From left to right: Ben Bellows – Lusaka Tech Salon host, Irene Banda – DAI Zambia & FSD Zambia, and Daniel Coysh – Zidisha
The number one complaint most business people have when it comes to trying to acquire loans/credit is the need for collateral to present to lenders/creditors. These borrowers are usually startups that don not have any collateral at all to present as surety. They are also charged high interest rates if they do manage to get the loan. So how will this be overcome to enable people start their businesses and still pay back the loan?
This month’s Lusaka Tech Salon brought the microfinance world and interested parties into one room to discuss the way forward for better microfinance opportunities in countries like Zambia. The topic was “Will P2P Financing Succeed Where Microfinance Has Failed?”, and the lead discussants were Irene Banda (DAI Zambia- FSD Zambia) & Daniel Coysh (Zidisha) who are pictured above with Lusaka Tech Salon host Ben Bellows.
The main point raised was how entrepreneurs in Zambia could access capital for many of their needs. Some need business capital, others may need school fees, money to restock their shop inventory, so many other reasons. Most financial institutions take a while to approve loans because the processes they have require background checks of the individual/business.
The discussion focused on alternative ways to obtain cash on credit from lenders without having to present collateral, and this is where Zidisha comes in. Zidisha is an online platform that allows people to seek loans from lenders on the website. Users, both lenders and borrowers, have to create their profiles with a mini biography of themselves. Borrowers have to write a brief description of their business proposal.
Zidisha is a non-profit international lending community that offers responsible, high-achieving people the chance to raise loans directly from ordinary people all over the world. Anyone is free to sign up. However, there are a few requirements. Users need to have an active Facebook account with an extensive number of friends on it, they should have a source of income that allows them to repay the loan in agreed upon amounts, and they need to have recommendations from people in their society. There is however a need to teach more individuals basic financial literacy and understand the difference between ‘Lend’ and ‘Borrow’ as they have to choose one of these actions on the website. Read more on how Zidisha works here.
The loans do not accumulate interest for either borrowers or lenders, but there is a 5% fee charged on all loans to cover transfer costs. Therefore, Zidisha is not for people seeking to make money off the money they lend out to others. As a lender on Zidisha, you do not earn interest on the money you put in. You get back exactly what you lent. You can put in a dollar or more to finance the people who need the loans. Once the money is received by Zidisha, it is then paid out to eligible borrowers, who can withdraw the money, use it for their purpose, and pay back either in weekly or monthly instalments. If a lender’s money is given out, they have a direct connection with borrower so that they can discuss repayments or progress of the intended loan’s purpose. Find out about Zidisha’s trust and security measures in place here.
Platforms like Zidisha are targeted at the tech savvy youth entrepreneur or other person who has access to the internet, needs financing and can understand simple financial language.
The only limitation that online platforms like this face is the costly or poor internet service from internet service providers (ISPs) currently in Zambia. There is also the issue of a lack of internet literacy from both potential lenders and borrowers. An additional problem is limited access to an internet enabled device on a regular basis.
Payment gateways are also another factor that inhibits the smooth operation of such schemes. Zambia is not very big on paying with credit cards. Mobile money transfers are an option, as Zidisha has realised, making it compulsory for both lenders and borrowers to have an MTN Mobile Money account to make and recieve payments.
There are plans to create a Zidisha app that works for Android, iOS and BlackBerry operating systems.
It was a very interesting meeting with different contributions coming from the audience who all agreed there is need to scrap out the need for collateral when it comes to obtaining small loans, and just create better security and repayment measures.