Sep 2, 2021
For the past three months, Pay It Forward projects have been offered at Zidisha alongside traditional loans. Pay It Forward is a new funding concept in which the entrepreneur repays by funding other entrepreneurs instead of repaying lenders. Lenders can watch their impact grow over time as the original entrepreneur "pays it forward" to fund others, who in turn fund other new projects.
Pay It Forward was intended as a way to give entrepreneurs a more direct stake in the funding process, and a chance to give back to the community. Repayments allocated by the automated relending tool account for the majority of new project funding at Zidisha, and we wanted to try giving the entrepreneurs the chance to choose the new projects instead of an automated algorithm. We have spent the months since the program was launched listening to lender and borrower feedback, and carefully monitoring performance data.
The concept worked out better than we ever imagined. We observed early on that the majority of borrowers opted to raise Pay It Forward projects instead of traditional loans when given the choice, while new lenders were equally likely to fund both types of projects. Now we have enough data to compare the long-term repayment performance of both types of projects, and Pay It Forward is the clear winner. Not only are more Pay It Forward repaid on time, but Pay It Forward recipients are dramatically more likely to deposit an optional extra amount to fund new projects at the end of their repayment period (allowing us to grow and fund more entrepreneurs).
Starting this month, all new projects posted at Zidisha will be of the Pay It Forward type. This will make our offering easier to understand for new members, and allow us to continue to gather data on the financial performance of the new model. We will continue to monitor performance closely and may reintroduce traditional loans, or add other funding concepts, in the future.
The autolending tool will begin allocating funds to Pay It Forward projects on October 1, 2021. You may enable your account to start funding Pay It Forward projects before that date by selecting Pay It Forward under "What type of projects would you like to fund?" in your Relending Preferences page. If instead you would like to opt out of funding Pay It Forward projects, please go to your Relending Preferences page and choose the "Keep funds in my account until (date)" option to disable autolending. (As always, if you would like to undo any funding allocations made by the automated relending tool, simply send our team a message from your account Help screen.)
For over a decade, Zidisha has pioneered innovative solutions for small business financing in developing countries. We would be honored to have you on board as we continue our journey to extend ever more opportunities to deserving entrepreneurs worldwide.
Laurie, Daniel Malului, Christian Golo, Abigael Busuru, Ifunanya Lovely Nwafor, Anthony Maina and Christy Doh Happy like this.
Sep 2, 2021
Here are my issues with this major policy change;
1. I have been lending for 3 years now and tracking my loans in Excel. Based on that data, I find it hard to believe that just because a loan is PIF type, borrowers now have dramatically improved OTR. To be clear, I am not doubting Julia and her team but wonder if the data is not being interpreted correctly. Can we have more details?
2. I was about to post to forum about an observation - it is related to last part of my comment #1 above. So far, I have lent only $30 in PIF loans, $10 of it not being returned yet, even partially. But the My Impact page shows "$1504 (51)" for 'Follow-on projects for such PIF loans'. That certainly is astounding number. Wish it was possible to see the details to ensure the money is being counted correctly - it should only be in one pocket at any given time.
3. The PIF data has been collected over last 3 months, which I think is rather short to draw such firm conclusions. Additionally, is it being compared against data for last few years? Since June 27, the risk fees (which used to be at least 15% and often 20%+) have been scrapped. If data is compared over last 3 months for regular and PIF loans, does it still show the trends sited above? Once again, can we know more about the data analysis?
4. My account type currently is 'Withdrawable' type. Although I have not withdrawn any amount, the amounts I lent get repaid and I can relend those back to borrowers of my choice. Since amount lent to a PIF type loan is not returned to lenders, this change effectively converts my account to the "Impact Investment" account type. In fact, any new lender will not even see 'Withdrawable' type account.
For me as a lender, the beauty of Zidisha is that I can choose to write off loans or have them reimbursed and keep lending to more worthy buyers. Along the way, I get to find more borrowers and make new friends among them as well. If all loans are PIF, it will be more like giving a one time donation - yes, I can choose loans initially but then that's it. The money will keep getting churned but I would be out of loop.
