interview

Interview: 2 Years Zidisha – Part II

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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 →

Interview with Korstiaan Zandvliet, Managing Director Symbid

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Symbid was first covered in the P2P-Banking blog two weeks ago. I  interviewed Korstiaan Zandvliet to get a deeper insight into the service.

What is Symbid about?

Symbid is the first online investment platform where the crowd directly invests in the equity of a start-up or existing company! Everybody can be an investor, each part has a nominal value of 20 EUR and you decide how many parts you would like to invest. The minimum is 20 EUR, the maximum is 2,500,000 EUR! The Symbid way of directly investing in equity is unique. It makes investors partial owners of the fully financed (newly founded) company. Entrepreneurs use Symbid as a quick, simple and fun new way to obtain start or growth capital with help from the crowd. Additionally, once fully funded an entrepreneur has the luxury to interact with his community of investors within a closed online collaboration workspace!

How did you get the idea for Symbid?

During my master degree in Entrepreneurship and new business venturing I noticed that many of my classmates did have an entrepreneurial dream but were reluctant to act upon it due to financial constrains. On the other hand I noticed that people became more connected using social networks such as Facebook and Twitter. By combining these ideas I came to the conclusion that social networks could also be used to communicate investment propositions to a large audience.

What’s the process for entrepreneurs?

Symbid provides an online platform where companies and individuals are able to submit a business idea (proposition). When you register your idea at Symbid, you indicate how much capital is required to start or grow your business. Users search for ideas they believe are viable in generating future profits. Investing is possible from €20,- per part and payable through all accepted payment methods.

Symbid uses a secure separate bank account for all investments on the platform. This way investors and entrepreneurs are assured that investments are used for no other purpose than the financing of business ideas. Until the funding goal is met, an investor has the possibility to freely withdraw his investment from Idea A and for example invest it in Idea B. This situation could occur when an entrepreneur has not made the right adjustments to satisfy his investor. When the target amount is met, the total invested amount, investments are fixed and can no longer be withdrawn.

When an idea is fully funded and all the final investors are known, they are gathered in one legal entity. The process occurs online and is completed when the entrepreneur and investors are being granted access to a secured online collaboration community. Subsequently, the entity buys the predetermined amount of shares with the attracted funding. People within the collaboration community can join forces to bring the newborn company to a successful organization. This online community offers various collaboration tools to actively manage and monitor the progress of the company and interact as one with the entrepreneur or management team. Every individual share is tradable, which makes it even more interesting to invest through Symbid and become a shareholder in a newly founded or existing company.

How is Symbid more attractive than other potential sources of capital (VCs, business angels, banks, …) for founders?

With Symbid, entrepreneurs are able to onboard a large group of shareholders combined into one entity. This group of people can be used for market research but also as launching customer group.  By giving away equity to his investors, the entrepreneur can make sure all incentives and motivations are aligned from an entrepreneur perspective as well as from an investor perspective. Hereby an entrepreneur’s crowd becomes a think-tank for the respective company.

In comparison to the cost of capital, the 5% success fee is for most businesses lower than the average costs of receiving capital via a bank. If these businesses would get financing from the bank at all.

Who is able to invest? And what are the advantages?

Symbid allows investments from 20 Euro onward. Everyone can invest however for the moment we only serve Dutch companies. All investments done via Symbid are transferred into shares with voting rights, direct transfer- ability and dividends. This leads to the highest chance of a sound financial return, financing success and liquidity. Continue reading →

Interview with Yes-Secure

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In early summer 2010 Yes-secure.com launched the second p2p lending service active in the UK. Dr. Chandra Patni, CEO of Yes-secure answers my questions.

P2P-Banking.com: Dr. Chandra Patni, please tell us about the background of the Yes-secure management team and what lead to entering the p2p lending market?

Dr. Chandra Patni: I came up with the business opportunity in 2008, having reviewed Zopa I felt that a social networking based person to person lending marketplace site could become a successful alternative to Zopa. I realised there were opportunities to build and complement the social lending market. Consumers need choice. YES-secure.com allows person-to-person lending alongside social networking as people want to know who they are lending to.

P2P-Banking.com: How is Yes-secure funded?

Dr. Chandra Patni: YES-secure.com is funded by private investors alongside the directors of the company.

P2P-Banking.com: What benefits does Yes-secure offer to lenders and borrowers?

Dr. Chandra Patni: Lenders: YES-secure.com provides UK savers and investors a new way to beat inflation and earn better returns than by investing their savings in fixed deposits in a bank. Along with the introductory offers and waivers, there are a wide range of markets (A*- E) allowing lenders to manipulate their investment across various markets getting them high, assured and steady returns. Debit card verification upon registration, stringent underwriting procedures and assigning markets in keeping with the borrowers’ creditworthiness make YES-secure a safe investment destination. Additionally, YES-secure offers a secure means of social network based lending and borrowing implying lower default rates and higher returns for lenders.

