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|title = Zidisha's Impact
|title = Zidisha's Impact
|label1 = Businesses Financed
|label1 = Businesses Financed
|data1 = 302
|data1 = 323
|label2 = Loans Raised
|label2 = Loans Raised
|data2 = $171,490 USD
|data2 = $186,345 USD
|label3 = Average Lender Interest Rate
|label3 = Average Lender Interest Rate
|data3 = 3.04%
|data3 = 3.02%
}}
}}
}}
}}

Revision as of 18:24, 11 April 2012

Zidisha Incorporated
General Information
Founded DateOctober 2009
FounderJulia Kurnia
LocationSterling, Virginia, United States
Area ServedGlobal
FocusEconomic development
MethodMicrocredit
Homepagehttp://www.zidisha.org
Zidisha's Impact
Businesses Financed323
Loans Raised$186,345 USD
Average Lender Interest Rate3.02%

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. "Zidisha" is the Swahili word for "grow" or "expand", as in a business, an investment, or a quality such as freedom or prosperity. Zidisha is the world's only direct peer-to-peer microlending service to link borrowers and lenders without intermediaries.[1]

Inspired by interactive websites such as Facebook and eBay, Zidisha facilitates direct dialogue and microlending transactions between individual web users worldwide and computer-literate, low-income entrepreneurs in developing countries. Zidisha members can fund loans for as little as a dollar, which the borrowers then use to develop business activities that improve their families' incomes while repaying loans to the members with interest. Zidisha borrowers access the internet via public cybercafes, donated laptops in village schools, and even smart phones, then create their own profile pages through which they share photos and information about themselves and their businesses. As they repay their loans, borrowers continue to share updates and dialogue with lenders via their profile pages. This direct web-based connection allows Zidisha members themselves to take on many of the communication and recording tasks traditionally performed by local organizations, bypassing geographic barriers and dramatically reducing the cost of microfinance services to the entrepreneurs.[2]

About

At the time of its founding, Zidisha was still an unproven experiment, piloting a concept that had never before been tested: that small-scale entrepreneurs in developing countries are capable of interacting responsibly with peer-to-peer lenders via a self-regulating web platform, without needing local intermediaries to communicate and manage loan transactions on their behalf.

Though there are other microlending websites that allow individuals to contribute funds toward microloans of their choice, 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 unaware of the lenders who funded his or her loan. The average intermediary organization adds over 30% - sometimes as much as 100% - in fees and interest to loans raised through these websites to cover its own administrative expenses. Such high interest 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. Eliminating unnecessary intermediaries also decreases cost of the loans. The average Zidisha borrower pays only 8.56% in annual interest and fees, including interest paid out to lenders. This is below the rate of inflation in many developing countries.[3]

Lending process

Zidisha's lending process works as follows:

1. A first-time loan applicant creates a profile that describes his or her business and credit history, including loans he or she has successfully repaid to local banks or microfinance institutions.

2. The applicant's reported credit history is checked by an independent local financial institution or credit reporting bureau. Only after these checks have confirmed a positive borrowing record may the applicant request a loan through Zidisha.

3. The applicant then posts a loan request that describes the proposed investment, desired loan amount and repayment period, and the maximum interest rate the applicant will accept.

4. Zidisha’s lender participants then have the opportunity to bid to finance all or a portion of the loan at a proposed interest rate that is equal to or less than the applicant's desired rate, net of a transaction fee equal to 5% of the original amount of the loan for each year the loan is outstanding. If the loan is oversubscribed, then bids from lenders with the lowest proposed interest rates are retained.

5. 100% of lenders' accepted bids are disbursed to the borrower. Loan values are fixed in local currency, using the exchange rate effective at the time the loan is disbursed. Because loan values are fixed in local currency, lenders bear the risk of any currency exchange rate fluctuations.

6. The borrower repays principal and interest according to the schedule proposed in the loan application. Each time the borrower makes a repayment installment, lenders' shares of principal repayment and interest are credited to their accounts on the Zidisha website. Lenders may request to reduce their funded balance and receive a corresponding cash promotional payment at any time, or use it to finance new Zidisha loans.

7. Throughout the loan application and repayment period, lenders may post comments and questions, and borrowers may supply additional information and business updates through a weblog on their profile pages.

8. Lenders may post feedback on all lending transactions with which they are involved, thus creating a performance record that allows borrowers to request progressively larger loans with each successful repayment. (From Zidisha Website: "How It Works")[4]

Diagram of how Zidisha Microloans are transacted

Performance

Zidisha's lending model breaks new ground by using person-to-person lending to dramatically lower the costs of microfinance for low-income entrepreneurs in developing countries. According to an analysis published by microfinance risk consultant Daniel Rozas in July 2011, Zidisha offers loans at less than half the interest rates of traditional microfinance institutions as estimated by MFTransparency.[5]

Despite the absence of local loan officers to administer the loans, Zidisha's repayment performance compares favorably with that of more expensive traditional microfinance programs. Since its founding in 2009, Zidisha has maintained a repayment rate for ended loans of over 98%.[6] In Kenya, Zidisha's largest market, 7.52% of the outstanding loan value is overdue past 30 days - slightly lower than the country median of 7.7% reported by the MIX Market.[7]

Another innovation unique to Zidisha is the facilitation of direct communication between its members, such that lenders in the United States or Europe not only receive direct reports from the borrowers on the impact of their loans, but also gain the chance to experience life through the eyes of an ordinary person in a low-income community on the other side of the world. Zidisha members often find that they have much in common. For example, a lender who is a dairy farmer in Wisconsin may discuss cattle rearing with a dairy farmer in a small village in Kenya's Rift Valley Mountains.[8]

Zidisha has been a finalist and semifinalist for the Echoing Green foundation for early-stage social enterprises, and is a current Ashoka Fellow nominee.[9]

See also

References

  1. ^ [1]: "Microfinance without the MFI? Zidisha tests the boundaries of microlending methodology", Financial Access Initiative, July 5, 2011
  2. ^ "Zidisha Set to "Expand" in Peer-to-Peer Microfinance", Microfinance Focus, Feb 2010
  3. ^ [2]: "Zidisha In Country Newsletter: January 2011
  4. ^ [3]: "Zidisha: How It Works"
  5. ^ [4]: "Microfinance without the MFI? Zidisha tests the boundaries of microlending methodology", Financial Access Initiative, July 5, 2011
  6. ^ [5]: Zidisha Statistics
  7. ^ [6]: "Microfinance without the MFI? Zidisha tests the boundaries of microlending methodology", Financial Access Initiative, July 5, 2011
  8. ^ [7]: "How Technology Can Fight Poverty", The Heavy Chef, February 17, 2012
  9. ^ [8]: Zidisha In Country Newsletter, January 2012
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