Congrats on the success so far! Wishing your team and the entrepreneurs you are helping even greater success to come.
I don't know all that much about microlending, but I do know quite a bit about investment funds, so I clicked the link hoping to learn more and maybe help offer some feedback if relevant.
After reading your blog post I still didn't fully understand it so I went to your main site to try to learn more. I read through the FAQs too, but still have a couple questions:
For example: while exploring some of the projects on your site I came across Ms. Mwangi from Kenya asking for a loan to buy shoes and clothes for her clothing line. https://www.zidisha.org/loan/shoes-clothes-for-my-clothline-...
Ms. Mwangi is asking to borrow $509.00
The cost of the loan details show:
-Service Fee: 5% of $509.00 = $25.47
-Lifetime membership fee: $50.95
-Optional Pay into Zidisha Members Loan Fund in return for a higher starting credit limit: $428.02
The costs total: $504.44
To me this looks like costs and fees totalling $504 in order for her to borrow $5?
So my sincere apologies for any misunderstanding on my part. I realize microlending has unique risks and challenges compared to other types of lending. And of course a practical amount of money needs to got to Zidisha to help cover costs and expenses of the good work you guys are doing.
But how can costs and fees be $504 for a $5 loan? Is that correct? The costs to loan value seem very high to say the least. If you see this, I'd really appreciate a bit of clarity and info on these details. Thanks
The Members Loan Fund deposit may be withdrawn at any time the borrower does not have an outstanding loan. It may also be used to pay off the remaining balance of an outstanding loan, if the borrower requests it. If the loan goes into arrears, it is used to reimburse lenders for the amount they had lent.
The lifetime membership fee is currently zero, but at the time this borrower joined, it was 10% of the starting credit limit chosen by the applicant. (So someone choosing the default starting credit limit of $10 would pay a lifetime membership fee of $1.)
The above costs are only paid once, at the time a borrower first joins Zidisha, and entitle the borrower to lifetime access to raise loans. You can learn more about why we developed a lending model that front-loads costs here: http://www.huffingtonpost.com/julia-kurnia/the-story-of-zidi...
The 5% service fee is a flat percentage of each loan amount, and is independent of the loan term. If Ms. Mwangi opts to hold the loan for two years, she would still pay only $25.47.
We'll aim to make this clearer in the cost breakdown explanation. Thanks again!
However she still pays a 5% fee (in this case, for a 3 month loan, 21.5% annual). Obviously the fee is interest as well.
The lender gets no return, but a tax deductibility.
It's a clever way of building a massive fund.
My problem with most P2P (micro-)lending is that its risk management is often lacking and that interest rates do not adequately reflect risks. A zero percent nominal rate is bogus for a Nairobi shop owner. And 20+% fees excessive, especially when someone has to pay $400+ to get in.
