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Interview: 2 Years Zidisha – Part II

wiseclerk 2 Comments

Read part one of the interview first

This is the second part of an interview with Julia Kurnia, Director and Founder of Zidisha Microfinance.

Does the Euro crisis in any way impact Zidisha’s business?

The Euro is the home currency of many of our lenders. To the extent that the Euro crisis causes it to depreciate against the US dollar (in which Zidisha account balances are denominated) and against the borrowers’ currencies in which loan values are fixed, it will increase financial returns when these funds are converted back to Euros.
That said, lending with Zidisha is intended to be a philanthropic activity, and most of our members seek to generate social benefits in a way that is financially sustainable. Zidisha loans typically allow economically disadvantaged households to expand their cash businesses to the point where incomes are increased by 150% to 200%. The additional cash is very often invested in the children’s education – both by providing sufficient living income so that teenagers do not need to drop out of school to support their families, and by covering the costs of continued schooling. The return to society from this kind of investment in education of the next generation of the rural poor in developing countries is impossible to quantify. This will continue to be true regardless of currency fluctuations.

A week ago Zidisha got a new design. What is new?

Our new design reflects feedback from the Zidisha community, and the growth of our organization. We opted for a clean, modern style and an uncluttered, simple layout that is in keeping with our values of directness and transparency. The new site is more effortless to navigate, easier to learn and read about Zidisha entrepreneurs, and simpler than ever to make a loan. We’ve also included more social media buttons so that visitors can conveniently share Zidisha with friends and family, and connect with us via Facebook and Twitter.

Zidisha is doing direct p2p lending. Do you think it is likely that there will be a substantial shift from indirect p2p lending (like Kiva does) to a direct model without MFIs in the future?
Yes, I think that is the future of online microlending. As Zidisha has proven that the concept is viable, I’m sure that we will inspire many similar initiatives. I expect to see other organizations – both new start-ups and established platforms – experiment with direct P2P lending across the international wealth divide. This will be a welcome development, generating positive social impact beyond the reach of our organization, valuable learning opportunities for P2P lending and microfinance practitioners, and useful variety for our clients. Continue reading →

Interview: 2 Years Zidisha – Part I

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Today I am glad to be able to publish another interview with Julia Kurnia, Director and Founder of Zidisha Microfinance. As the interview text is a bit long for a blog post, I have split the interview in two parts.

Nearly 2 years have passed since our first interview. In that time Zidisha has grown considerably. Looking back, how satisfied are you with the achievements?

Two years ago, few believed that low-income individuals in developing countries could successfully participate in a genuine peer-to-peer lending community. The conventional wisdom was that people in remote, impoverished communities would not benefit from or repay loans unless the loans were administered in person by expensive local bureaucracies. As a result, the world’s poorest borrowers pay some of the world’s highest levels of interest and fees – between 35% and 40% is the global average for microfinance loans in developing countries.
Though there are quite a few other microlending websites that allow individuals to fund loans in developing countries, 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 completely unaware of the lenders who funded his or her loan. And the intermediaries pass on their high overhead costs to borrowers, so that even when loans are financed at zero interest by charitable lenders, borrowers end up paying well over 30% in fees and interest. Such high 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. At the same time, the direct peer-to-peer connection reduces the administrative cost of loans by automating and outsourcing to borrowers and lenders themselves many of the record-keeping and credit-screening functions traditionally performed manually by local microfinance institutions. As a result, the average Zidisha borrower pays about 8% in annual interest and fees, including interest paid out to lenders. Over the past two years we’ve facilitated over 100,000 US$ in microloans for low-income individuals in four countries. Zidisha borrowers have maintained a repayment rate of 99.5% for ended loans – disproving the notion that the working poor in developing countries cannot be trusted to repay loans without the support of expensive local organizations.

How is the borrower feedback? Are there any suggestions for points to improve?

Last month we completed the first survey of all Zidisha members worldwide. In contrast to lenders, who gave a variety of reasons for choosing to join Zidisha, borrowers were unanimous in citing our low interest rates as the principal benefit of borrowing with Zidisha. Other benefits cited by borrowers included: no forced savings or collateral requirements, flexible credit conditions and repayment schedules, and the fact that Zidisha lenders place trust in their integrity and rewards responsible conduct rather than relying on legal protections alone to ensure repayment. 100% of borrower survey respondents said that they are actively recommending Zidisha to others – and indeed, we have never needed to advertise our platform in order to attract new borrowers.
When asked for suggestions for ways we can improve our service, a majority of respondents proposed the ability to raise larger loans. Zidisha currently limits maximum loan sizes based on amounts applicants have successfully repaid in the past, in order to ensure that they have the ability to repay the loans comfortably. However, some borrowers clearly feel that this loan size limitation policy constrains the growth of their businesses unnecessarily. Continue reading →

Experimenting with Appbackr – Promising and Treacherous

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In August I discovered Appbackr. Appbackr is a marketplace where everyone can invest in IPhone apps and Android apps. Crowdfunding for app development? That sounded very interesting and innovative. I read the information supplied and the way it works is that investors prefund future sales of apps. The investor buys the copies at a lower wholesale prices and makes a profit later, when the copies actually sell in the app store. Clearly the risk is the uncertainty as to when the prepurchased copies will sell or if the sales volume will not be high enough at all and the copy will not get sold, which will result in a total loss of that investment.

