Zidisha

[Guest]

.

[Patricia SF]

Has anyone heard of Zidisha?  I have never heard of this peer-to-peer lending website; I just accidentally stumbled into it.

https://www.zidisha.org//index.php

* * * * *

Here are some excerpts from the website which I found interesting:

"How does Zidisha compare to other peer-to-peer lending websites?

"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 lower interest rates to borrowers than other international peer-to-peer lending sites."

* * * * *

"Is there an intermediary party involved?

"No. Everything you see on borrower profiles, loan applications and borrower blog entries is written directly by the borrower - or in a few cases, by a computer-literate friend or family member of the borrower. (Although Zidisha may provide English translations of borrower postings, Zidisha does not independently verify any of the information, other than credit histories and repayment performance, that borrowers post.) Zidisha itself controls each individual loan disbursement and repayment collection; management of Zidisha lender funds is not outsourced to intermediary parties. Zidisha does work with local financial institutions and credit bureaus to check new applicants' reported credit histories, but these partners do not manage Zidisha loan transactions."

* * * * *

"Zidisha Team

"JULIA KURNIA, Director

"Julia's work to link entrepreneurs in poor countries with international peer-to-peer lending markets began in 2006, when she co-founded the Senegal Ecovillage Microfinance Fund, Kiva's oldest field partner and the world's first microfinance institution built on capital raised through P2P lending. She subsequently spent four months in Kenya researching ways to integrate mobile banking with microfinance for MyC4, a P2P microfinance lending service based in Denmark. These experiences laid the groundwork for the founding of Zidisha in 2009. Julia works as a Portfolio Analyst at the United States African Development Foundation in Washington, DC, and holds a master's degree in International Economics from the George Washington University. She can be reached at julia@zidisha.org."

[Diane R]

Has anyone heard of Zidisha?  I have never heard of this peer-to-peer lending website; I just accidentally stumbled into it.
. . .
"JULIA KURNIA, Director

"Julia's work to link entrepreneurs in poor countries with international peer-to-peer lending markets began in 2006, when she co-founded the Senegal Ecovillage Microfinance Fund, Kiva's oldest field partner and the world's first microfinance institution built on capital raised through P2P lending.

Co-founding SEM isn't a very reassuring qualification to me, given their huge Kiva delinquency rate and the problems they've had since late 2009, although I suppose those problems could have come after her time at SEM.

--Diane.

[JKurnia]

Has anyone heard of Zidisha?  I have never heard of this peer-to-peer lending website; I just accidentally stumbled into it.

https://www.zidisha.org//index.php

* * * * *

Here are some excerpts from the website which I found interesting:

"How does Zidisha compare to other peer-to-peer lending websites?

"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 lower interest rates to borrowers than other international peer-to-peer lending sites."

* * * * *

"Is there an intermediary party involved?

"No. Everything you see on borrower profiles, loan applications and borrower blog entries is written directly by the borrower - or in a few cases, by a computer-literate friend or family member of the borrower. (Although Zidisha may provide English translations of borrower postings, Zidisha does not independently verify any of the information, other than credit histories and repayment performance, that borrowers post.) Zidisha itself controls each individual loan disbursement and repayment collection; management of Zidisha lender funds is not outsourced to intermediary parties. Zidisha does work with local financial institutions and credit bureaus to check new applicants' reported credit histories, but these partners do not manage Zidisha loan transactions."

* * * * *

"Zidisha Team

"JULIA KURNIA, Director

"Julia's work to link entrepreneurs in poor countries with international peer-to-peer lending markets began in 2006, when she co-founded the Senegal Ecovillage Microfinance Fund, Kiva's oldest field partner and the world's first microfinance institution built on capital raised through P2P lending. She subsequently spent four months in Kenya researching ways to integrate mobile banking with microfinance for MyC4, a P2P microfinance lending service based in Denmark. These experiences laid the groundwork for the founding of Zidisha in 2009. Julia works as a Portfolio Analyst at the United States African Development Foundation in Washington, DC, and holds a master's degree in International Economics from the George Washington University. She can be reached at julia@zidisha.org."

Hi Patricia SF,

I manage Zidisha, and would be happy to answer any questions you or other Kiva Friends might have about our lending platform.  I'm a huge fan of Kiva, having worked several years ago with one of their early field partners in West Africa and seen first-hand the impact of microloans on people's livelihoods there. 

A bit on how our platform is different:  Zidisha targets a specific niche market of microfinance borrowers who have established solid credit repayment records in their countries, and are computer-literate so that they can communicate and transact with lenders directly.  This allows our service to eliminate local intermediary organizations, making microcredit available to low-income entrepreneurs at much lower cost than loans which are managed by intermediaries, which must charge over 30% interest on average in order to cover their operating costs.  However the Zidisha model does exclude first-time borrowers and individuals who lack computer access, who still make up the majority of entrepreneurs in low-income countries.  The latter are served most effectively by traditional microfinance organizations which are funded by platforms like Kiva.

