Zidisha

Zidisha

Kenya
Organization type: 
nonprofit/ngo/citizen sector
Budget: 
$1,000 - $10,000
Project Summary
Elevator Pitch

Concise Summary: Help us pitch this solution! Provide an explanation within 3-4 short sentences.

Zidisha (Swahili for “grow”, as in a business or investment) is the first peer-to-peer lending service to connect individual lenders directly with microfinance borrowers in low-income countries.

About You
Organization:
Zidisha Inc.
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Section 1: About You
First Name

Julia

Last Name

Kurnia

Country

, VA, Loudoun County

Section 2: About Your Organization
Is your initiative connected to an established organization?

Yes

Organization Name

Zidisha Inc.

Organization Phone

202-492-6446

Organization Address

21900 Muirfield Circle #302, Sterling VA 20164

Organization Country
How long has this organization been operating?

Less than a year

Your idea
Country your work focuses on

, XX

Innovation
What makes your innovation unique?

Zidisha is the only peer-to-peer lending platform to allow individual web users to interact directly with individual borrowers across international borders.

Other international peer-to-peer lending platforms rely on local intermediary microfinance institutions to conduct borrower credit screening, manage local financial transactions and interact with lenders who finance the loans. This model increases the cost to borrowers, and the intermediaries’ high cost structure limits their ability to provide the affordable financial services needed to disrupt cycles of poverty among their clients. At the same time, intermediated lending platforms are highly vulnerable to “pyramid schemes” in which unscrupulous field partners use newly raised loan funds to mask embezzlement of repayments due to lenders. The platforms must dedicate a large proportion of their resources to due diligence and audit safeguards to keep intermediary fraud under control, and to crisis management when intermediary fraud does happen. This creates a high cost structure for the lending platforms as well, and limits their ability to invest in growth.

Zidisha is
the only international peer-to-peer lending service that allows lenders to transact with borrowers
directly, without intermediaries. Since the cost of lending through intermediaries is high, Zidisha
offers loans at lower interest rates to borrowers than other international peer-to-peer lending websites.

Zidisha uses 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.

Do you have a patent for this idea?

Impact
Tell us about the social impact of your innovation. Please include both numbers and stories as evidence of this impact

Zidisha lowers cost and improves accessibility of business expansion loans in remote and impoverished locations in two ways. First, Zidisha 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. Second, Zidisha puts loan applicants in touch with web users in wealthy countries, who are less risk-averse than traditional financial institutions because they lend amounts that are very small in relation to their incomes, for recreational and altruistic purposes rather than as profit-maximizing investments.

Children’s school attendance levels are one statistic that is directly influenced by access to Zidisha’s services. In Kenya, approximately 85% of children attend primary school, but only about 24% attend secondary school and only 2% go on to university. In Senegal, only about 41% of children aged 5 to 14 attend school. One of the principal reasons for low school attendance in Africa is lack of spare income to purchase uniforms and books, and pay school fees. School expenditures are almost universally cited by Zidisha borrowers when describing how the increased profits from their businesses are spent.

The increased earnings generated as a result of Zidisha loans enable the entrepreneurs’ families to eat more nutritious food, and keep their children in school through high school and in many cases college. In addition, businesses financed through Zidisha will create employment and make available new goods and services that improve quality of life in their communities. For example, Zidisha loans to date have financed the retail of low-cost mobile phone handsets in the remote Masai Mara region of Kenya, and the establishment of a mechanical corn mill that improves food security and lightens the workloads of households located within travelling distance of the business.

Problem: Describe the primary problem(s) that your innovation is addressing

Entrepreneurs in low-income countries often face a dilemma: their business activities don't earn enough to lift their households out of poverty, but they lack the investment capital needed to make the businesses more profitable. Restrictive political and economic conditions and geographic remoteness make it expensive for local banks to lend to small business owners in developing countries. Many of these borrowers are serviced by microfinance institutions, but individual business expansion loans often carry prohibitive collateral and interest requirements due to microfinance institutions’ high administrative costs. So the businesses don't grow, and the families they support remain impoverished.

Actions: Describe the steps that you are taking to make your innovation a success. Include a description of the business model. What might prevent that success?

Any individual in a country serviced by Zidisha may create a borrower account on the Zidisha.org website. 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 before the borrower's account is activated for posting of loan applications. The local loan repayment record 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 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.

