Zidisha: Fostering entrepreneurship one loan at a time

Zidisha

In the developing world, just a couple hundred dollars can be enough for a person to start their own business. In many cases, it is a challenge for these budding entrepreneurs to get a hold of this funding, preventing them from reaching their dreams. But once an entrepreneur has the resources they need to start their business venture, they have a chance to support their family, community and stimulate their local economy.

Zidisha was created because they saw this need in developing countries. Zidisha is the first peer-to-peer microlending service to offer direct interaction between lenders and borrowers. So how does Zidisha work exactly?

Entrepreneurs who need a little financial help to get their business started will post their desired capital on the Zidisha website, along with their business plan (kinda sounds like Kickstarter, right?). Lenders from around the world will choose the entrepreneur of their liking to help. But unlike Kickstarter, it is a loan system, so the loan is to be paid back in monthly installments. What makes this nonprofit unique is that because it is peer-to-peer, the interest rates for the entrepreneur are very low, as the lender and borrower decide on the rate together.

With Zidisha’s revolutionary concept, today 433 businesses have been financed with a total of $249,177 worth of loans. And they have been recognized in The Washington Post, Mashable and Entrepreneur for their life-changing work. Zidisha truly gives people a fresh opportunity to start their own business.

ONE Blog Editor Malaka Gharib got a chance to talk to Zidisha Director Julia Kurnia about the program and its clients. Here is a transcript of their interview:

Zidisha
Malaka: What is your favorite success story from Zidisha? Can you give us a before-and-after anecdote from a Zidisha client?
Julia: One of our first clients was Bineta Sarr in Senegal. When she joined Zidisha, Madame Sarr was living with about 30 extended family members in a tin-roofed home they built themselves. They only had three mattresses for beds. Madame Sarr and her husband, who was unemployed except for odd jobs he picked up here and there, struggled to pay school fees for their three children. Despite their dire living conditions, she was determined that they would grow up educated.

Madame Sarr was a talented clothing designer, and her gorgeous dresses were in high demand. Since most of her customers paid on credit in small installments, she used to wait for days to accumulate enough money to buy fabric for a new dress, which she would produce with the help of an ancient pedal-driven sewing machine. On a good week, she would sell one or two outfits in this way. Madame Sarr once tried taking a small loan from a local bank to boost her working capital, but the high interest and fees on the loan took so much of her profits that the benefit was negligible.

When Internet access became widespread in Senegal, Madame Sarr took advantage of classes offered by a local NGO to learn basic computer skills. The NGO put her in touch with Zidisha, and she decided to give it a try. Twelve lenders from around the world read the story she posted at Zidisha.org and chipped in small amounts to fund her first loan. She used the capital to buy an electric sewing machine, rent a boutique workshop, hire an employee and establish a working capital fund for cloth and other materials. Today, Madame Sarr is able to fulfill up to a dozen client orders at a time, increasing her income dramatically such that she is now the main breadwinner for her household. This spring, she posted the following message to the lenders who supported her: “I am blooming thanks to you. I can support my children: the older one is going to university, the second one is at high school and the little girl is at primary school. That is my family today, and you have helped me so much.” (To learn more about Madame Sarr and see photos of her family, check out her Zidisha profile page)

How do your clients hear about Zidisha?
We’ve never needed to advertise Zidisha to prospective borrowers. Instead, the vast majority find us through word of mouth from current clients. Facebook is so well-known even in the most economically marginalized places these days that our clients often refer to credit raised through Zidisha as “Facebook loans.” We’re experiencing an overwhelming level of demand from new applicants who have heard about us from our current clients, and have a long waiting list as a result.

How can this model be replicated in other industries? In other areas of development?
Zidisha is the world’s only direct person-to-person lending service to cross the international wealth divide. That said, our philosophy of putting more responsibility in the hands of borrowers in return for lower fees is applicable to the microfinance industry as a whole.

Traditional microfinance institutions have often operated on the assumption that low-income entrepreneurs in developing countries need a lot of hand holding: required meetings and training, loan officers visiting in person to collect repayments, etc. So they build expensive bureaucracies to administer the loans, with the result that the world’s poorest people pay the world’s highest interest rates for their loans: 35 to 40 percent is the global average for microfinance loans.

At Zidisha, we’ve proven that a different way is possible, and that low-income individuals in developing countries can repay direct person-to-person loans just as responsibly as people everywhere, without the bureaucracy and the hand-holding. This is a real paradigm shift for the microfinance industry. Already, one of India’s largest microfinance institutions is piloting a new lending model inspired by Zidisha, in which clients are entrusted to deposit loan repayments on their own in return for lower interest rates.

Why is microlending an important part of starting up a business, especially in the poorest parts of the world?

As illustrated by Bineta Sarr’s story, it is exceedingly difficult for households in the poorest parts of the world to save the lump sums needed to take their businesses to the next level. In developing countries, customers typically pay on credit, in tiny amounts, and these trickles of income are used first for family consumption needs. Microlending provides the larger capital amounts needed to purchase assets — a high-yielding dairy cow, a sewing machine, bulk purchase of materials — that result in full-time employment and dramatically increased incomes.

Who are the lenders? Where do they come from? What are they like?
Anyone with a credit card and an Internet connection can lend through Zidisha. The minimum lending amount is one dollar. Our lenders represent 62 countries on every continent of the world. They typically choose to lend with Zidisha because the borrowers who receive their funds are not being charged high interest rates, and they like the transparency and opportunity to dialogue with a remarkable entrepreneur on the other side of the world — and give them a chance at a new life with a small loan.

To learn more about Zidisha, you can find them on
Twitter: @ZidishaInc
Facebook: Zidisha Inc.
Google+: Zidisha Inc.
Website: Zidisha.org