Zidisha
Encyclopedia
Zidisha is a nonprofit peer-to-peer
microfinance
internet platform that allows people to lend small amounts of money directly to entrepreneurs in developing countries. "Zidisha" is the Swahili word for "grow" or "expand", as in a business, an investment, or a quality such as freedom or prosperity. Zidisha borrowers are located in low-income countries where small business loans are often unavailable, or carry prohibitively expensive interest rates and collateral requirements. Zidisha allows entrepreneurs who have built up successful credit records with local microfinance institutions to access progressively larger business expansion loans at interest rates that are based on their own loan repayment performance. Zidisha is the only international peer-to-peer lending service that allows lenders to transact with borrowers directly, without intermediaries.
Though there are other microlending websites that allow individuals to contribute funds toward microloans of their choice, 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 unaware of the lenders who funded his or her loan. The average intermediary organization adds over 30% - sometimes as much as 100% - in fees and interest to loans raised through these websites to cover its own administrative expenses. Such high interest 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 (they may on occasion have a family member or friend do the typing for them, but this is a rare exception to the general rule). 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. Eliminating unnecessary intermediaries also decreases cost of the loans. The average Zidisha borrower pays only 8.56% in annual interest and fees, including interest paid out to lenders. This is below the rate of inflation in many developing countries.
Zidisha's long-term objective is to become a universally available lending platform, whereby highly motivated entrepreneurs, regardless of geographic location, can access the capital they need to grow their businesses and improve their standards of living, limited only by their own performance and track record of responsible credit repayment. Zidisha's stated goal for 2011 is to continue to grow its lending volume, while maintaining quality loans that have a high social impact, high repayment rate, and good communication with lenders. Zidisha also aims to expand to additional countries, including locations outside Africa.
1. A first-time loan applicant creates a profile that describes his or her business and credit history, including loans he or she has successfully repaid to local banks or microfinance institutions.
2. The applicant's reported credit history is checked by an independent local financial institution or credit reporting bureau. Only after these checks have confirmed a positive borrowing record may the applicant request a loan through Zidisha.
3. The applicant then posts a loan request that describes the proposed investment, desired loan amount and repayment period, and the maximum interest rate the applicant will accept.
4. Zidisha’s lender participants then have the opportunity to bid to finance all or a portion of the loan at a proposed interest rate that is equal to or less than the applicant's desired rate, net of a transaction fee equal to 5% of the original amount of the loan for each year the loan is outstanding. If the loan is oversubscribed, then bids from lenders with the lowest proposed interest rates are retained.
5. 100% of lenders' accepted bids are disbursed to the borrower. Loan values are fixed in local currency, using the exchange rate effective at the time the loan is disbursed. Because loan values are fixed in local currency, lenders bear the risk of any currency exchange rate fluctuations.
6. The borrower repays principal and interest according to the schedule proposed in the loan application. Each time the borrower makes a repayment installment, lenders' shares of principal repayment and interest are credited to their accounts on the Zidisha website. Lenders may request to reduce their funded balance and receive a corresponding cash promotional payment at any time, or use it to finance new Zidisha loans.
7. Throughout the loan application and repayment period, lenders may post comments and questions, and borrowers may supply additional information and business updates through a weblog on their profile pages.
8. Lenders may post feedback on all lending transactions with which they are involved, thus creating a performance record that allows borrowers to request progressively larger loans with each successful repayment. (From Zidisha Website: "How It Works")
region of Kenya
in October 2009. In January 2010 Zidisha opened its lending platform to the public with additional microloans for low-income women in Senegal
. Zidisha received 501(c)(3) nonprofit certification in December 2010. As of November 2011, Zidisha lenders have financed 189 microloans worldwide, for a total amount of $104,279, with an average annual interest rate for lenders of 2.99%.
Peer-to-peer
Peer-to-peer computing or networking is a distributed application architecture that partitions tasks or workloads among peers. Peers are equally privileged, equipotent participants in the application...
microfinance
Microfinance
Microfinance is the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services....
internet platform that allows people to lend small amounts of money directly to entrepreneurs in developing countries. "Zidisha" is the Swahili word for "grow" or "expand", as in a business, an investment, or a quality such as freedom or prosperity. Zidisha borrowers are located in low-income countries where small business loans are often unavailable, or carry prohibitively expensive interest rates and collateral requirements. Zidisha allows entrepreneurs who have built up successful credit records with local microfinance institutions to access progressively larger business expansion loans at interest rates that are based on their own loan repayment performance. Zidisha is the only international peer-to-peer lending service that allows lenders to transact with borrowers directly, without intermediaries.