Funding is done during an open bidding period. The developer lists his app on the marketplace and provides a description and information what the funding will be used for. Provided a minimum reserve is met, the funding will be successful, even if the maximum amount the developer seeks is not reached during bidding period.

Concept versus Live Apps

Appbackr differentiates between ‘Live Apps’ and ‘Concept Apps’.

A ‘Live App’ is already online in the Apple or Android Store and has started selling. For most Apple Apps Appbackr provides sales stats, which allow an educated guess how good the app is selling. The markup investors earn on Live Apps is 27% (once they are sold).

A ‘Concept App’ is an app that is under development or just an idea with a plan. The developer states a date, when he plans to launch in the store. For ‘Concept Apps’ the markup is 54%. The higher margin reflects the added risk for possible developing problems, which could in a worst case scenario lead to the app never making it into a store with zero copies sold.

A major difference between these two kind of apps is that the payout for ‘Live Apps’ is ‘sequential’ whereas the payout for ‘Concept Apps’ is ‘simultaneus’, meaning that those investors, who invested first during the bidding period ,get paid first for sales of Live Apps (you are informed how many copies need to sell before your copies will sell). For the ‘Concept Apps’, each backr will receive a fraction of each sale. That means you only get full payout for ‘Concept Apps’ after the last funded copy has been sold, too.

I had a good start – everything looked promising

After a lot of reading and browsing I did my first purchases/investments in early September. And it looked like I had a lucky start with good picks.


Screenshot of the Appbackr Dashboard for my Apps in status ‘Completed’. I unfolded the details for the AppZilla 2 app and the iScape App. It shows that ‘my’ 100 copies of iScape sold over the course of only 7 days. For the AppZilla 2 app it went even better. It took only 1 day for all ‘my’ 500 copies to sell. Note that Appbackr calculates annualized profit solely on the duration of the sales period. De facto I purchased the copies on Sep., 5th and was paid back $330.60 on Nov., 7th. My money was tied up for roughly two month which translates to a tremendous annualized profit of roughly 160%. Continue reading →

U-Haul Does P2CLending – Issues Own Notes

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A new twist to peer-to-company lending. So far p2p lending marketplaces facilitated lending from the crowd to other companies now U-Haul has its own p2p marketplace called U-Haul Investors Club. There anybody can purchase collateralized debt security notes issued by Amerco (the parent company of U-Haul). The minimum deposit required to start investing is 100 US$.

The loans are backed by collateral. Typical interest rates range from 3 to 7%. In the time since the opening of the U-Haul Investors Club in February 2011 approx. 7 million US$ in equipment financing was raised.

(via SocialLending.net – read more in Peter’s article here).

Crowdfunding via Starbucks

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Starting next weeks Americans can help to jump-start the economy sipping coffee at Starbucks. By donating 5 US$ they help to fund community loans to community businesses—including small businesses, microenterprises, nonprofit organizations, commercial real estate, and affordable housing— all across the country committed to creating and sustaining jobs. Donors who contribute $5 or more will receive a red, white, and blue wristband with the message “Indivisible.”

The initiative is called Create Jobs for USA. Loans will be given out by the Opportunity Finance Network (OFN), which represents a nationwide network of 180 Community Development Financial Institutions (CDFIs) set up to provide financing to community businesses in underserved markets where accessing credit through traditional lending institutions is challenging or not available. The Create Jobs for USA Fund at OFN will be seeded with a $5 million contribution from the Starbucks Foundation.

The donations to “Create Jobs for USA” will not be loaned to the CDFIs. They will be turned into equity that can be leveraged. If that equity can be leveraged 7 to 1, that would result in 350 million US$ loan funding, if Starbucks customers donate 50 million US$.

New Study on P2P Microfinance and Zidisha

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Sander van Damme has written the master thesis ‘Peer to peer Microfinance: the case of Zidisha.org‘ at the Louvain School of Management (Belgium). The 70 page study dives deep into analysis of Zidisha‘s complete loan portfolio (Q4 2009 – Q1 2011). It offers a very comprehensive overview on the p2p microfinance operations of Zidisha, the motivations of lenders and borrowers and developments of the interest rates on the marketplace.

Excerpt from the conclusion:

When looking at the trends in social media, the propagation of the internet and the innovations in mobile banking, we believe this website offers us a glimpse of what the future of aid and banking will look like. Although not necessarily a mainstream tool for everyone on this planet, it will surely become part of many a person’s portfolio. Rather than donating anonymously to some big NGOs who will use the money for projects we do not know about; people want to see their impact and be able to connect with each other across the globe.
Whereas we set out to discover whether peer to peer microfinance was a viable solution in the first place, we came across a business model that in the long run could allow both investors and entrepreneurs to profit from their exchange.