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Is direct P2P microlending financially sustainable?
- jkurnia 12y agoI'm Julia, the founder of Zidisha. I'd be happy to answer questions here.
- samirmenon 12y agoWhat was your strategy for acquiring borrowers, and building your network of in-country volunteers?
- jkurnia 12y agoWhen we first open a lending program in a new country, a local volunteer or visiting international intern typically finds an initial group of borrowers by making presentations at NGOs, pitching Zidisha to local cybercafe owners, etc. After that, growth happens almost exclusively by word of mouth. Most in-country volunteers (we call them "Volunteer Mentors") are also Zidisha borrowers. They learn about the mentoring program via a note in the borrower account interface of our website, and apply via email.
- marcell 12y agoHave you considered adding bitcoin support to your product? Assuming the receiver has a way to convert bitcoin to/from their local currency, this may remove some friction in transfering value between individuals. btcjam.com is doing something like this with bitcoin.
- jacquesm 12y agoWhat use would that be? Far more people in the world have not used bitcoin than the percentage that has, it looks like it might be a cheap PR win but in actual usage it will amount to a small fraction of nearly nothing. And then you still have to convert them with associated costs and repay the lender in some ridiculously volatile currency. Supporting bitcoin (unless you are a bitcoin start-up) seems like a silly thing to do for a company that needs to prioritize due to resource constraints.
- marcell 12y ago1) People without bank accounts can receive BTC, and sell them for cash 2) Sending BTC internationally is simpler than sending fiat
- jacquesm 12y agoHow will they sell them for cash without using an exchange and/or a bank account? I can't just convert a bitcoin sitting in my wallet to something I can give to someone else to exchange for cash without a whole pile of guarantees. The only people I can trade bitcoin with for cash is other bitcoin users, which - as I noted above - are few and far between. Yes, sending BTC internationally is simpler, but that does not mean the recipient can do the same things with them as they can do with fiat, and as such it just shifts the problem to the recipient. When you send cash (using for instance western union) it is almost instantly available as well, without all the downsides of having to find someone that will trade your bitcoins at something approaching their market value.
- rational-future 12y agoWestern union will often take over 5% of a transfer through fees and extremely greedy exchange rates. A BitCoin transfer on the other hand is virtually free. IMHO there will be a high overlap between people using a lending startup and Bitcoin users, as both are modern bank alternatives. In my humble experience exchanging Bitcoins for cash was hard a couple of years ago, but not today. All my geek friends and colleagues use it.
- jkurnia 12y agoWe did consider adding bitcoin support, but opted to refrain for now because: - we did not identify a straightforward way to convert bitcoins to cash in borrower currencies - it seemed from our informal research that supporting bitcoin has not resulted in many new supporters for most nonprofits that have tried it - supporting another payment method would add overhead weight to our organization - so few of our lenders use bitcoin that we estimated the savings in transfer fees wouldn't be worth introducing more complication in our payment options We're keeping an eye on bitcoin and may begin supporting it if these conditions change.
- swalsh 12y agoDo you guys have an API available?
- jkurnia 12y agoWe don't at the moment, because our programming resources are limited and we have been prioritizing development of our lending platform. We will likely be able to make our data available in an API within a year. You can view the data used to generate the repayment graph here: https://www.zidisha.org/index.php?p=114 https://www.zidisha.org/index.php?p=114
- loganfrederick 12y agoI haven't followed Zidisha too closely, but just from this post, you mention "cost of lending" at the beginning but then the returns are before operating expenses. Without revealing anything too proprietary, how much cost savings do you have versus other microlending operations, and what does make up your costs (administrative or other site/engineering costs)?
- jkurnia 12y agoTraditional microlending operations are expensive. For example, the average microfinance organization needs to charge borrowers 35% interest for capital borrowed at zero interest from Kiva.org, to cover its overhead costs. (Source: https://en.wikipedia.org/wiki/Kiva_(organization)#Current_interest_rate_statistics https://en.wikipedia.org/wiki/Kiva_(organization)#Current_in...) Zidisha's overhead costs average about 10% of the value of the loans we facilitate. The costs are fully covered by borrower fees and optional lender tips. Borrower fees include a lifetime membership fee of $12 paid when the first loan is disbursed, and a flat fee of 5% of each loan funded per year the loan is held.
- trhway 12y ago>and a flat fee of 5% of each loan funded per year the loan is held interesting definition of flat fee. It sounds to me like additional 5% interest, isn't it?
- JumpCrisscross 12y ago> It sounds to me like additional 5% interest, isn't it? Interest accrues as a function of time. Yes, one could model this fee as an interest rate by taking into account the loan's expected term. But the 5% is not compensation for the time value of money or risk of lending–it is a facilitation payment. As such, calling it a fee seems acceptable. Since the 5% doesn't change with the amount lent, or other factors, "flat" seems an appropriate adjective (though it is more commonly used to refer to a fixed dollar, versus percentage, amount). EDIT: since the "fee" does appear to vary with a loan's term, yes, I think this would be correctly characterizable as interest.
- dreamdu5t 12y agoJust a suggestion, you should have a link back to the main zidisha.org domain from the blog.