Please let me know if you'd like to learn more or just have feedback or comments on Zidisha's direct P2P model.  I'd love to hear from you!

Best,

Julia

[David2051]

I decided to give it a try!   

[JKurnia]

I decided to give it a try!   

Thanks!  It would be great if you have the chance at some point to post a few lines to share your experience with Zidisha, or thoughts on our direct P2P lending model.

Also I thought I'd share a couple of relevant journal postings by Zidisha Client Relationship Managers (volunteers akin to Kiva Fellows) in Senegal and Kenya, regarding how Zidisha's approach to P2P lending is unique:

http://mackafrique.blogspot.com/2010/05/microlending-baby.html

http://ikosawa.wordpress.com/2010/07/21/shameless-plug/

These posts mainly talk about the advantages of direct P2P lending in microfinance.  To balance that, I would suggest readers keep in mind one drawback of our model: its computer literacy requirement excludes a lot of otherwise deserving borrowers.  We don't consider Zidisha to be necessarily better than other P2P lending platforms, but simply a different approach that offers value-adding variety to the range of services available to entrepreneurs and to lenders.

All comments on the above are welcome.  Best,

Julia

[David2051]

Has anyone else tried Zidisha?   https://www.zidisha.org

I have 14 loans and 3 still raising funds.  The platform is obviously not as developed as Kiva and I think the risk is higher than Kiva but so far I have quite enjoyed the contact with the lenders!  I was just wondering if anyone else had tried it and had any thoughts on it...

 

I should add that Julia has been wonderfully responsive to my occasional messages and questions.   

[iampaul]

I was just wondering if anyone else had tried it and had any thoughts on it...

I took a look at it for the first time this morning in response to your post, David. Interesting. I have not dug in-depth at all, but a couple of items in the Terms of Use caught my attention right away and I am curious about your take on them:

1. Zidisha is not a bank or other financial institution or investment adviser, broker or dealer. Zidisha and makes no guarantee or representation that funds lent through its website will be repaid to lenders, regardless of whether the loans financed with lender funds are repaid to Zidisha. Any cash payouts are promotional gifts offered solely at Zidisha's discretion.

That "promotional gift" phrase is used in the "How It Works" section as well:

6. The borrower repays principal and interest according to the schedule proposed in the loan application. Each time the borrower makes a repayment installment, your share of principal repayment and interest is credited to your funded balance. You may request to reduce your funded balance and receive a cash promotional payment of the amount of your funded balance at any time, or use it to finance new Zidisha loans.
IMPORTANT NOTICE: Zidisha is not obligated to return any lender's funded balance at any time. Lenders fund their balance by making funds available to Zidisha. Any funds returned by Zidisha to lenders are for promotional purposes entirely within Zidisha's discretion.

The Terms Of Use further say that the lender is responsible for any taxes on amounts they receive back from Zidisha:

6. Funds uploads to Zidisha lender accounts should not be treated as tax-deductible charitable contributions. It is the responsibility of website users to report and pay any applicable taxes on any cash payouts received from Zidisha.

Now I am no tax guy or finance guy, but it seems to me that this means if Zidisha is feeling generous and decides to return any funds to you at all, you would be liable for taxes on the entire "promotional gift" which includes not only the amount of any interest payments you withdraw but also any original payment you made to them which you then withdraw. Double taxation if you get anything back at all.

5. Loan amounts are fixed in local currency at the time of disbursement. Currency exchange rate fluctuations may cause reductions in the dollar values of the loans over the course of the repayment period, causing lenders to lose money even if the loan is fully repaid.

I don't see any remark about what happens if the exchange rate causes increases in the US dollar value of the loans. Is this another currency exchange rate lose-lose situation for the lenders?

Thoughts please?

Thanks,

Paul

[JKurnia]

Hi Paul (and others),

If it's all right with you, I'd like to respond to a few of the questions you raised.

The reason that we do not make any guarantee to make payments to lenders is that doing so would make Zidisha liable to be considered a securities broker under US law.  According to Securities and Exchange Commission regulations, entities that accept money from the public while making any representation that the funds will be returned to them - especially if there is a possibility of a positive financial return - are securities brokers, and securities brokers are subject to complex and expensive administrative and reporting requirements.  On advice from our attorney we opted to avoid being considered a securities broker by including language on our website to the effect that Zidisha does not guarantee that lenders can withdraw funds.  However, in practice we have never declined a lender's request to withdraw funds from their account.

Regarding exchange rate fluctuations, our service is different from Kiva in that the lenders themselves bear currency risk, and loan amounts are fixed in local currency.  If the dollar value of the loan increases over the course of the lending period, then the lender would gain that additional value in addition to any other financial returns on the loan. 

