Zidisha and P2P finance as a charity

  • Borrowers need cash to start or improve their business
  • Lenders can’t / don’t want to give away money but still care about the world
  • Zidisha is an interest-free borrowing place

Entrepreneurs need capital to start their businesses, Zidisha provides microcredit services to raise capital from lenders around the world. Zidisha is a non-profit provider, similar to Kiva, who doesn’t offer interest rates for lenders. Lenders are recruited from people, who would otherwise think about giving to charity or leaving money in their bank accounts, not from investors. Not having interest rates is a) legally advantageous, they are not subject to financial market regulation b) convenient to borrowers, whose cost of capital decreases.

Who is borrowing from Zidisha

Zidisha is aimed at people from developing countries (Indonesia, Ghana, Nigeria, Kenya, and Zambia), especially starting entrepreneurs. It requires access to the internet to post an application and borrow money. They are a platform directly connecting borrowers and lenders. Borrowers work in industries as diverse as groceries, mobile repair stalls, hair salons, restaurants, or farms. Those same people turn to Zidisha often repeatedly, which makes for a great credit scoring mechanism (you can check their history, whether they paid on time etc.). On the other hand, it means there is a real lack of cheap financing opportunities in serviced regions.

Zidisha vs. Kiva – how they compare

Probably the biggest microfinancing institution is Kiva. Compared to them Zidisha provides cheaper credit to borrowers (borrowers pay only a low handling fee instead of an interest). there are also no intermediaries. Probably the most remarkable difference is that while Kiva is a refinancing institution (you lend money to microfinancing institutions against already provided loans), Zidisha actually provides money to borrowers you see on their project page – and you can contact them or receive news from how they are doing. That is a clever marketing strategy since it facilitates a personal connection between lenders and borrowers. Zidisha also allows you to invest smaller amounts of money starting from one dollar, so you can achieve higher diversification. On the other hand, Zidisha is smaller: It has lower amounts of yearly lent money. And it also provides funds in only five countries (Indonesia, Ghana, Nigeria, Kenya, and Zambia), where Kiva does operate in a much larger area.

Lending your money and investing in people

Microfinance theory states that lack of financing opportunities can be remedied with small amounts of money if they are deployed to entrepreneurs, who could multiply them. In other words, you lend someone an impoverished a small sum of money that could be life-changing for them and Zidisha gives you an opportunity to do exactly that.

Microcredit itself is a concept developed in Bangladesh by Muhammed Yunus (he received Nobel Peace Price for it) when in the 1970s he started lending money to poor villagers to support their entrepreneurial projects. His own personal involvement was supplemented by governmental organizations and then his own Grameen Bank. The goal of microcredit is to alleviate poverty, which in itself is just a lack of (access to) money, provide opportunities and improve lives. Grameen Bank claims they’ve helped about 50 million people from acute poverty: Their families have a roof over their head, children in school, and meals three times a day.

Using Zidisha

After registering, you can browse projects you would like to support. Using a selection of country of origin, category, and perhaps the state of funding, expiration date, and others you can choose projects you deem most important for you to support.

You can also just add money to your account with a credit/debit card or PayPal, perhaps select the option of a monthly recurring payment, and use the auto-invest option. In the auto-invest realm, you can choose between lending to all categories or choosing just a few (or all but one, it’s up to you). There is also an option to prioritize those with the best lender reviews, those who update often about their progress (which serves as an incentive to post those updates, when you borrow) and those, whose loan application is about to expire. Or you can prioritize everyone equally. To be fair, I have not found any description of the algorithm to verify how exactly does the prioritization work

Other ways to help

If you find microcredit endearing but want a different platform – be it diversification or just personal preference – you might be interested in Kiva.org. Kiva is a re-lending non-profit institution, where you can effectively buy loans already made by local microfinancing institutions (MFIs). Those MFIs rely on interest as an income, which might make those loans expensive to borrowers. On the other hand, they take care of the distribution, which means they can reach also those, who have no or limited access to the internet or they experience a language barrier.

Kiva of course isn’t the only project. In India there is Rang De (among other P2P projects), unfortunately, you have to be a citizen or resident of India to participate. I’m anxiously looking for other options but for now, I divide my semi-charity money between Kiva and Zidisha.

P.S. microcredit is definitely not the only way to help in developing areas. Send money to charities, if you can, take a sabbatical and volunteer… do whatever feels right to you.

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