About
At the time of its founding, Zidisha was still an unproven experiment, piloting a concept that had never before been tested: that small-scale entrepreneurs in developing countries are capable of interacting responsibly with peer-to-peer lenders via a self-regulating web platform, without needing local intermediaries to communicate and manage loan transactions on their behalf.Though there are other microlending websites that allow individuals to contribute funds toward microloans of their choice, 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 unaware of the lenders who funded his or her loan. The average intermediary organization adds over 30% - sometimes as much as 100% - in fees and interest to loans raised through these websites to cover its own administrative expenses. Such high interest 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 (they may on occasion have a family member or friend do the typing for them, but this is a rare exception to the general rule). 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. Eliminating unnecessary intermediaries also decreases cost of the loans. The average Zidisha borrower pays only 8.56% in annual interest and fees, including interest paid out to lenders. This is below the rate of inflation in many developing countries.
Zidisha's long-term objective is to become a universally available lending platform, whereby highly motivated entrepreneurs, regardless of geographic location, can access the capital they need to grow their businesses and improve their standards of living, limited only by their own performance and track record of responsible credit repayment. Zidisha's stated goal for 2011 is to continue to grow its lending volume, while maintaining quality loans that have a high social impact, high repayment rate, and good communication with lenders. Zidisha also aims to expand to additional countries, including locations outside Africa.
Lending process
Zidisha's lending process works as follows:1. A first-time loan applicant creates a profile that describes his or her business and credit history, including loans he or she has successfully repaid to local banks or microfinance institutions.
2. The applicant's reported credit history is checked by an independent local financial institution or credit reporting bureau. Only after these checks have confirmed a positive borrowing record may the applicant request a loan through Zidisha.
3. The applicant then posts a loan request that describes the proposed investment, desired loan amount and repayment period, and the maximum interest rate the applicant will accept.
4. Zidisha’s lender participants then have the opportunity to bid to finance all or a portion of the loan at a proposed interest rate that is equal to or less than the applicant's desired rate, net of a transaction fee equal to 5% of the original amount of the loan for each year the loan is outstanding. If the loan is oversubscribed, then bids from lenders with the lowest proposed interest rates are retained.
5. 100% of lenders' accepted bids are disbursed to the borrower. Loan values are fixed in local currency, using the exchange rate effective at the time the loan is disbursed. Because loan values are fixed in local currency, lenders bear the risk of any currency exchange rate fluctuations.
6. The borrower repays principal and interest according to the schedule proposed in the loan application. Each time the borrower makes a repayment installment, lenders' shares of principal repayment and interest are credited to their accounts on the Zidisha website. Lenders may request to reduce their funded balance and receive a corresponding cash promotional payment at any time, or use it to finance new Zidisha loans.
7. Throughout the loan application and repayment period, lenders may post comments and questions, and borrowers may supply additional information and business updates through a weblog on their profile pages.
8. Lenders may post feedback on all lending transactions with which they are involved, thus creating a performance record that allows borrowers to request progressively larger loans with each successful repayment. (From Zidisha Website: "How It Works")
History
Zidisha was incorporated and financed its initial pilot loans in the remote Masai MaraMasai Mara
The Maasai Mara National Reserve is a large game reserve in south-western Kenya, which is effectively the northern continuation of the Serengeti National Park in Tanzania...
region of Kenya
Kenya
Kenya , officially known as the Republic of Kenya, is a country in East Africa that lies on the equator, with the Indian Ocean to its south-east...
in October 2009. In January 2010 Zidisha opened its lending platform to the public with additional microloans for low-income women in Senegal
Senegal
Senegal , officially the Republic of Senegal , is a country in western Africa. It owes its name to the Sénégal River that borders it to the east and north...
. Zidisha received 501(c)(3) nonprofit certification in December 2010. As of November 2011, Zidisha lenders have financed 189 microloans worldwide, for a total amount of $104,279, with an average annual interest rate for lenders of 2.99%.
External links
- Official website
- "Zidisha Set to "Expand" in Peer-to-Peer Microfinance", Microfinance Focus, Feb 2010
- http://www.microcapital.org/microcapital-brief-julia-kurney-founding-partner-of-senegal-ecovillage-microfinance-launches-zidishaorg-a-nonprofit-organization-that-reportedly-allows-peer-to-peer-microcredit-lending//"MICROCAPITAL BRIEF: Julia Kurney, Founding Partner of Senegal Ecovillage Microfinance, Launches Zidisha.org, a Nonprofit Organization that Reportedly Allows Peer-to-Peer Microcredit Lending"]
- "Microlending, Baby", MackAfrique weblog, 24 May 2010
- "Great Giving Idea: Zidisha.org helps you make a difference for small business owners in Africa", 29Gifts.org, 12 July 2010
- "Zidisha: A Smart Way to Invest $100" , gobankingrates.com, 24 October 2011