Zidisha's Funding website / Credit: Zidisha
Zidisha is a non-profit startup that acts as an online microlending community connecting lenders with entrepreneurs no matter the distance or disparity. As of right now, Zidisha allows individuals worldwide to lend to tech-savvy entrepreneurs in the slums of Africa and Asia where even a few dollars can go a long way. Over 20,000 people are using Zidisha today. Recently, I spoke with Zidisha founder and CEO Julia Kurnia to learn more about the company.
“We’re riding on a huge, mostly unnoticed trend - young adults in the world’s poorest places are going online and connecting with the global community,” Kurnia said. “And when given the chance, they participate responsibly in web-based marketplaces. Zidisha has no loan officers or physical presence in borrowers’ countries, yet our repayment rate is comparable to that of small business loans in America.”
Unlike earlier microfinancing websites such as Kiva, Zidisha does not use local intermediary banks to manage the loans. Kurnia says that the average interest rate charged for microfinance loans worldwide is about 40% and even charitable loans funded through Kiva are passed on to the end borrower at an average interest rate of 35%. By eliminating intermediaries, Zidisha has been able to reduce cost to the borrower to just 5% of the loan amount. For transparency purposes, Zidisha displays the full cost so you will know how much the entrepreneur will pay for your loan. The entrepreneurs post their own loan proposals, answer questions and share updates regularly.
Young adults in developing countries may have a lack of essential resources, but they do have access to the Internet. And the lack of resources makes them resilient and ambitious. Formal jobs are not available so young adults in developing countries are turning to the Internet for self-employment purposes.
There are many positive stories about how entrepreneurs in developing countries have benefited from using Zidisha. Theresia Kabiti, a teacher and principal at a school in Kenya, used Zidisha to renovate a school and prevent it from flooding in the future to help educate local children. Siaka Traore, a farmer in the desert country of Burkina Faso, was able to buy a set of machines that grinds and presses manioc into a food called attièke -- which was previously done manually by women working day and night. And Ndeye Bineta Sarr, a cloth dealer in Senegal,utilized Zidisha to buy an electric sewing machine, rent a boutique workshop and turn a profit thathelped send her children to school.
Kurnia came up with the idea for Zidisha on Thanksgiving Day in 2008 when she was on a trip to Niger managing overseas grants on behalf of the U.S. government. Rather than bookingan expensive hotel, she decided to stay in a cheap hostel. The cost of the expensive hotel per day was more than what some of the Nigeriens earned in a whole year. When Kurnia was eating porridge at the marketplace, she was immediately surrounded by kids. One of the bigger kids grabbed the leftovers after she was done while the rest of them starved.
While working on government aid programs, Kurnia realized that handouts are a dead end that temporarily benefits the recipient. However, it makes the recipient heavily dependent on the donors. Before starting Zidisha, Kurnia worked in microfinance where small amounts of financing were given as loans to invest in activities that generate revenues.
In graduate school, Kurnia helped launch the first microfinance organization funded exclusively by capital raised through the Internet. The nonprofit she co-founded based in Senegal raised hundreds of microloans through Kiva at zero cost. After hiring a loan officer and opening an office, the nonprofit noticed overhead costs had skyrocketed. The interest that the nonprofit would have had to charge to cover costs would wipe out the profits for the borrower. That defeats the purpose of the loan entirely.
In 2008, cybercafes started to open up around the world even in the poorest areas. Young adults started using social media regularly because the Internet costs pretty cheap. And the younger entrepreneurs who wished to raise loans through Kurnia’s old microfinance organization in Senegal no longer needed a loan officer to communicate with Kiva lenders.
Zidisha acts as an
Another benefit of theloans processed by Zidisha is that it isrecycled to new entrepreneurs. The lenders essentially redistribute the funds to new entrepreneurs. “If you put $100 into Zidisha today, you can expect it to finance $200 - $300 worth of projects per year,” Kurnia says. If you want to become a lender on Zidisha, you can find a list of loan opportunities at zidisha.org/lend. You can contribute any portion of the loan from a dollar up to the full amount.
After the loan is fully funded, the entrepreneur confirms the payment and communicates with the lenders through the Discussion tab in the loan profile page. The repayment of your loan takes place in weekly installments. When the entrepreneur makes a repayment, the funds are credited back to your lending account. The repaid funds can be withdrawn at any time or you can choose to reinvest the money into new loans to other entrepreneurs. If a loan defaults, lenders receive a refund from a reserve fund paid into by borrowers when they first join the platform. With that said, Zidisha is not considered a financial institution or an investment service so it should not be used as a safe place to store savings or financial assets.
For security purposes, Zidisha verifies the identity of the entrepreneur by collecting their residential addresses, phone numbers, national identity numbers, loan applications and Facebook accounts. The loans are disbursed through banks and payment services that check government-issued identity cards.
On-time repayments are incentivized by limiting the loan sizes to small amounts for new entrepreneurs. The limits are increased only if they maintain high on-time repayment rates. The credit limits for entrepreneurs are also connected to the repayment performance of other entrepreneurs that they have referred to Zidisha. The entrepreneur’s historical on-time repayment rates are displayed on Zidisha too. And there is a feedback rating system left by previous lenders on the loan profile pages of the entrepreneurs.
Why the name “Zidisha?” “Zidisha” is the Swahili word for “grow” or “expand.” Since Zidisha is used to help businesses grow, it makes sense to use that word as the company name. Zidisha does not have any employees in any other countries, but a number of experienced entrepreneurs serve as Volunteer Mentors that monitors and assists entrepreneurs on a voluntary basis. There are also international interns that can visit entrepreneurs in the developing countries.
Entrepreneurs in most countries pay a one-time membership fee to Zidisha of about $10-$12 to help cover the operating costs. And new members make a one-time contribution of about $10-$30 to the Zidisha Members Loan Fund, which is used for funding loans and reimbursing the lenders in case of default. Those costs are paid only if the new member is able to raise a loan through Zidisha and it covers lifetime membership. Thereafter, entrepreneurs may raise an unlimited number of successive loans at a cost of just 5% of each loan amount.
Funds are transferred between Zidisha and entrepreneurs in Kenya using a mobile phone messaging-based money transfer service called M-PESA. In Ghana and Zambia, the funds are transferred through a similar service called MTM Mobile Money. And entrepreneurs in Indonesia use the mobile payment service Indosat Dompetku. When the exchange rates fluctuate during the repayment period, the U.S. dollar value of the loan may increase or decrease. The lenders assume the currency risk when bidding on a loan.
Sometimes there are extenuating circ*mstances for the entrepreneurs and they have to modify the loan installments due toweather issues or family emergencies. “In developing countries, incomes can be erratic. Businesses may make $100 one month and then nothing the next month. Or a child may get sick. There has to be flexibility in the system, but the entrepreneurs must be responsible. If the entrepreneur is having a hard time, they could pay $0.10 one week and$20 the next week,” said Kurnia during the interview. “You do not want to force people to decide whether to put food on the table or make a loan repayment.”
Zidisha was a part of the first batch of nonprofits that applied to the Y Combinator startup accelerator. Y Combinator was a big decision for Kurnia because herson was only two years old at the time and herhusband could not leave his job in Virginia. Kurnia ended up relocating to California for three months with her toddler to participate in Y Combinator. But the program was beneficial because Kurnia learned how to code and she rewrote the entire codebase for the website with a team of engineers. As a result, the lending volume on Zidisha tripled per month.
What are your thoughts about microfinance? Please leave a commentwith your thoughts about Zidisha.