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. Borrowers log onto the Zidisha website from local cybercafes, where they may post business updates, photos and responses to lender questions via a weblog-style Comments Forum on their Zidisha profile pages. Zidisha uses this sort of grassroots technology to connect people in ways that would have been unthinkable just a few years ago.

Results: Describe the expected results of these actions over the next three years. Please address each year separately, if possible

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.

Within the next three years, we intend to facilitate the financing of at least 1,000 loans to disadvantaged entrepreneurs, thereby providing the entrepreneurs with both initial investment resources and the basis for raising additional business expansion loans through Zidisha following successful repayment.

How many people will your project serve annually?

1001‐10,000

What is the average monthly household income in your target community, in US Dollars?

$50 - 100

Does your innovation seek to have an impact on public policy?

No

If your innovation seeks to impact public policy, how?

n/a

Sustainability
What stage is your Social Enterprise in?

Operating for less than a year

Does your organization have a board of directors or an advisory board?

Yes

Does your organization have a non monetary partnerships with NGOs?

No

Does your organization have a non monetary partnerships with businesses?

No

Does your organization have a non monetary partnerships with government?

No

Please tell us more about how partnerships could be critical to the success of your Social Enterprise

I manage Zidisha on a volunteer basis, and am advised by the other members of Zidisha’s board of directors. A Morrison & Foerster specialist in US securities law as it applies to peer-to-peer Internet lending platforms advises Zidisha on a pro bono basis, while website programming services are provided by a small freelance coding company in India. Borrower due diligence services are provided by private credit bureaux and microfinance institutions in each country in which Zidisha operates, and client orientation and technical support is provided by a team of student interns who travel to the countries in which Zidisha operates to meet with clients directly.

We would like to learn more about how your initiative is financially supported. Please explain your business plan/revenue model

Zidisha has been financed to date with my own savings only. Costs incurred so far include about $3000 to develop the website, $700 for the initial test
loan, and $800 for legal incorporation and 501(c)(3) application filing.

I estimate operating costs for the next two years at approximately $80,000. This includes the cost
of borrower credit history verification services, money transfers, upgrading of the website and server, and a living stipend to support a full-time manager for Zidisha. The credit history verification service and money transfer costs are expected to be fully covered by revenue from user service fees at any given volume of lending.

The Story
What was the defining moment that led you to this innovation?

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. The experience left me convinced that peer-to-peer lending has vast potential to open up better economic opportunities for motivated people in low-income countries, but that existing models of peer-to-peer lending through intermediaries limit this potential unnecessarily. I began to lay the groundwork for a different kind of peer-to-peer lending service that would bypass the intermediaries, putting computer-literate African entrepreneurs in touch with lenders directly.

I had the chance to put the idea in action while spending four months in Kenya on a career rotation assignment in early 2009. While there I helped a local microfinance institution use a mobile phone-based money transfer service to automate its loan disbursements and repayments, and at the same time set up the infrastructure needed to pilot Zidisha.

Zidisha’s first loan was disbursed in the remote Masai Mara region of Kenya in May 2009. Zidisha financed three additional Kenya loans, incorporated and filed for 501(c)(3) nonprofit status in October 2009, and in January 2010 opened its lending platform to the public with two more microloans for low-income women in Senegal. As of May 2010, Zidisha lenders have financed 7 microloans in Kenya and Senegal, for a total amount of $4,376, with an average annual interest rate for lenders of 6.82%.

Tell us about the person—the social innovator—behind this idea.

I led the establishment of the world's first microfinance institution based on capital raised through
peer-to-peer lending - the SEM Fund in Senegal, starting in the summer of 2006. At the time Kiva.org was just starting up, and SEM was one of their earliest partners. I got involved with Kiva in its infancy because I was convinced of the potential of peer-to-peer lending to create economic opportunities in low-income countries far beyond what could be achieved through the efforts of traditional nonprofit and government structures.

I subsequently spent several months in Kenya on a career rotation with the Danish peer-to-peer microfinance lending platform MyC4.com, where I gained unique experience with MyC4's business model as well as with the Kenyan mobile phone-based payments service M-PESA.

I hold a master's degree in International Economics, and have worked for over two years with the US African Development Foundation, a federal government agency that finances small business in Africa. I have good working relationships with the management of M-PESA, Kiva, MyC4, and a wide network of professional contacts in the international development and microfinance industries. I am fluent in several languages and have lived and worked extensively in various developing countries in Latin America, Africa, and Asia.

How did you first hear about Changemakers?

Friend or family member

If through another source, please provide the information