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.
If your innovation seeks to impact public policy, how?