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Help me distribute $100,000 to new entrepreneurs in Africa

paulbuchheit.blogspot.com

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Re: Help me distribute $100,000 to new entrepreneurs in Africa

#41

Post by jkurnia »

rdl wrote: post #40

I love the idea, but I have one concern, which may or may not be real. I think 5% is below market rate for what you are doing. By establishing 5% as the rate, you crowd out any local investment options which would need to charge above 5% (but not 60%). By making the subsidy non explicit, you make it even harder for local lenders to compete. I don't know what a market rate for this kind of loan would be, but in the US…

Hi rdl, the question of which interest rate will result in the best social impact is one of the most frequently debated topics among Zidisha users.

We allow borrowers to offer any interest rate they wish, up to a maximum of 25%. Lenders are then free to fund the loans at any rate up to the maximum offered by the borrower. Many lenders opt to fund loan applications at well below the offered rate, resulting in an overall average of around 5%.

We have not taken a position on the "optimal" interest rate, other than limiting it to no more than 25%. It will be interesting to see whether the average interest rate changes over time and as we continue to grow.

Re: Help me distribute $100,000 to new entrepreneurs in Africa

#42

Post by bliti »

This is a fantastic thing to do. I do have one question. Do you plan to do the same thing (maybe in a smaller scale) in the US? Say, help people in some impoverished area of the country with some small funding to help them get micro businesses going. Not arguing against the choice to do so in Africa (its great), just interested if there would be a push to do it "locally".

Re: Help me distribute $100,000 to new entrepreneurs in Africa

#43

Post by rdl »

jkurnia wrote: post #41
rdl wrote: post #40

I love the idea, but I have one concern, which may or may not be real. I think 5% is below market rate for what you are doing. By establishing 5% as the rate, you crowd out any local investment options which would need to charge above 5% (but not 60%). By making the subsidy non explicit, you make it even harder for local lenders to compete. I don't know what a market rate for this kind of loan would be, but in the US…

Hi rdl, the question of which interest rate will result in the best social impact is one of the most frequently debated topics among Zidisha users. We allow borrowers to offer any interest rate they wish, up to a maximum of 25%. Lenders are then free to fund the loans at any rate up to the maximum offered by the borrower. Many lenders opt to fund loan applications at well below the offered rate, resulting in an overa…

That sounds reasonable. I suspect in time the market will probably head more toward the market rate.

Re: Help me distribute $100,000 to new entrepreneurs in Africa

#44

Post by lukasm »

Loans are way much better form of helping, but investing with a partnership and advisors is a better option. Money is the key ingredient, but the some ventures do require lot of knowledge. Are loans preferred due to regulatory issues? How do you overcome "This is just money from rich western guys to dump the guilt" mentality? Are you going to build alumni network in similar vein to YC?

Re: Help me distribute $100,000 to new entrepreneurs in Africa

#45

Post by jkurnia »

rdl wrote: post #43
jkurnia wrote: post #41

Earlier quoted context omitted.

Hi rdl, the question of which interest rate will result in the best social impact is one of the most frequently debated topics among Zidisha users. We allow borrowers to offer any interest rate they wish, up to a maximum of 25%. Lenders are then free to fund the loans at any rate up to the maximum offered by the borrower. Many lenders opt to fund loan applications at well below the offered rate, resulting in an overa…

That sounds reasonable. I suspect in time the market will probably head more toward the market rate.

In fact, that seems to have been the trend so far. A year ago, the average rate paid to lenders was only 3% annually.

Re: Help me distribute $100,000 to new entrepreneurs in Africa

#46

Post by jkurnia »

kanamekun wrote: post #25
lincolnq wrote: post #15

Earlier quoted context omitted.

According to their FAQ [1], Zidisha is a charity, not a place to put your money if you want to get a return. (It would be interesting to compare social-impact-per-dollar of Zidisha versus, e.g. GiveDirectly [2], one of the best-known ways of doing good in the developing world [3].) [1]: https://www.zidisha.org/microfinance/faq.html - look for the question "Why does the Zidisha website not track the precise financial…

Actually I just looked at Zidisha's website to see how it works, and their terms of use [1] basically state that once you make a loan, the money is no longer yours: > So basically, I make a loan and then if the entrepreneurs makes a repayment, Zidisha can choose to give me my money as a "promotional gift." But wouldn't lenders have to pay taxes on their "promotional gifts"? And aren't I getting taxed on my entire loa…

I agree that this is confusing.

We state in our terms of use that we are not obligated to return lender funds because doing so could be construed as selling securities under US law - something we are not licensed to do. In practice, we have honored every lender request to withdraw funds that we have received since we were founded four years ago.

