The author concludes that he made a very modest profit, which only counts as a net loss if a one-time fee to Paypal is counted.
Is there a way to put money into a Zidisha account without paying processing fees? What's the cheapest way to put money into a Zidisha account?
On the lender's end, I think about microfinance more as a "renewable donation" than as an "investment". So, it would be nice if 100% of the donation went to the operation of the charitable organization or the charitable act itself.
We don't currently offer a way to put small amounts into a Zidisha account without paying credit card / PayPal fees. That said, most of our lenders recycle their funds over multiple loans, rather than cashing out immediately when they are repaid. When the 3.5% transaction fee is spread out over many loans, the cost per loan becomes less significant.
I've used Balanced Payments before but they didn't have the $5 cap. I can confirm they now offer it but do you know when that started? My googling hasn't turned up any blog posts, currently going through all of their posts.
We haven't investigated Balanced Payments specifically - thanks for the tip!
We did experiment with offering ACH payments via a different service (Check Gateway) a couple years ago. We discontinued that, because the automated address and other verification checks required for online ACH authorizations blocked many legitimate payers, such that it cost more in declined payment fees and hassle for our lenders than it saved in transaction cost. Also, almost half of our lenders are outside the US.
Correct, I failed to mention this in my original post. My fee was $35 (3.5% of $1000), and my total bids have been $1818 over the period, so this equates to about 2% overall. Unsure if I have to pay this 3.5% to get the funds out again. Have you thought of speaking to PayPal to see if they would waive this fee as they did with Kiva? They seem fairly sympathetic to microfinance, and this is an innovate model. However, they may perceive you as a competitor to Kiva, particularly as they now have Kiva Zip, and I imagine Kiva themselves would prefer to retain exclusivity in this waiver of trasnaction fees. No harm in asking. Post their response here!
We do not charge any fee for withdrawals - we cover that cost ourselves so that lenders may withdraw their full balance at any time.
We did request free payment processing for Zidisha, and have also asked Kiva to request the same deal for Zidisha. Two years ago we even had an online petition for PayPal to waive fees for Zidisha loans - https://www.change.org/en-AU/petitions/paypal-stop-charging-....
Thus far, our applications for free or heavily discounted payment processing have been turned down, and we continue to seek more cost-effective options.
I would only need to raise my average APR by about 0.2% to cover the PayPal fee. Interestingly Kiva gets around this: "Kiva is the first organization that PayPal has supported by providing free payment processing. This support saves Kiva up to one million dollars each year, which helps us to keep our operational expenses low and send 100% of your loan contributions to the field." The CEO of Kiva is formerly from PayPal. This is a serious advantage to Kiva, and disadvantage to Zidisha. I have no idea if there is an alternative way of uploading funds to Zidisha without incurring these fees.
Regarding my profit motive, I don't see these platforms as an effective means to profit. I seek to break-even. By seeking to break-even this permits side-by-side comparisen. It creates a level playing field to compare, and from this, one can modify the break-even criteria to measure the impact. For example, on MyC4, if I see a loan is fully-funded at 12.2%, but the interest ceiling is 12%, I have a simple Excel tool that tells me how much I need to bid at 5%, or 0%, in order to displace enough of the highest-cost bidders in order to faciliate the loan. So, I might do a modest loan of only $25, at a very low or zero interest rate, but as a result of this a loan for $500 which may not have otherwise been disbursed is able to be disbursed. I consider this a good use of my funds. Also, by constantly displacing the highest bidders, at the margin this may frustrate them by constantly having their bids removed at the last minute, and persuade them to lower the rates they charge - who knows if this is effective or not, but this is one strategy I use. But, overall I seek to break-even on all these platforms.
This is not entirely altruistic. I also have a one-year fixed-term deposit at a regulated microfinance bank that I know very well, which yields 8% APR and suffers no forex risk. My funds are also used for lending to microfinance clients, only I don't know precisely which ones. My logic is that this generates a relatively risk-free return (the credit risk is with the bank itself, not the individual clients), and means that if I break-even, or take a few hits on my P2P lending, then in the long-run this all cancels out, and I might cover inflation hopefully. Such fixed-term deposits might be considered an alternative mechanism for microfinance lending, but it is relatively undiscovered in the mainstream retail sector, also invovles transaction costs, and requires more paperwork to set up. And of course, it doesn't harness the feeling (imaginary or otherwise) of P2P lending.
