Zidisha set to ‘expand’ in Peer-to-peer Microfinance: Julia Kurnia

By Asma Aziz

jk1 Zidisha set to expand in Peer to peer Microfinance: Julia Kurnia

Julia Kurnia

Microfinance Focus, Feb. 7, 2010: Incorporated as a peer-to-peer lending service, which allows a direct transaction between lenders and borrowers, without any intermediaries, Zidisha is all set to scale P2P fundraising to newer heights. With a Swahili name implying ‘expand’, the organization connects low income entrepreneurs of developing nations to lenders across the globe and assists them in expanding their businesses and breaking out of poverty. Its unique funding model which involves no intermediaries enables it to cut down interest rates sharply and made microfinance even more affordable to the poor. Its average annual rate of interest for the lenders is just 8.78% as against the double digit figures for most of the MFIs. In an exlcusive interview with Microfinance Focus, Zidisha Director Ms. Julia Kurnia ponders on peer-to-peer microfinance and its growth.

Microfinance Focus: What motivated you to go ahead with this project?
Julia Kurnia: Peer-to-peer lending has vast potential to open up better economic opportunities for motivated people in low-income countries. Africa, Asia and Latin America are 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 entrepreneur.

The genesis of Zidisha goes back to 2006, when I was working in Senegal with a field partner of the peer-to-peer microfinance lending platform Kiva.org. Zidisha’s first loans were disbursed in Kenya, where we took advantage of the almost universal access to the mobile phone banking service M-PESA to manage loan transactions via the Internet as electronic payments.

To our knowledge, Zidisha is the only peer-to-peer lending service to connect individual lenders directly with microfinance borrowers in low-income countries, without intermediaries. We use Internet and mobile phone technology to deliver 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 web users and entrepreneurs interact directly. As a result, entrepreneurs in the world’s most isolated, impoverished areas can access the investment capital they need to grow their businesses into substantial sources of revenue for their families.

Microfinance Focus:How do you plan to promote your organization in a continent which still has got low levels of IT penetration and you’ll find the poor to be mostly computer illiterate? You are not even depending on any intermediaries.
Julia Kurnia: It is true that only a minority of entrepreneurs in Africa meet the computer-literacy requirement needed to access Zidisha’s services, but this is nevertheless a large and rapidly growing minority. We expect the population of computer users in developing countries to continue to expand far more rapidly than Zidisha itself. In the meantime, entrepreneurs who do not have access to computers are best served by local lenders, who may raise funds through intermediated peer-to-peer lending platforms such as Kiva or MyC4.

Orientation for Zidisha’s initial pilot loans is being provided on a volunteer basis by local microfinance and non-profit workers in Kenya and Senegal. Going forward, we expect promotion among borrowers to be mostly by word of mouth, as existing clients can best recommend our service and explain to new applicants how Zidisha works.
Microfinance Focus:Isn’t screening your potential borrowers a difficult task given limited and often unreliable sources of creditworthiness?
Julia Kurnia: Direct peer-to-peer lending platforms in the US and Europe rely on standardized credit scores to evaluate the credit-worthiness of applicants. Zidisha compensates for the lack of formal credit scores in African countries by requiring borrowers to have successfully repaid loans to local banks or microfinance institutions, and having their self-reported credit histories independently verified by a reputable private credit bureau or financial institution before the borrower’s account is activated for posting of loan applications. The local loan repayment record then becomes the basis for the borrower’s “feedback rating”, a system similar to that used by business platforms such as eBay and Amazon, in which each Zidisha lender is invited to post a comment and approval rating upon completion of a loan, and borrowers with high, positive feedback ratings find it easier to raise larger amounts at lower interest rates in the future.
Microfinance Focus:What are your promotional plans for approaching the lenders?
Julia Kurnia: We are currently focused on building a good product, by enhancing the website in response to user feedback and establishing a solid track record of successful loans. We hope that lenders whose experience with Zidisha is positive will continue to use our service, and recommend it to others.
Microfinance Focus: P2P Fundraising has been around the corner for some time now for different purposes. How receptive the online community will be towards this concept of ‘Microfinance’?
Julia Kurnia: Services such as Kiva have done a lot to establish the credibility of nonprofit P2P microfinance lending. People have a natural desire to help others in a way that connects them on a personal level. Zidisha’s innnovation is to put individual web users in touch with individual entrepreneurs directly, so lenders can really see for themselves how lives are changed by their actions. We expect this possibility to appeal strongly to web users, especially those with an interest in other countries who do not have the opportunity to travel themselves.
Microfinance Focus: You are targeting individual borrowers and not Self-Help Groups or MFIs, which could have given you, assured returns. What is the underlying reason for that?
Julia Kurnia: Zidisha relies on individual responsibility and incentivizes establishment of positive track records by borrowers – a model that is best applied to individuals rather than groups or organizations, whose composition may change over time. In addition, local microfinance institutions already tend to focus their services on self-help groups, while business expansion loans for individuals are often less readily available.
Microfinance Focus: What impediments you faced in the process of crystallizing this project?
Julia Kurnia: Setting up a quick, low-cost system for transferring loan funds between individual lenders and borrowers was a major challenge. Up until recently there was no viable way to transfer small loan amounts directly between African borrowers and international lenders without a local intermediary. This became possible for the first time when Kenya launched its mobile phone-based money transfer service, M-PESA, which allows Kenyans to send money using cell phone text messages. Zidisha partners with M-PESA for domestic money transfers in Kenya, so that borrowers receive loan disbursements via secure SMS messages to their cell phones, which they exchange for cash from the local M-PESA outlet. They send their repayment installments back to Zidisha’s account via M-PESA as well, so that there is no need to outsource loan funds management to local intermediaries.
Additional challenges included ensuring that our service was compliant with United States securities regulations, and proving the viability of the concept with a privately funded set of test loans before opening the website to lenders from the public.
Microfinance Focus: What future prospects do you see for ZIDISHA?
Julia Kurnia: As mobile phone banking becomes commonplace outside Kenya, we intend to make Zidisha available in more countries in Africa, and eventually Asia and Latin America as well. Zidisha is designed to operate at scale, and we aim to facilitate a high volume of lending on the platform while maintaining sufficient incentives for responsible use by lenders and borrowers. We are a nonprofit organization, and our primary purpose is to facilitate win-win transactions between lenders and borrowers in a way that advances the economic opportunities of highly motivated entrepreneurs in impoverished areas. We will have reached our goal when Zidisha develops into a widely available ladder to prosperity for any deserving entrepreneur, regardless of geographic location.

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