://www.givewell.org/charities/top-charities
- kanamekun 13y ago
  Actually I just looked at Zidisha's website to see how it works, and their terms of use [1] basically state that once you make a loan, the money is no longer yours: << Zidisha makes no guarantee or representation that funds lent through its website will be repaid to lenders, regardless of whether the loans financed with lender funds are repaid to Zidisha. Any cash payouts are promotional gifts offered solely at Zidisha's discretion. >> So basically, I make a loan and then if the entrepreneurs makes a repayment, Zidisha can choose to give me my money as a "promotional gift." But wouldn't lenders have to pay taxes on their "promotional gifts"? And aren't I getting taxed on my entire loan (principal and interest), not just my interest income like with a normal loan? I don't get it... why structure things this way? [1] https://www.zidisha.org/index.php?p=5 https://www.zidisha.org/index.php?p=5
  - jkurnia 13y ago

janj 13y ago

Have you experienced any places or cultures that have not yet adopted a debt based economy? I don't know if any still exist but if so is there any concern for introducing a debt based economy in an area that has so far resisted it? I guess your service wouldn't have much value in an area that doesn't already have a debt based infrastructure in place. Do you have any particular thoughts or opinions about economies based on debt? Can other modals exist?

jkurnia 13y ago
Hi janj, I am not familiar with any place where debt is not used in some form or another. (See http://www.amazon.com/Portfolios-Poor-How-Worlds-Live/dp/0691148198 http://www.amazon.com/Portfolios-Poor-How-Worlds-Live/dp/069... for a really thorough exposition of the variety of debt strategies low-income households use to manage their finances.) The main alternatives to debt that I am aware of are forms of Islamic financing, such as rent-to-own and profit-sharing models. We have explored the possibility of offering a profit-sharing financing product, but failed to come up with a feasible way of implementing such a model. The successful implementations of profit-sharing models seem to rely on strong information verification systems and intensive interaction with local staff, which we as an online service cannot offer.

btilly 13y ago

I have an unrelated question, which you might have strong opinions on or information about. I just finished reading http://www.amazon.com/exec/obidos/ASIN/0465016154/ http://www.amazon.com/exec/obidos/ASIN/0465016154/ which espouses the theory that the root of a lot of problems is that countries set up formal property systems that exclude most of their population, and then fail to capture the contracts that people actually live by. Because of this, people are unable to secure loans because they can't prove to the broader world that "their" property is theirs. It is a classic, "Here is the problem, fix this and all else gets better" kind of prescription. I'm always suspicious of those. But as an expert in this area, what do you think of this one? Is it as big an issue as they claim? How much would fixing it help?

jkurnia 13y ago
Hi btilly, I am not an expert in property law in general. I understand it is a contentious issue in much of Latin America, Hernando De Soto's area of focus. I can tell you that many Zidisha borrowers do have formal legal title to farming plots and homes, but they do not use this property as collateral for loans because they cannot afford the risk of losing it. More broadly, I do not think any one service - property reform, or business growth capital, or health or education for that matter - is a cure-all. All of these services are needed, and each works optimally when the others are present.

cktsai 13y ago

Julia and the Zidisha team are awesome. Their customer support and product experience rival those of the best internet startups :)

smithm9 13y ago

Hi Julia, Before I get to my questions, I want to applaud your and Paul's efforts. It's great to see resources being spent in pursuit of causes that really matter. First, what basis do you have for believing that micro lending is an effective means of poverty alleviation? I've yet to come across a well-respected study that proves it is, but have read a few [1] that question its efficacy. And second, given your stance on aid, I'm curious why you structured Zidisha as a non profit? Couldn't an argument be made that the same negative effects you claim handouts have on the poor [2], also negatively impact Zidisha if you accept donations to run your organization? Thanks for your responses. [1] https://www.givedirectly.org/pdf/DFID_microfinance_evidence_review.pdf https://www.givedirectly.org/pdf/DFID_microfinance_evidence_... [2] http://m.huffpost.com/us/entry/4623503 http://m.huffpost.com/us/entry/4623503

jkurnia 13y ago
Hi smithm9, I also do not know of any study that definitively "proves" that microfinance alleviates poverty. I think one reason is that it is hard to decouple the effects of microfinance from the many random events that determine household income in developing countries. Another reason is the high interest rates charged by most traditional microfinance programs. I have personally known many people who have dramatically improved their living standards thanks to Zidisha loans. Here is one example: https://www.zidisha.org/microfinance/loan/nbsarr/408.html https://www.zidisha.org/microfinance/loan/nbsarr/408.html (see the comment area for updates on the results of her loans). Over and beyond measurable economic effects, I would argue that having access to the chance to raise affordable financing is transformative because it changes the way a person views the range of opportunities for advancement in life. For example, all Zidisha entrepreneurs know they can progress to raise up to $10,000 if they maintain a solid track record of repayments over time. Simply knowing that opportunity exists removes the ceiling people would otherwise put on their own ambitions. The result is intangible, but no less important because we cannot measure it. We structured Zidisha as a nonprofit because our mission is genuinely philanthropic. Nobody is in it to make money. At heart, we are a cause-driven group of people and the nonprofit structure is a natural fit for that. Also, we do not want to be in a position where equity holders might oblige us to charge high fees to generate profits. Finally, our nonprofit status reinforces the message that lending through Zidisha is a philanthropic, not a financial investment activity. Why do we accept donations to run our organization? We provide a valuable service to lenders in developing and maintaining the web platform and community that allows them to connect with the entrepreneurs they wish to support. We could charge lenders a fixed fee to cover the cost of this service, but we decided to structure it instead as an optional tip made while funding loans. The optional tip allows lenders who can afford more to donate generously. Currently about half of our income comes from service fees paid by borrowers, and the rest comes from lender tips. We view both as payment for service we are providing, rather than a free handout.