From the beginning of recorded history practically, banks have been the middlemen in between people who had money to invest and lend, and people who wanted to borrow money. For the first time in recent history, this monopoly has been convincingly broken. Thanks to the rise of not only the Internet, but also mobile versions of the Internet, new forms of lending and borrowing have arisen and are making tremendous strides to overturning the traditional bank lending model. The best known example of this is peer to peer lending, which effectively cuts out the middle man better known as your local or national banker.
Zidisha Intro & Background
Zidisha represents something new in the peer to peer lending universe: a micro-lending platform that is actually direct between lenders in the U.S. and developed world and borrowers in poorer developing nations. Now with Zidisha, you have the opportunity to loan money directly to hard-working entrepreneurs in the third world over the Internet. This non-profit organization is in the business of helping socially minded investors to improve the lives of and provide opportunities for would-be micro business people in poor countries of Asia and Africa. When the borrower repays, lenders gain back their investment with interest, and they are also able to have direct communication with their borrowing entrepreneurs as well.
What really sets Zidisha apart from others in this space is that they do not utilize, nor have they ever employed, intermediaries such as banks or other financial institutions. Interest and principal payments go directly back to the accounts of you the lender, instead of a large fee or usurious interest rate going to an intermediary third party. Borrowers simultaneously receive all of the loaned out funds, except for a small 5% transaction fee that helps to cover the cost of Zidisha's operations.
Zidisha Founder and Management
Julia Kurnia is the founder and head of Zidisha. She started the organization in 2009 with a dream to take Peer to Peer Lending directly from the wealthy countries over international lines to the developing world by cutting out the expensive middlemen. Six years later, the startup is still going strong. Today they are lending to would-be entrepreneurs in seven different African and Asian countries, allowing you to make micro-loans to those who are willing to work but need the backing to start up little businesses throughout the struggling parts of the world.
This is a small and tightly knit organization of fifty mostly volunteer employees with no information available on any management team besides Julia the founder.
How Zidisha Works
Zidisha has been able to break free from the expensive associations other P2P's have run afoul of internationally thanks to the rise and proliferation of Internet cafes and inexpensive mobile device technology, like Kenya's M-PESA. Borrowers are able to use either of these means to post up their applications for their businesses. Thanks to services like M-PESA, or mobile wallet, individuals in places such as Kenya are able to receive the funds you loan to them without even possessing their own bank account.
The gratifying personal aspect for you is that you are able to read through the various loan applications that the small business owners in these countries have written. The would-be borrowers have undergone background checks, then share their stories, respond to questions, and agree to the loan terms, such as interest rate and period of repayment. You as lender get to read through the applications and fund those which interest you most personally, or whose business ideas and stories you like most and think stand the best chance of succeeding.
The countries from which you can choose to make loans are Senegal, Niger, Kenya, Guinea, Burkina Faso, and Benin in Africa, and Indonesia in Southeast Asia. The platform supports languages in English, Indonesian, and French, but fortunately translates all correspondence and applications into English to facilitate the lender-borrower relationship and lending-borrowing process. Loans are made in the local currencies of the borrowers, so the Zidisha platform takes care of converting the currencies back and forth for you from the point where the loans are received and dispersed, to the point where the payments with interest are made back, until the funds are completely paid back and you start the process all over again.
Zidisha performs quite a number of different services, considering that it is actually a non-profit company:
- Direct relationships without middlemen – between you the lender and the borrowers in Africa and Asia. You can post comments and questions to your borrowers and they can respond with updates and progress on the business that you funded.
- Ability to witness the direct impact of your micro investment – by showing you a continuous profile of your borrower.
- Guaranteed distribution of your investment – everything you loan, less the 5% transaction fee the borrower pays to cover costs, reaches the borrower and his or her business.
- Control over the interest rate – you can make your own interest rate, which the borrower must choose to accept or not. Payments are made and received in once a week installments.
- Work directly with the borrowers – ensuring the borrowers directly post up their applications for loans.
- Verification and local background and credit checks – as well as handling electronic transfers of money and unbiased performance tracking of the borrowers and their payment histories.
- History of timely repayment rates – for existing borrower's account, as well as the borrowers' sponsors' rates of on-time repayment, allowing you to consider their records of timely repayment.
- Feedback ratings and comments – put up on the profile pages of the borrowers for the benefit of other lenders by prior lenders.
- Requesting mediation – when defaults occur, Zidisha endeavors to set up mediation for repayments by working with local volunteers, contacts, and leaders in the borrowers' communities.
- Default reimbursement fund – this is contributed to by the borrowers like a form of membership fee, so that should a loan you are holding default, you will be reimbursed your principal (without interest considerations), so long as there are sufficient funds in the default fund and the loan amount is less than $1,000 USD.
The Zidisha platform is not an extension of a large and powerful company with locations spread throughout the U.S. and world. In fact, this is a small not for profit service that does not maintain any loan officers or local offices. They call themselves a volunteer-run, low-cost not for profit community whose sole function is to maintain the Zidisha.org website and to facilitate the direct transactions that occur in between borrowing and lending members. Zidisha does not vouch for any business or borrower as part of their service. Their one office and headquarters is found in Sterling, Virginia at 21900 Muirfield Circle, #104 Sterling, Virginia 20164.
