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I 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 expens

I 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 ago
Traditional 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.
    - trhway 12y ago
      >Interest accrues as a function of time. "per year the loan is held" sounds exactly this. >Since the 5% doesn't change with the amount lent that is the definition of a '%' sign, isn't it? :) Using '%' with "per year" is a definition of interest, isn't? Edit: wow, i just now recognized another possibility - charging 5% x [expected years] upfront - that would be "fee", yes. One fr!cking large fee. Who in sane mind is going to pay it? That sounds like preying on people who have no other choice.
      - jkurnia 12y ago
        Most loans are held for less than one year, so the fee ends up being less than 5% of the amount raised.
      - JumpCrisscross 12y ago
        > "per year the loan is held" sounds exactly this. I was not aware of this. You are correct - this looks more like interest than a facilitation fee. > that is the definition of a '%' sign, isn't it? :) Transaction fees are usually assessed as a fraction of the value transacted. A flat fee, within this context, is a non-varying percentage of the transaction value, e.g. 5%. A non-flat fee has moving parts, e.g. 5% for the first $100, 4% for the next, etc. (or 5% if the interest rate is less than 15%, 10% if above, etc.). It is an ambiguous term. I try to avoid it. Instead of calling a fee "flat" to emphasise its simplicity, make it simple.
  - jkurnia 12y ago
    This is intended as a service fee, not interest. It is set at a level that, along with registration fees and lender tips, just covers our operating costs. (For example, in the first quarter of 2014 our average operating costs were $8,225 per month. Our average monthly revenues were $8,507.) It might be more precise to structure the service fee as a fixed percentage of the loan amount regardless of the term. We opted to structure it as an annual rate mainly for simplicity: it can be added to lender interest so that loan applicants can see the full cost of the loan in a single rate, without any other unexpected fees.

jkurnia 12y ago

Traditional 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.
  - trhway 12y ago
    >Interest accrues as a function of time. "per year the loan is held" sounds exactly this. >Since the 5% doesn't change with the amount lent that is the definition of a '%' sign, isn't it? :) Using '%' with "per year" is a definition of interest, isn't? Edit: wow, i just now recognized another possibility - charging 5% x [expected years] upfront - that would be "fee", yes. One fr!cking large fee. Who in sane mind is going to pay it? That sounds like preying on people who have no other choice.
    - jkurnia 12y ago
      Most loans are held for less than one year, so the fee ends up being less than 5% of the amount raised.
    - JumpCrisscross 12y ago
      > "per year the loan is held" sounds exactly this. I was not aware of this. You are correct - this looks more like interest than a facilitation fee. > that is the definition of a '%' sign, isn't it? :) Transaction fees are usually assessed as a fraction of the value transacted. A flat fee, within this context, is a non-varying percentage of the transaction value, e.g. 5%. A non-flat fee has moving parts, e.g. 5% for the first $100, 4% for the next, etc. (or 5% if the interest rate is less than 15%, 10% if above, etc.). It is an ambiguous term. I try to avoid it. Instead of calling a fee "flat" to emphasise its simplicity, make it simple.
- jkurnia 12y ago
  This is intended as a service fee, not interest. It is set at a level that, along with registration fees and lender tips, just covers our operating costs. (For example, in the first quarter of 2014 our average operating costs were $8,225 per month. Our average monthly revenues were $8,507.) It might be more precise to structure the service fee as a fixed percentage of the loan amount regardless of the term. We opted to structure it as an annual rate mainly for simplicity: it can be added to lender interest so that loan applicants can see the full cost of the loan in a single rate, without any other unexpected fees.