I am not a tax expert, but I would be surprised if a tax authority construed Zidisha lending activity as taxable investment income, because according to our terms of use the loans are not financial assets.

Re: Help me distribute $100,000 to new entrepreneurs in Africa

#47

Post by kanamekun »

jkurnia wrote: post #37
nowarninglabel wrote: post #33

Earlier quoted context omitted.

Julia, One thing to note is Kiva has been doing direct lending in Kenya for about 2 years now using M-PESA via Kiva Zip. Zidisha still has some differences, but I'm surprised at the confrontational tone a lot of Zidisha posts have taken towards Kiva. We're both trying to solve some of the same problems, would be great if instead of negativity, we could work together on doing that, share learnings etc. Anytime I get t…

Hi nowarninglabel, I did publish a post last week comparing our service with Kiva Zip: http://www.huffingtonpost.com/julia-kurnia/zidisha-vs-kiva-z... I wrote this to provide greater clarity to our users and the public, who frequently asked how our services were different. Some readers had the impression that the post was meant to attack Kiva Zip. That was not my intention. In fact, Kiva Zip and Zidisha have helped e…

Was just reading up on Kiva and Zidisha on Wikipedia, and noticed this on the Kiva talk page. Looks like someone at Zidisha (from a Mountain View IP) edited Kiva's Wikipedia page to add criticism of Kiva and plug Zidisha. Is this part of the "help" you're referring to above?

Removed the lengthy section spotlighting a known competing organization, Zidisha from the interest rates section. The information is consistent with Zidisha marketing language and the editor IP is attached to a series of edits inserting Zidisha into other pages. Seems like clear COI: http://en.wikipedia.org/wiki/Special:Contributions/67.188.17...

IP is also in Mountain View, where Zidisha is working this quarter http://www.ip-adress.com/reverse_ip/67.188.179.148 https://www.zidisha.org/forum/threads/zidisha-launches-at-y-... — Preceding unsigned comment added by Djbrusca (talk • contribs) 17:01, 3 March 2014 (UTC) >>

Re: Help me distribute $100,000 to new entrepreneurs in Africa

#49

Post by notahacker »

kanamekun wrote: post #25
lincolnq wrote: post #15

Earlier quoted context omitted.

According to their FAQ [1], Zidisha is a charity, not a place to put your money if you want to get a return. (It would be interesting to compare social-impact-per-dollar of Zidisha versus, e.g. GiveDirectly [2], one of the best-known ways of doing good in the developing world [3].) [1]: https://www.zidisha.org/microfinance/faq.html - look for the question "Why does the Zidisha website not track the precise financial…

Actually I just looked at Zidisha's website to see how it works, and their terms of use [1] basically state that once you make a loan, the money is no longer yours: > So basically, I make a loan and then if the entrepreneurs makes a repayment, Zidisha can choose to give me my money as a "promotional gift." But wouldn't lenders have to pay taxes on their "promotional gifts"? And aren't I getting taxed on my entire loa…

Presumably to avoid liability issues associated with representing the loans as investments, particularly relieving themselves of any obligation to chase missed repayments on behalf of creditors.

In some respects, having the up-front option to to waive any right to withdraw repaid loans might be better for people who actually have no intention of doing anything with repayments other than loan them to other Africans, assuming charitable donations whose use and re-use you're continually able to influence can still be legally tax deductible.

Re: Help me distribute $100,000 to new entrepreneurs in Africa

#50

Post by pratyushag »

lincolnq wrote: post #15
minimax wrote: post #13

Earlier quoted context omitted.

On the Zidisha statistics page† it says you have roughly 10% default rate but only 5% average interest rate. So if I make 10 loans of $1000 each, I expect to make $450 in interest and lose $1000 in principal to a default. That is a negative expected return. Why are Zidisha lenders willing to accept such terms? It seems like the interest rates should be higher given the risk of delinquency or default. † https://www.zi…

According to their FAQ [1], Zidisha is a charity, not a place to put your money if you want to get a return. (It would be interesting to compare social-impact-per-dollar of Zidisha versus, e.g. GiveDirectly [2], one of the best-known ways of doing good in the developing world [3].) [1]: https://www.zidisha.org/microfinance/faq.html - look for the question "Why does the Zidisha website not track the precise financial…

For some discussion about Zidisha vs GiveDirectly search "Zidisha" in the comments of these two articles: 1)http://blog.givewell.org/2012/04/26/microfinance-and-cooksto...

2)http://blog.givewell.org/2013/01/04/cash-transfers-vs-microl...

Would love to hear Kurnia's thoughts on this.

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