Sure, Banco D-Miro in Ecuador. When I say I face no forex risk, this is because Ecuador is a dollarized country and I operate in dollars, obviously Europeans etc. would face forex risk. The interest rates are visible here:
My actual rate is marginally below 8% (alas I couldn't do a $20.000 deposit!), and foreigners basically have to deposit for 1 year, or it gets complicated. All deposits up to $30.000 approximately are guaranteed by the government. The bank is BBB+ rated I believe, and Ecuador is not a risk-free country, so when I say this is "relatively risk free", this is somewhat subjective. I live in Argentina, and that is a whole load riskier.
I am invested in microfinance and want to invest more, but there's a constant news stream of problems with the providers and I'd really like to know who I should invest with.
This article references a few complaints about Kiva's lack of transparency. Two weeks ago there was an HN article on Zidisha's lack of transparancy [0]. Zidisha's website lists their repayment rate at 74.31% [1], which seems very low compared to other providers which report 90%+. This author likes MyC4, but they appear to focus on European investors (given the Euro currency symbol).
If anyone has any solid suggestions on who I should invest with, I'd love to hear them.
I saw the HN article questioning Zidisha - Modern Microcredit I think. My experience has differed from that author's impression, and I have tried to be as transparent as possible to explain with hard data why. But I cannot explain HOW this difference in experiences with Zidisha occurs. My concerns with Kiva are more far-reaching, but no point going over that now. I receive many emails asking precisely this question, which prompted me to embark on an overview of the sector, explain the options available (there are more than you might think!), and to examine the individual players in each option. Ultimately you need to decide what you actually seek to achieve, and which model you prefer. Do you need to use a P2P at all, for example? What about simply opening a savings account in a regulated microfinance bank and leaving your funds there, potentially earning a small interest rate? Your funds will be used for the same purpose, lending to microfinance clients, but you won't know which? And if you prefer the P2P mechanism, as far as I can see the key questions are: lend or donate? Lend at interest or interest-free? Lend via an MFI or directly? Once you answer these questions you will have narrowed your search down significantly, and can then do a more detailed analysis of the options available. I think you should think about these questions, and be aware of the options, before you try to select who you should invest with.
You are right that MyC4 is euro denominated. However, I had a quick look at their FAQ:
It is true that 74% of loans whose final repayment due date has passed have been repaid. We expect the ultimate repayment rate of those loans will be higher than that, because many loans are repaid after their due dates.
In addition, most of the loans covered by the historical repayment rate displayed in our website were issued over a year ago. Our repayment performance has improved substantially in the past year, such that risk level of loans currently being issued is lower than our historical repayment rate suggests.
Zidisha is still not a safe place to store savings or a lucrative investment opportunity, but I think it's reasonable to expect that the value of lending funds can be preserved over the long term, while offering financing opportunities at dramatically lower cost to the borrowers. As a nonprofit philanthropic platform, that is Zidisha's purpose.
It'd be really nice if you offered more detailed stats, especially a CSV of all loans with all relevant info. (Maybe you do have this and I just didn't see it on the site). I'm sure there's a lot of data scientists who could pull a lot of useful information.
Kiva has both an API and a graphical search of all loans. I did some simple analysis on Kiva's loans and that influenced some preliminary investing. I don't intend to make any money, but applying stats is part of the "fun" for me.
It generates a simple table with the repayment performance of each of the 6000+ loans that have been funded through our platform, with links to the individual loan profile pages.
We'd definitely like to offer an API similar to Kiva's, when web development resources allow.
I remember back at UC Berkeley I went to a little informational session about a company called Prosper...looks like they're still around :-):
http://www.prosper.com/
If I remember correctly, the lady presenting was with eBay while Meg Whitman was there and at the time (back in 2006) this was a new venture she had become involved with. Seemed pretty neat back then.