Regarding taxes, the IRS requested that we add language to our Terms and Conditions to make it clear that lender funds uploads are not tax-deductible (because lenders can withdraw them again).  And like any other earnings, positive financial returns from interest and currency fluctuations that lenders realize on Zidisha loans may be subject to taxation under US law. 

Hope this helps clarify.  Best,

Julia

[iampaul]

Hello, Julia. Thanks for your answers. You have just confirmed David's comment about your responsiveness!
 

On advice from our attorney we opted to avoid being considered a securities broker by including language on our website to the effect that Zidisha does not guarantee that lenders can withdraw funds.  However, in practice we have never declined a lender's request to withdraw funds from their account.

I understand that part just fine. My concern is that, by calling all of what is coming back out of Zindisha into the hands of the original lenders a "promotional gift," I believe you are completely recharacterizing it in regard to the tax laws of the United States. I believe it becomes a fully taxable sum - not just on any interest earned, but also any other lender funds that are withdrawn again even if they were never loaned in the first place. Or maybe I am completely wrong about that. As I said, I am not a tax guy.

Regarding taxes, the IRS requested that we add language to our Terms and Conditions to make it clear that lender funds uploads are not tax-deductible (because lenders can withdraw them again).  And like any other earnings, positive financial returns from interest and currency fluctuations that lenders realize on Zidisha loans may be subject to taxation under US law.

Was that specific term, "promotional gift," what the IRS said to use? As I stated, being taxed on any interest gained is one thing. Being taxed a second time by the IRS on the funds I might have originally transferred into my Zindisha account just because you call them a "promotional gift" when I withdraw them again is another thing entirely.

Regarding exchange rate fluctuations, our service is different from Kiva in that the lenders themselves bear currency risk, and loan amounts are fixed in local currency.  If the dollar value of the loan increases over the course of the lending period, then the lender would gain that additional value in addition to any other financial returns on the loan.

I read your response on this as stating that lenders can "profit" from currency exchange fluctuations which go in their favor. If that is correct, may I suggest that your terms of use be clarified accordingly? At present they only state that a lender can lose on currency exchange.

Thanks again,

Paul

[David2051]

I have only put in amounts that I would be willing to consider donations, so basically I've chosen not to think too much about the tax implications, and I had not noticed the precise language that Paul points out.  I wonder if there is some way to arrange it so that money taken out is not taxed unless more is taken out than was put in.  I think some tax advantaged savings accounts work that way.  I doubt that people would make much for returns at 2 or 3 percent...

This loan was highlighted in one of the Zidisha newsletters.  Unfortunately I didn't get in on this one, but wish I had!

Spotlight on: Combé Thiaw



By Mack McConnell and Steve Monroe. 

A mother of one child, Combé Thiaw opened a small medical supply retailing business in 2008, based on experience she had gained while working at a local health clinic. The retailing business operates out of a small private health clinic called La Clinique Medico Chirurgicale in the low-income Sacré Coeur neighborhood of Dakar, Senegal.  La Clinique Medico Chirurgicale provides general care, but specializes in complex joint-replacement surgery. Madame Thiaw has a strong belief in charging patients based on their ability to pay. Very rarely do those who seek treatment get turned away.

Under Madame Thiaw's direction, the clinic has seen significant success in retailing medical supplies to other clinics, hospitals and pharmacies. There is a wide variety of things she sells, but she specializes in low-margin items like IV equipment, sterilization tools and disposables. The clinic has been successful at using the sales of these products to subsidize services to patients who cannot afford to pay the full cost of their treatment.

Madame Thiaw received her first Zidisha loan of $1,160 in June.  This week, Senegal client relationship manager Steve Monroe spoke to Madame Thiaw about the impact of the loan.

"The clinic is going great," she reported. "Our sales volume has actually doubled since I received the loan from Zidisha. I used this loan to stock up our inventory. I bought medical supplies - IV tubes, syringes, pain medications. The bulk of our orders are for pain medications and IV tubes, mainly for victims of automobile accidents. The loan gave our clinic liquidity. We often lend out our medical equipment, with the expectation of payment a month or two later. This loan gave us the means to continue this lending, and reach poorer patients, while meeting orders from new clients.  The loan also helped us to buy in bulk and lower costs."
 
When asked about her future plans, she responded, "In the short term, the clinic is looking to expand and invest in steel implants that are used to mend broken bones. We are also looking to expand our inventory and import more medical products from more countries. The next time I apply for funding from Zidisha, I hope to double the amount of my current loan."

You may view Combé's profile and learn more about her clinic at https://www.zidisha.org/index.php?p=14&u=205&l=9.



Madame Thiaw's assistant shows medication inventory purchased with her Zidisha loan.