How organizations grow: Zidisha Microfinance founder Julia Kurnia on expanding their reach

Zidisha Microfinance is an online platform to facilitate direct peer-to-peer microlending. Starting from an initial group of borrowers in Kenya — “zidisha” means “grow” or “increase” in Kiswahili — the platform now serves over 560 borrowers in four countries. These entrepreneurs receive loans from over 1,400 lenders around the world. Borrowers and lenders can communicate directly on the website. I find Zidisha’s work interesting because it opens a new window for developing country entrepreneurs to access finance, while also bucking much of the conventional microfinance wisdom. Last December I spoke with Zidisha founder Julia Kurnia and blogged about their model. You can can also learn more at their website.

This week I reconnected with Kurnia. I think that Zidisha’s growth and development holds interesting lessons for other small organizations, so I conducted an email interview. My questions and her responses are below.

Dave: It looks like Zidisha has about tripled in size since we spoke last December. Is that accurate? What was the cause of this growth?

Julia: Yes, that is accurate. We were at $109K in loans funded last December, and are now at about $350K. About half of this growth in lending volume has come from existing members returning to lend larger amounts following a positive initial experience, and the remainder is thanks to new members joining Zidisha.

Our growth hasn’t come from deliberate marketing or advertising. According to our most recent member survey, the majority of new lenders find Zidisha through their own research. They are interested in microfinance as a way to help individuals in the world’s most disadvantaged locations achieve a better life in a way that is more sustainable and dignified than a charitable gift. At the same time, they are turned off by the often exorbitant interest rates that are charged by traditional microfinance institutions, including on loans funded at zero interest through websites that work with local intermediaries. It is generally through research into better alternatives that new lenders find Zidisha.

Though we look similar to other microlending websites, our philosophy is much closer to that of eBay than to traditional microfinance organizations. And from the borrower’s perspective, the difference between Zidisha and traditional microfinance really is dramatic. For example, the average Kiva borrower pays about 35% in interest and fees to the local microfinance institutions that manage loans financed at zero interest by Kiva lenders. These costs are very typical of the microfinance industry as a whole. At Zidisha, borrowers propose their own interest rates and lenders can choose whether or not to accept them – it’s a market mechanism and very transparent. On average, our borrowers pay about the cost of inflation for their loans. It’s a sea change in the way microfinance has traditionally been done.

Our growth was very slow in the beginning – it took over two years for us to reach the initial $100K in loans funded. We were the world’s only direct person-to-person lending service to connect lenders and borrowers across the international wealth divide without intermediaries, and we wanted to take the time to refine our operating model before scaling up. After maintaining a repayment rate above 97% for almost three years, we are ready to begin growing more quickly, and so have focused on that goal this year.

Dave: Previously you said that the biggest constraint on growth was that you didn’t have enough lenders. Is that still the case? What’s your strategy for bringing new lenders into the system? What has been most effective or most challenging about that?

Julia: Our best growth happens when new lenders and borrowers join Zidisha roughly in proportion, so that there is plenty of loan capital available for the new borrowers, and plenty of loan applications for new lenders to choose from. Sometimes the growth of lenders outpaces that of borrowers, resulting in shortages of loan applications to fund. That said, most of the time growth in borrower demand outpaces growth in lender capital, so I would say that most of the time growth in lenders is our main constraint.

Our strategy for bringing in new lenders is to make it as easy as possible for supporters of microfinance who are interested in alternatives that offer better transparency and fairly priced loans for borrowers to find Zidisha. It is a myth that the world’s poorest people must necessarily pay interest rates of 35% or more due to the small size of their loans. Zidisha is living proof that another way is possible.

Jane Wambui at her produce stall. She and her husband used a Zidisha loan to open barber shop as a second business. More here. (Photo: Traci Yoshiyama/Zidisha.)

Dave: Have you started working with borrowers in any new countries in the past year? You’ve said that most borrowers find Zidisha through word-of-mouth. So how do you start reaching your first set of borrowers in a new country? Do you meet any skepticism?

Julia: Yes, our first Client Relationship Intern in Burkina Faso began her work this week. She will be focused on scaling up our base of borrowers in that country. And we are exploring opening pilot programs in neighboring Benin and Niger by the end of the year.

When opening a program in a new country, we try to find local entities, such as NGOs that offer computer training courses or companies that source products such as milk or vegetables from small producers, that work with individuals who are a good fit for Zidisha loans. These entities are often happy to introduce their members to Zidisha, seeing it as a service that adds additional value to all parties. Once the first five or ten loans are disbursed, growth through word of mouth takes off.

We do run into skepticism quite frequently – first by traditional microfinance practitioners, who doubt that disadvantaged individuals in developing countries are capable of benefiting from or repaying loans without constant hand-holding by local loan officers, and often as well by potential borrowers who find our lack of red tape and low interest rates too good to be true. We’ve even been told that some borrowers in Kenya, where loans are disbursed via the mobile phone payment service M-PESA, have been accused of sorcery because of their ability to raise loans of $1000 or more seemingly out of thin air.

Dave: Readers who have created new organizations might be interested to know that you recently left your day job to focus on Zidisha full-time. What drove that decision? Any advice for someone considering the same?

Julia: We bootstrapped Zidisha without any external financial resources, other than some small savings from my day job to develop the initial prototype of our website. For our first two and a half years, we had no salaried employees and I worked at a paid job during the day to support my family. Our income and operating budget last year was just about $10,000, with about half of this going toward money transfer and Skype communications costs, and the remainder used for web development.

Early this year, a generous individual provided a stipend that allowed me to leave my day job to focus full-time on developing Zidisha. We are still an entirely virtual organization. I work from a home office, and our team of about thirty volunteers and interns worldwide collaborate via an internal staff website, Skype and email. We’re lean and efficient almost to an extreme, but our tiny size and operating budget is really a source of strength, allowing us to be fully transparent and ethical, and to maximize the impact of our members’ fee and donation payments.

For others considering the same, I would encourage them to question the traditional assumption that raising a lot of money is a necessary first step to starting up a new organization or company. That used to be true, but today, thanks to technology, a useful service can be offered with very low overhead.

Dave: What’s next for Zidisha? Do you have plans to expand to new countries or try out new approaches?

Julia: Yes, we aim to expand to more of the world’s fifty least developed countries in the coming months; likely candidates in the near term include Guinea, Uganda and Haiti. We would like to develop a mobile phone-accessible version of our web platform because the residents of the world’s poorest countries will mostly access the internet through phones in the next several years.

Dave: Anything else you want to add?

Julia: While many developing countries have made dramatic advances in living standards over the past decade, others have not yet made that leap. As a result, a motivated, responsible person who happens to have been born in Niger or Haiti has almost no real opportunity to develop talents, pursue ambitions and achieve a decent life. This is the great injustice of our generation. And given the dramatic advances that have been made in communications and payment transfer technology in recent years, it is now a needless injustice. We have the tools to overcome geographic barriers. It is high time we put them to use to make geography irrelevant in places where geography is the most dramatic handicap.

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Many thanks to Julia Kurnia for discussing Zidisha’s model and growth. Learn more about Zidisha here and here.

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