I took a look at the first ten active loans listed on that profile. Four loans in particular are way behind on payments. If those loans default, you'd be out $160. On $1,000 in principal, that would represent a loss of 16%, instead of breaking even. That's more in line with Zidisha's write-off rate of 18.65%: https://www.zidisha.org/index.php?p=43
Completely accurate, which is why I state "I am basing this entire analysis on a number of large assumptions. Firstly, that my current outstanding loans will be repaid with the same reliability as my completed loans", and a number of other assumptions in addition. Nor do I know the extent to which previous loans, which may now be 100% repaid, may have dipped into default and subsequently recovered, which also incur a marginal cost in terms of opportunity cost of capital etc. My analysis is very much "cash based", which is limited, but this is the data I have available. A quick look through some of the 100% repaid loans suggests that at certain points in the cycle these were also overdue. Perhaps I could obtain the individual repayments versus due dates for each loan and work this out with greater accuracy, but I haven't bothered so far. To what extent are my current loans likely to default at the 18.65% rate you suggest? I have no idea. To what extent did my previous loans default to this extent? I have no idea. This is why I simply take a bird's eye perspective and look at net cash flows. However, as you accurately imply, for me to genuinely do this with precision I should wait until all current loans have been repaid, which either means I have idle funds on the platform, or I have to complicate the analysis by considering my average outstanding balance, which I have assumed for simplicity is $1000, which it has been to date roughly.
However, are you considering the gross interest income I will earn on the loans that don't default over the forthcoming period? This will partially offset some of the defaults, I can't say with precision to what extent. I count only principal outstanding, not interest income due. So, to some extent this will lessen the impact of possible defaults.
Finally, I have done a couple of new bids since my cut-off date of April 6th when I downloaded the data, so the numbers might not add up 100%. Oh, and Jessica is my wife, she started on Zidisha first, before I took over!
At the end of the day I am hesistant to say resolutely that Zidisha is a break-even venture. It has been so far, but subject to certain assumptions which I hope I have stated clearly. 18 months is a decent trial-period, but it's not a perfect analysis. And if I do subsequently lose a few percent on $1000 that is tolerable. Would I put $10.000 on the platform? No. And comments warning that Zidisha needs to tighten delinquency are completely accurate, and to an extent I am gambling on their ability to do just that - progress seems good so far (in 2014). What intrigues me is the innovation in the business model. It is disruptive. It is a first-mover in this space. Does that mean the model is perfectly refined and cannot be improved? I doubt it, and I look forward to seeing how they develop. But I think it is worth giving them a chance, which is what I have done (to a modest extent), and waiting to see what happens. I will update my blog periodically when more data comes in.
I take your point. It's just that if those four loans default, you will be down 16%. If that happens, you will lose your principal and also not earn interest on those defaulted loans. So even though you charged an 8.4% APR, you will only earn interest on 84% of your loan balance. So unless a miracle happens, it doesn't seem likely that you will break even.
Serious question here. Is microfinance a good thing? What do we know about how it affects the borrowers? Most of the things I have read have been from a lenders perspective. About profit, and investment. Is that really the goal?
Needless to say the debate rages on. The Zidisha discussion detracts from this central point, but on valid grounds. To some extent the shortfalls of microfinance may be due to the high interest rates charged, the restrictive loan conditions, the profit motivation, the aggressive intermediating MFIs etc., some of which Zidisha addresses. However, if you read the work of Milford Bateman, for example, he raises more fundamental questions about microfinance. In the P2P space profit is not really an option, and in Zidisha's case it is debatable whether one can even break-even. But look at the higher levels, the profits accumulating to Accion in the IPO of Compartamos; the millions made in the IPO of SKS, or at some of the microfinance investment funds - these are the big boys, and at that level yes, there are vast profits to be made. Motivation is a hard thing to prove, but you are right to suggest that profit has come to play an unhealthy role in the debate. The sector is extremely opaque, transparency is rare, there are rampant conflicts of interest and ill-aligned incentives. It is largely unregulated in practice, despite endless window-dressing to the contrary. And when some new start-up promotes microloans for poor people to connect their houses to the drinking water supply, as sensible and this might superficially seem, isn't this a public good that the government should provide?
Reading the standard microfinance mantra one could be forgiven for concluding that all the world's problems can be solved with loans, and that profit maximisation is the best structure to arrange this. We are familiar with the theory, but the evidence is sorely lacking.
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[ 2.6 ms ] story [ 54.8 ms ] threadIs there a way to put money into a Zidisha account without paying processing fees? What's the cheapest way to put money into a Zidisha account?