- manishsharan 12y agoHi Julia, Zidisha seems to be serving a valuable need. I had designed and developed a credit exposure and credit risk management for large corporate and commercial banking for a large Canadian bank and I am curious to know how credit exposure and risk is managed by Zidisha. a) what collateral do you accept and how do you value the collateral? b) do you consider country risk ? and how do you quantify individual's risk profile ? have you developed a credit risk model ? c) would you consider offloading credit risk by partially securitizing your loans? d) Countries where you operate in have a serious risk of document fraud. can you share stories of fraud mitigation ? f) finally, what kind of lenders do you seek ? Are you looking for altruistic people or people seeking to spread their investment risk ? e) Also, do you realize that you have the opportunity to become the Equifax of third-world countries ?
- jkurnia 12y agoa) what collateral do you accept and how do you value the collateral? We don't accept any collateral, because 1) most of our borrowers are low-income individuals just entering the working population, and don't have any substantial assets, and 2) a collateral-based credit risk mitigation system would be too expensive relative to the size of the loans (the starting loan amount is $50 - $150). b) do you consider country risk ? and how do you quantify individual's risk profile ? have you developed a credit risk model ? Currently, once a borrower is admitted to Zidisha, lenders alone judge country and credit risk. However, we're currently working on a data-driven credit risk model to complement our other risk mitigation measures. c) would you consider offloading credit risk by partially securitizing your loans? Not in the near term, because our lending model is too new and changes too rapidly for credit risk to be easily quantifiable. In addition, we'd be concerned about moral hazard. d) Countries where you operate in have a serious risk of document fraud. can you share stories of fraud mitigation ? One of the major shifts in our lending approach has been a move away from document-based vetting. For example, we used to require local community leaders (religious officials, school principals etc.) to sign recommendation forms for loan applicants. We found that fraudulent applicants would forge these, even having false organizational stamps manufactured for this purpose. It was possible to mitigate this by telephoning the officials who signed the forms and asking them to verify their institutions' addresses or other hard-to-remember information, but it proved too difficult for our all-volunteer staff to cope with the erratic phone networks and linguistic barriers once we started processing thousands of applications. We never did figure out a way to mitigate document fraud at scale. Instead, we developed other verification methods that were more difficult to falsify, and reduced the initial loan amount, until the costs of getting a fraudulent application through our vetting system outweighed the expected gains. f) finally, what kind of lenders do you seek ? Are you looking for altruistic people or people seeking to spread their investment risk ? We are looking for altruistic people, who want to help people in the world's poorest places without dependency-creating handouts or exorbitant interest rates. Zidisha at present is not viable as a purely commercial investment. e) Also, do you realize that you have the opportunity to become the Equifax of third-world countries ? Yes, that's an interesting possibility, though I've not yet heard of Zidisha being used in this way. Most people who can borrow with Zidisha do not seek credit elsewhere.
- atmosx 12y agoCan this be approached as a (low or high risk?) investment, from the borrower's perspective, or is it mostly about helping third world inhabitants without any substantial ROI for borrower?
- cornholio 12y agoOh great. Payday loan sharks meet Wall-street meet the developing world. The whole concept of microlending is based on the free market fantasy that poor people can build their own businesses and be self reliant, as if market entry barriers don't exist. As if a weaver investing in a manual loom does not face the competition of textiles industrially produced in China for pennies. The financial sector jumped all over microlending: it's a virgin market for financial services ("the unbanked"), the default rate is low because the existing social structure is leveraged (like MLMs, Amway etc.), and the profit potentials are huge. Meanwhile, they can claim they are helping people and the nasty effects of this type of loan sharking take place in a far away country to people who can barely understand they are victimized. Poor people need jobs and education, not high interest loans that will just finance survival. The developing world will increase it's standard of living the same way the West did: large scale efficient production, ran by educated and productive workers earning wages and creating demand. It will not be via a bunch of banana cart pushers.
- cornholio 12y agoBy all means, don't address any of my points, just hit the downvote button.
- pessimizer 12y agoWhen you post things like this, my downvote ends up nullifying my initial upvote on your OP. If you value the precious magic internet points, with a complaint about downvotes you're just giving people twice the opportunity to downvote you.
- cornholio 12y agoI agree it looks stupid, but when I posted that there were three negative votes and not a single reply. I really don't care about the downvotes, I want arguments. The lending industry is like a drug store: you care cure some diseases with the right drugs, but you can't run it like an "all you can eat" buffet. People will kill themselves, literally.
- misterlocke 12y agoI like the concept of P2P microlending, especially enabled by technology, so the loan sharks can be kept out of the system. But to really be sustainable and have a high-impact (as a tool for economic growth in the 3rd worlds, not as a business per se), it should be more localized. Think at something like localbitcoins.com - as a working system - ignore the bitcoin part of it. This way you can get rid of the most of the taxes and decrease the level of fraud.
- jkurnia 12y agoI think domestic P2P platforms are a big untapped opportunity in developing countries, especially large ones. They are still rare; Fairplace in Brazil is a notable exception. An international platform like Zidisha can offer a different value proposition, in that 1) we enable arbitrage in purchasing power parity between wealthy and developing countries (the price of dinner at an upscale restaurant in America could finance the startup of an entire restaurant in Kenya), and 2) our users value the chance to connect with an ordinary person on the other side of the world, learning about their culture, socioeconomic realities, etc.