Zidisha Interface Screenshots
Safety is a relative concept as far as Zidisha is concerned. We love this platform, but it makes us a little nervous learning what they say about their borrowers and their associated creditworthiness. Zidisha claims that it does not engage in a great number of the activities that traditional micro-finance or banking institutions would perform. You should know and be comfortable with the fact that they are not a credit bureau and do not pretend to be one at all. They neither guarantee the information that the borrowers represent, nor assess any information that they report, such as credit worthiness, levels of debt, or incomes. Zidisha states very bluntly that you are on your own in making any and all determinations as to whether a borrower's proposed venture is viable and their loan request stands a reasonable chance of being repaid. This is a strange and somewhat-troubling series of legal disclaimers from a platform that offers to reimburse your principal if your loan defaults.
Other safety risks that you expose your investment to with Zidisha include local currency risk of non G20 currencies. Your loans are disbursed and loaned out in local, developing, mostly small African or Indonesian currencies. Naturally, exchange rates may go in your favor, or against your favor, depending on the various monetary policies pursued by both the U.S. and the country hosting your micro-loan investment. This means that you may benefit or suffer from such currency fluctuations and then receive either less or more than you loaned out, even if the borrower repays in full, simply because of currency movements that are entirely beyond your control.
You should be supremely comfortable with this fact, as it could create an enormous impact on the amount of money you receive back in the end. Zidisha takes no responsibility for, nor protects against, any loss in principle because of adverse currency changes. Similarly, they will not try to take any of the money, nor limit your proceeds, if the currency movements go in your favor as the loan and interest are repaid.
Zidisha Complaints and Ratings
While there are no BBB or comparable ratings agency safety and customer service ratings available on Zidisha, there have been some customer reviews and complaints. We found that chief among the complaints of past lenders with Zidisha was this semi-consensus notion that you may not ever receive back 100% of your principal. This is explained away by adverse currency movements and partially missed payments of principal and interest. Yet this is of significant concern, since Zidisha claims on their website that they will reimburse defaulted loans to 100% of principal. The caveat here is that there must be sufficient funds in the default contingency fund for them to cover your principal losses.
Zidisha Customer Support
We give Zidisha customer support staff a lot of credit and admiration for mostly being volunteers who believe in the goodness of their cause. Their entire staff is around fifty mostly volunteer individuals, which means that customer support, while enthusiastic, may be overstretched from time to time. They keep the staff small and typically volunteer for the expressed purpose of keeping overhead low so that they can extend more advantageous borrowing terms to their borrowers. Keep in mind these 50 personnel are spread around with duties ranging from going through applications of prospective borrowers, to sending out the loan disbursements via the Internet and electronic payout technologies, to logging and crediting repayments properly, and also to answering questions and queries having to do with customer service. This makes Zidisha much like Wikipedia, per their founder's own account. They are an online community who is socially minded and nearly entirely run by their volunteer staff.
Zidisha Costs & Fees
Zidisha's costs and fees are the most reasonable that we have seen in any Peer to Peer lending platform so far. The platform and service are free to lenders, though they do encourage and make it easy for lenders to leave a donation or tip for the company and platform itself when making loans.
For borrowers, Zidisha requires them to pay a reasonable deposit into the reserve fund to protect lenders against default risk. They can request this money back when they leave the platform. Interest rates for borrowers through Zidisha are a reasonable from 5% to 9%, depending on how high you the lender set your interest rate for the borrower. These fees go to transfer costs for the loan and interest for the lenders.
Final Words on Zidisha
When you choose to invest in small businessmen and women in developing countries like mostly Africa or Indonesia, you need to be doing this with more than just a profit motive in mind. We feel that if you want to help people in the process, Zidisha is an ideal way to invest money which you hope will earn a little interest return that happens to be better than what your bank will pay through savings or CDs. It is unclear whether or not your principle is at risk of default, as the company touts this reserve fund to protect against defaults by borrowers but puts a few caveats on whether or not it will be sufficient to cover total dollars in defaults.
The currency risk, or opportunity depending on the way that you look at it, is considerable, as you are investing dollars into other developing country currencies which could easily see swings of 5% to 40% in the value of their currencies during the term of your loan. This could make you a small windfall in currency gains, or cost you much of your principal, to say nothing of the interest. If you are a person who is comfortable with a great deal of risk, in exchange for the possibility of a probably 2%-5% interest rate of return and the noble chance to completely change another human being's life, then this could just be the place for you to become involved. Thanks to the emphasis on Zidisha of putting you in touch directly and personally with the people to whom you are precisely loaning money, this platform is as much about collecting on biographies and stories as it is on loans.
Pros of Zidisha
- Help people by making micro-loans to their little family business/organization.
- Opportunity to hedge your dollars by lending them out in another, albeit developing market, currency.
- Published default rate is very low--- less than 5% of total loans do not repay.
Cons of Zidisha
- A number of members have claimed they did not receive all of their principal back, and they can not get a clear explanation as to why.
- The loans do not pay interest rates appropriate for the risk level, but are more of a charitable activity.
- If you choose not to re-lend or withdraw out your repayments within 60 days, Zidisha will automatically re-loan them to new projects in your name, according to any personal preferences that you indicated in the relending preferences page.
Zidisha is a really kind way to help out people in struggling third world countries, and if all goes according to plan, to make a little interest back along with your principal that you loan out, too. The better than bank rate returns are not appropriate considering the level of risk that you are taking on, but if you love the idea of doing good while you invest, then this just could be the investment for you.