On the lender's end, I think about microfinance more as a "renewable donation" than as an "investment". So, it would be nice if 100% of the donation went to the operation of the charitable organization or the charitable act itself.
edit: less ambiguous question.
We did experiment with offering ACH payments via a different service (Check Gateway) a couple years ago. We discontinued that, because the automated address and other verification checks required for online ACH authorizations blocked many legitimate payers, such that it cost more in declined payment fees and hassle for our lenders than it saved in transaction cost. Also, almost half of our lenders are outside the US.
We did request free payment processing for Zidisha, and have also asked Kiva to request the same deal for Zidisha. Two years ago we even had an online petition for PayPal to waive fees for Zidisha loans - https://www.change.org/en-AU/petitions/paypal-stop-charging-....
Thus far, our applications for free or heavily discounted payment processing have been turned down, and we continue to seek more cost-effective options.
Regarding my profit motive, I don't see these platforms as an effective means to profit. I seek to break-even. By seeking to break-even this permits side-by-side comparisen. It creates a level playing field to compare, and from this, one can modify the break-even criteria to measure the impact. For example, on MyC4, if I see a loan is fully-funded at 12.2%, but the interest ceiling is 12%, I have a simple Excel tool that tells me how much I need to bid at 5%, or 0%, in order to displace enough of the highest-cost bidders in order to faciliate the loan. So, I might do a modest loan of only $25, at a very low or zero interest rate, but as a result of this a loan for $500 which may not have otherwise been disbursed is able to be disbursed. I consider this a good use of my funds. Also, by constantly displacing the highest bidders, at the margin this may frustrate them by constantly having their bids removed at the last minute, and persuade them to lower the rates they charge - who knows if this is effective or not, but this is one strategy I use. But, overall I seek to break-even on all these platforms.
This is not entirely altruistic. I also have a one-year fixed-term deposit at a regulated microfinance bank that I know very well, which yields 8% APR and suffers no forex risk. My funds are also used for lending to microfinance clients, only I don't know precisely which ones. My logic is that this generates a relatively risk-free return (the credit risk is with the bank itself, not the individual clients), and means that if I break-even, or take a few hits on my P2P lending, then in the long-run this all cancels out, and I might cover inflation hopefully. Such fixed-term deposits might be considered an alternative mechanism for microfinance lending, but it is relatively undiscovered in the mainstream retail sector, also invovles transaction costs, and requires more paperwork to set up. And of course, it doesn't harness the feeling (imaginary or otherwise) of P2P lending.
http://www.d-miro.com/portal/archivos/transparencia/tasas_de...
My actual rate is marginally below 8% (alas I couldn't do a $20.000 deposit!), and foreigners basically have to deposit for 1 year, or it gets complicated. All deposits up to $30.000 approximately are guaranteed by the government. The bank is BBB+ rated I believe, and Ecuador is not a risk-free country, so when I say this is "relatively risk free", this is somewhat subjective. I live in Argentina, and that is a whole load riskier.
This article references a few complaints about Kiva's lack of transparency. Two weeks ago there was an HN article on Zidisha's lack of transparancy [0]. Zidisha's website lists their repayment rate at 74.31% [1], which seems very low compared to other providers which report 90%+. This author likes MyC4, but they appear to focus on European investors (given the Euro currency symbol).
If anyone has any solid suggestions on who I should invest with, I'd love to hear them.
[0] https://news.ycombinator.com/item?id=7546394 [1] https://www.zidisha.org/index.php?p=43
You are right that MyC4 is euro denominated. However, I had a quick look at their FAQ:
https://www.myc4.com/About/MAIN_FAQ#WHO_CAN_INVEST
Seems to be available to everyone.
In addition, most of the loans covered by the historical repayment rate displayed in our website were issued over a year ago. Our repayment performance has improved substantially in the past year, such that risk level of loans currently being issued is lower than our historical repayment rate suggests.
Zidisha is still not a safe place to store savings or a lucrative investment opportunity, but I think it's reasonable to expect that the value of lending funds can be preserved over the long term, while offering financing opportunities at dramatically lower cost to the borrowers. As a nonprofit philanthropic platform, that is Zidisha's purpose.
Kiva has both an API and a graphical search of all loans. I did some simple analysis on Kiva's loans and that influenced some preliminary investing. I don't intend to make any money, but applying stats is part of the "fun" for me.