Borrowers: Borrowers can get competitive rates from real people. They simply describe how much they are looking to borrow, over what period, and the maximum interest rate they are willing to pay. Then they can simply sit back and watch people bidding to lend to them. Once they find a rate they like, they can accept it and get the money paid straight into their bank account. More traditional methods of personal loan approval rarely take personal information (such as connections, personality, and general circumstances) into account and are approved or declined based solely on credit history and financial circumstances. YES-secure combine both the important credit background as well as pertinent personal information on each borrower. Continue reading →

MYC4 Plans to Target New Partners, Mitigate Risk

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In a telephone call MYC4 executive Jes Colding yesterday gave P2P-Banking.com a preview of the future positioning of MYC4. The two main goals are risk mitigation and new provider structure.

All new providers will have to take a direct stake in the loans they provide. They will have to guarantee 20% of the outstanding portfolio. The guarantee can either be provided by a bank deposit or by a bank guarantee. Loans from an already active partner on the MYC4 market place, Fusion Capital, are already covered by a 15% guarantee.
The agreements with new partners will also adapt a new fee structure. While in the past as much as 2/3 of the provider fees were deducted from the loan upon disbursement, in the future a minimum of 75% of the fee will be payable as the loan repays. Limiting fees payable on disbursement to a maximum of 25% of the total fees will align the interest of the providers with the interest of the investors, says Colding.

MYC4 will also shift towards a new kind of partners. The reasoning is that microfinance partners, which MYC4 solely worked with in the past, sometimes have cheaper access to capital already and cannot reach the 3 loan segments MYC4 wants to target in the future: SME, rural and youth.

SME (small and medium size enterprises)
To fund SME loans MYC4 aims to partner with consulting and private equity companies that already work with these clients. Colding cited Fusion Capital as an example.

Rural
Here MYC4 will have supply chain partners and outgrower schemes. Colding gave two interesting examples for the supply chain model. A large Danish supermarket chain wants to increase the amount of African produce on offer. The loans will be used to enable the farmers to upscale their production. And most interesting: Colding says MYC4 will be advertised on the products (e.g. bags of frozen peas) as well as in the supermarket.  A solar system company wants to sell more solar power systems in Kenya. Here MYC4 loans will allow groups of people to buy a system, the manufacturer is paid upon delivery and the group repays MYC4 investors over the loan term. While these are not business but consumption loans, Colding says MYC4 will allow them because of their social and environmental impacts. A third example, which is already available to invest in on the MYC4 market place is loans to Armajaro farm shops in Ghana, which have been fully underwritten by Armajaro, one of the world’s largest cocoa bean wholesaler.

Youth
65% of the population in Sub-Saharan Africa are under the age of 25. Many are well educated but have slim employment chances, leaving starting a business as only option. High risk  normally makes funding unavailable to them. Funding via MYC4 investors would not be sustainable for the same reason. Therefore MYC4 partners with the  International Labour Organisation (ILO), Geneva. The ILO and the provider partners will underwrite up to 90 percent of the risk.

Interview with Julia Kurnia, Director Zidisha.org

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Last week I published a short overview on the new p2p microfinance service Zidisha.org. Now Julia Kurnia, Director and Founder of Zidisha.org answers my questions.

P2P-Banking.com: What is Zidisha about?

Julia Kurnia: Zidisha uses internet and mobile phone technology to connect entrepreneurs in the world’s most isolated, impoverished areas with the international P2P lending market.  Zidisha supplies the key services needed to overcome the geographic barrier between lenders and borrowers – local credit history verification, low-cost electronic money transfers, independent tracking of borrower performance history – then gets out of the way and lets lenders and entrepreneurs interact directly.  Zidisha’s philosophy is similar to that of eBay, which really advanced the opportunities of small entrepreneurs in the US by supplying a regulated venue in which business growth is limited only by entrepreneurs’ own creativity and track record of responsible conduct.

P2P lending has vast untapped potential to open up better economic opportunities for motivated people in low-income countries.  Africa in particular is home to a growing class of entrepreneurs who, while economically disadvantaged, are computer-literate and have verifiable credit histories with local microfinance institutions – all of which can be tapped to supply many of the communication and record-keeping services traditionally performed by local banks and microfinance institutions.  Zidisha is designed to serve this type of borrower.  In this sense, it is complementary to services such as Kiva and MyC4, which allow more marginalized borrowers without computer access to fund loans via local intermediary microfinance organizations.

P2P-Banking.com: How do African Entrepreneurs react to the possibility of posting a loan application online and getting it funded by strangers?

Julia Kurnia: I think this is best answered by Ms. Ndeye Sarr, a lady in West Africa who single-handedly supports a family of five sewing clothing by hand.  She is raising a loan on Zidisha to buy an electronic sewing machine, which will allow her to meet client demand faster and grow her business to where she can support her household comfortably and keep her kids in school through college.  Last week Ms. Sarr stopped by a local cybercafé to check on the progress of her loan application and upload some photos of the traditional clothing she produces, and she posted the following comment:

“I have just visited the Zidisha website, and see that the lenders are still continuing to support me, so that I can really start up a proper business activity. I would like to thank all those who are helping to finance my enterprise. I’m so happy to see that people on the other side of the world are willing to lend a hand to those who do not have the resources to earn their own honest living.“  (translated from the original French) Continue reading →