James Militzer

Overcoming Assumptions and Prejudices to Forge a Network of Self Reliance: Why Zidisha targets young, tech-savvy entrepreneurs with loans

The nonprofit Zidisha built a different kind of microlending platform: One that is peer-to-peer, transparent and caters to entrepreneurs who came of age during the Internet era. In part two of my interview with CEO Julia Kurnia we discuss how Zidisha maintains its borrower-friendly focus, differentiates itself from other lending networks, and holds steadfast to the idea that loans are better than cash transfers. (Check out part one here.)


James Militzer: You've described Zidisha as borrower-friendly, transferring the risk of default to lenders rather than making borrowers absorb it through high interest rates. Have you experienced push-back from lenders, who've been conditioned by organizations like Kiva to expect full repayment the vast majority of the time? If so, how do you respond?

Julia Kurnia: It is my understanding, from my own experience and analyses like this one, that the `99 percent repayment rates lenders experience at intermediated microlending platforms is not the repayment rate of the borrowers themselves, but rather reflects the fact that field partners reimburse the platform's lenders for most defaults. It is rare to find any large loan portfolio, microfinance or otherwise, with a genuine repayment rate of 99 percent at the individual household level.

However, it is true that lenders accustomed to such platforms have been conditioned to expect high repayment rates, even if they do not desire financial returns. This is one reason we began offering the loan loss refund service described (in part one). In addition, we go to great lengths, in our website information and the way we present Zidisha to prospective lenders in general, to ensure that lenders perceive Zidisha as a philanthropic platform and that they do not lend out funds they cannot afford to lose.


JM: How big a role does mobile money play in your operations  for instance, what percentage of your loans are disbursed via mobile money? Are you utilizing mobile tools in other ways?

JK: It would be very hard to offer a service like Zidisha at scale without mobile money. Over 90 percent of our loans are disbursed via mobile money, and that percentage is set to grow further.

The availability of M-PESA and similar mobile phone payment services are the main determinant of the countries in which we offer loans. For example, it was thanks to the development of the mobile payment sector in Haiti after the earthquake that we were able to open a lending program there.

We also make extensive use of automated SMS communications – for everything from new applicant reference checks, to repayment reminders and confirmations. This is important, because most of our member entrepreneurs don't have home computers or smart phones with constant access to email.


JM: With all the additional effort lending requires, the potential tension in the borrower/lender dynamic, and considering that Zidisha is a nonprofit, charitable organization, why does it provide microcredit instead of just cash transfers, which don't need to be repaid?

JK: One benefit of loans is that they can be recycled many times, funding many times their initial value in life-improving investments.

While there are some excellent use cases for cash transfers, we believe loans are an optimal way to make resources available to our target demographic of young adults who are working to join the middle class by building businesses and acquiring education. Loans promote self reliance and leave one with the knowledge that they have succeeded as a result of their own responsible participation in a community whose loans they have repaid.

Finally, loans give entrepreneurs a chance to build their own performance record, resulting in a system that automatically allocates larger amounts to individuals who have proven themselves by managing small loans responsibly. In the absence of such a system, cash transfer programs must use human staff to decide who will receive the gifts – making it very hard to guard against corruption and attempts to game the system.


JM: Kiva Zip's Kenyan operations recently folded, while using a model similar to Zidisha's. What are your views on that development? Do you know what went wrong? Are you facing similar challenges and, if so, how will you avoid a similar fate?

JK: I would not consider Kiva Zip's model outside the U.S. to be very similar to Zidisha's. I understand that in Kenya, many or most Kiva Zip loan recipients were not computer users, and they relied on local volunteers called trustees to vet applicants, post loan profiles on their behalf, communicate Kiva Zip policies and follow up on repayments – many of the same functions that were performed by classic Kiva field partners. I can imagine that this kind of system would be difficult to maintain at scale.

At Zidisha, we target only Internet users – mostly young adults in urban areas, who are very low-income but who often go to cybercafes and are comfortable using Facebook and other online platforms. Since our community is decentralized – each borrower interacts independently with the platform and lenders – it can scale almost indefinitely.


JM: Do you think a direct P2P model like Zidisha's could work for for-profit MFIs, or would the issues of setting interest rates and protecting against defaults make it unworkable? (Similarly, do you think microcredit in general works better when applied through a not-for-profit model?)

JK: Yes, I think a direct P2P model could work not only for for-profit MFIs, but also for countless other business models – outsourcing platforms, payment transfers, selling physical goods – to serve Internet users in developing countries.

This is a demographic that is growing very rapidly, and has been all but ignored due to outdated assumptions and prejudices. And the gains to be reaped from extending decentralized web-based services here are perhaps even greater than in wealthy countries: Developing countries are so handicapped by geography that there's a good deal of pent-up value waiting to be created.


JM: What are Zidisha's goals for the next five to 10 years?

JK: We aim to continue growing and constantly improving our service in response to lessons learned. We're working to raise enough lending capital to consistently accommodate all of the new entrepreneurs who wish to join our platform in our existing countries (Burkina Faso, Ghana, Guinea, Haiti, Indonesia, Kenya, Niger, Senegal and Zambia). And as mobile payment services spread, we'd like to continue to open lending programs in new countries.

We also hope that our unconventional P2P model will inspire others to pioneer similar services, such that geographic location need no longer be an insurmountable barrier for people in developing countries to access the resources they need to reach their goals.


James Militzer is the editor of NextBillion Financial Innovation. 


financial inclusion