It generates a simple table with the repayment performance of each of the 6000+ loans that have been funded through our platform, with links to the individual loan profile pages.
We'd definitely like to offer an API similar to Kiva's, when web development resources allow.
If I remember correctly, the lady presenting was with eBay while Meg Whitman was there and at the time (back in 2006) this was a new venture she had become involved with. Seemed pretty neat back then.
This is the account I looked at: https://www.zidisha.org/microfinance/profile/Jessica.html That account gave a 20% loan to Hellen Festo, made 40 loans, etc., as you mentioned in your blog post.
I took a look at the first ten active loans listed on that profile. Four loans in particular are way behind on payments. If those loans default, you'd be out $160. On $1,000 in principal, that would represent a loss of 16%, instead of breaking even. That's more in line with Zidisha's write-off rate of 18.65%: https://www.zidisha.org/index.php?p=43
However, are you considering the gross interest income I will earn on the loans that don't default over the forthcoming period? This will partially offset some of the defaults, I can't say with precision to what extent. I count only principal outstanding, not interest income due. So, to some extent this will lessen the impact of possible defaults.
Finally, I have done a couple of new bids since my cut-off date of April 6th when I downloaded the data, so the numbers might not add up 100%. Oh, and Jessica is my wife, she started on Zidisha first, before I took over!
At the end of the day I am hesistant to say resolutely that Zidisha is a break-even venture. It has been so far, but subject to certain assumptions which I hope I have stated clearly. 18 months is a decent trial-period, but it's not a perfect analysis. And if I do subsequently lose a few percent on $1000 that is tolerable. Would I put $10.000 on the platform? No. And comments warning that Zidisha needs to tighten delinquency are completely accurate, and to an extent I am gambling on their ability to do just that - progress seems good so far (in 2014). What intrigues me is the innovation in the business model. It is disruptive. It is a first-mover in this space. Does that mean the model is perfectly refined and cannot be improved? I doubt it, and I look forward to seeing how they develop. But I think it is worth giving them a chance, which is what I have done (to a modest extent), and waiting to see what happens. I will update my blog periodically when more data comes in.
Here are some details on those four loans:
* Alex made one late partial payment ($1.17) on his $100 loan and is 108 days late on his second payment: https://www.zidisha.org/microfinance/loan/Macbul/3583.html
* Margret hasn't "rescheduled" her loan even though she hasn't made a payment for four months: https://www.zidisha.org/microfinance/loan/margret-muthoni/34...
* Cynthia missed her first four payments, rescheduled her loan, and is now two months behind: https://www.zidisha.org/microfinance/loan/cynthia1988/3090.h...
* Soknya missed three months of payments, rescheduled, and is now 67 days late: https://www.zidisha.org/microfinance/loan/sdndiaye/1908.html
"On current evidence, the best estimate of the average impact of microcredit on the poverty of clients is zero"
http://content.time.com/time/world/article/0,8599,2103831,00...
Needless to say the debate rages on. The Zidisha discussion detracts from this central point, but on valid grounds. To some extent the shortfalls of microfinance may be due to the high interest rates charged, the restrictive loan conditions, the profit motivation, the aggressive intermediating MFIs etc., some of which Zidisha addresses. However, if you read the work of Milford Bateman, for example, he raises more fundamental questions about microfinance. In the P2P space profit is not really an option, and in Zidisha's case it is debatable whether one can even break-even. But look at the higher levels, the profits accumulating to Accion in the IPO of Compartamos; the millions made in the IPO of SKS, or at some of the microfinance investment funds - these are the big boys, and at that level yes, there are vast profits to be made. Motivation is a hard thing to prove, but you are right to suggest that profit has come to play an unhealthy role in the debate. The sector is extremely opaque, transparency is rare, there are rampant conflicts of interest and ill-aligned incentives. It is largely unregulated in practice, despite endless window-dressing to the contrary. And when some new start-up promotes microloans for poor people to connect their houses to the drinking water supply, as sensible and this might superficially seem, isn't this a public good that the government should provide?
Reading the standard microfinance mantra one could be forgiven for concluding that all the world's problems can be solved with loans, and that profit maximisation is the best structure to arrange this. We are familiar with the theory, but the evidence is sorely lacking.