Zidisha Incorporated

FormationOctober 2009;
Founded atSterling, Virginia, United States
Type501(c)(3) Nonprofit
Tax ID no.80-0494876
FieldsEconomic development
  • Zidisha allows people to lend small amounts of money directly to entrepreneurs in developing countries.
  • It is a peer-to-peer microlending service that link borrowers and lenders across international borders without a local microfinance institution intermediary.
  • The Zidisha website facilitates microlending transactions between individual web users worldwide and computer-literate, low-income entrepreneurs in developing countries.
  • Users can fund loans, which borrowers use to develop businesses that improve their families' incomes.
  • Borrowers can share business updates and communicate with lenders as they repay loans.
  • Zidisha's lending process works as follows:
    1. Borrowing
      1. A first-time loan applicant creates a profile that describes his or her business and personal details.
      2. The applicant's details are independently checked by Zidisha or a Zidisha partner, such as a local credit bureau.
      3. If the loan is approved and successfully funded, first-time borrowers are charged roughly $12 to cover this cost of processing their application.
      4. Upon joining Zidisha, borrowers also make a deposit into a reserve fund that is used to compensate lenders in the event of default.
      5. These costs are only paid once and entitle the borrower to raise an unlimited number of consecutive loans through Zidisha.
      6. Approved applicants post a loan request that describes their life story, the proposed investment, desired loan amount and repayment period.
      7. Zidisha's lender participants then have the opportunity to finance all or a portion of the loan at zero interest.
      8. If enough lenders commit to lending the designated loan amount before the loan expires, the loan is funded and disbursed to the borrower;
      9. otherwise, it's expired, lenders are refunded and the borrower may try again with a new application.
      10. For successfully funded loans, 100% of lenders' accepted bids are disbursed to the borrower.
      11. Loan values are fixed in local currency, using the exchange rate effective at the time the loan is disbursed.
      12. Because loan values are fixed in local currency, lenders bear the risk of any currency exchange rate fluctuations.
    2. Repayments
      1. The borrower is obligated to repay principal and interest according to the schedule proposed in the loan application (usually in weekly installments).
      2. Each time the borrower makes a repayment installment, lenders' shares of principal repayment are credited to their accounts on the Zidisha website.
      3. Zidisha borrowers are allowed to adjust their weekly installment amount upward or downward an unlimited number of times, as long as a single payment has been made since the last adjustment.
      4. Throughout the loan application and repayment period, lenders may post comments and questions, and borrowers may supply additional information and business updates through a weblog on their profile pages.
      5. Loans are covered by a reserve fund. If one of these loans falls behind on payments by 10 days or more, lenders may opt to receive a full reimbursement of the amount they lent from the reserve fund.
      6. Lenders may post feedback on all lending transactions with which they are involved, thus creating a performance record that allows borrowers to request progressively larger loans with each successful repayment.
  • To maintain a low interest rate, Zidisha operations are mostly supported by volunteer teams.
    • The tasks vary from email correspondence to borrowers and lenders, to disbursing loans, to translation and reviewing member user profiles.
  • Interest Rates
    • After 2015.2, borrowers no longer pay interest.
      • Instead, they make a one-time deposit into a reserve fund upon joining Zidisha, and thereafter pay a service fee of 5% of each loan raised.
      • The reserve fund is used to compensate lenders in the event a loan is not repaid on time.
      • The service fee goes to Zidisha to cover money transfer costs.
    • The inflation rate in developing nations varies widely.
      • Zidisha does not provide protection from losses due to currency risk, but also does not restrict lenders' ability to profit from currency fluctuations.
  • Regulatory Status
    • Typically, peer-to-peer microlenders offering interest on loans to US lenders are regulated by the Securities and Exchange Commission.
    • In 2008, the SEC required that peer-to-peer lending companies offering interest on loans to register their offerings as securities, pursuant to the Securities Act of 1933.
    • Zidisha has not registered with the SEC, and has publicly stated that they are not a securities broker.
    • The website states in its terms of use that unlike a securities broker, Zidisha is under no obligation to return lender funds and honor withdrawal requests:
      • “Zidisha makes no guarantee or representation that funds lent through its website will be repaid to lenders, regardless of whether the loans financed with lender funds are repaid to Zidisha. Any cash payouts are promotional gifts offered solely at Zidisha's discretion.”
    • The tax treatment of these promotional gifts is unclear.
      • Gifts are taxed in the United States, which would mean that for US lenders, the original loan principal, if withdrawn, would be subject to taxation.
      • Zidisha states in its terms that, “It is the responsibility of website users to report and pay any applicable taxes on any cash payouts received from Zidisha.

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