Jan de Wit, dave2319, David Walshe, Makepeace-Boyle Family and Anthony Maina like this.
Sep 3, 2021
To clarify, the announcement didn't report a dramatic difference between repayment rates (though there was a clear, substantial difference in favor of Pay It Forward projects). The most dramatic difference was in the propensity to deposit an optional extra amount. This was much higher among Pay It Forward recipients, perhaps due to a greater willingness to fund other entrepreneurs because other entrepreneurs (not only lenders) helped to fund them. The performance improvements hold true whether Pay It Forward projects are compared with traditional loans issued during the same period (when credit risk fees were discontinued) and with loans issued in earlier periods.
Re the discrepancy in your impact page, I think most of the follow-on project value came from entrepreneurs whom you formerly funded via traditional loans, who are now funding new entrepreneurs via the Pay It Forward program. The impact page includes all Pay It Forward amounts contributed by entrepreneurs you have funded, subsequent to the date you funded them. It has been challenging to design a way to show this impact clearly, because unlike traditional loans a different amount may be paid forward than was invested by each individual lender. This is especially true for lenders who have allocated small amounts to many entrepreneurs, or lenders who have been funding projects for a long time.
And you are correct, the Pay It Forward program does not offer an account into which lenders can deposit and withdraw funds. However, lenders who previously funded repayable loans will still be able to withdraw their funds as they are repaid.
We have thought carefully about the concern, raised by you and others, that since lenders are no longer allocating repayments to new loans they may have less reason to engage with the community. We certainly do not intend for this to happen. The vast majority of lenders do choose to visit the site once or very infrequently, choose the initial projects to be funded and then let the automated lending tool reallocate repayments after that. For these lenders, having the new loan recipients chosen by fellow entrepreneurs would be a better solution than relending via an algorithm.
In the end much of the choice was about the kind of platform we wanted to be - more of a financial marketplace offering something similar to an investment portfolio, or a platform for philanthropy and maximizing social impact. It is hard to emphasize both financial metrics and philanthropic impact, as a focus on one diverts attention from the other. At Zidisha our strength has always been on human connections and the remarkable stories of our entrepreneurs, and we chose to keep the focus on that rather than offering something akin to a financial investment platform. There is nothing wrong with a financial investment platform approach, but is not as good a fit for our particular culture and expertise.
Laurie and Anthony Maina like this.
Sep 6, 2021
Thanks for the response.
The discrepancy in impact page: You are indicating major issues above about the calculation. If there is no way to show the impact of PIF loans, it should not be displayed.
Sounds like I am one of the few lenders who engages actively here. But that very reason is being discontinued as the site is being geared more towards passive lenders.
Too bad the withdrawable option will not be available anymore. Hope the numbers for improved repayments / additional contributions hold good over time. Ultimately, I hope the changes work out well for borrowers.
Sep 7, 2021
To clarify, the numbers displayed are correct and don't contain any discrepancy. The challenge is in choosing which metrics to display in order to avoid confusion. Right now, the metrics are optimal for newly joined lenders and those who have funded fewer projects but may be overwhelming for those who have been lending longer and have funded many projects.
Sep 6, 2021
Re: "...The impact page includes all Pay It Forward amounts contributed by entrepreneurs you have funded, subsequent to the date you funded them. It has been challenging to design a way to show this impact clearly, because unlike traditional loans a different amount may be paid forward than was invested by each individual lender. This is especially true for lenders who have allocated small amounts to many entrepreneurs, or lenders who have been funding projects for a long time..."
Just as you provide a way in the "Projects You've Enabled" section on the "Impact" page to filter out the actual follow-on projects that were funded by borrowers whom we funded in the past, would you be willing also to provide a way in the "Your Impact" section on the "Impact" page to filter out the "Follow-on Projects Funded By Entrepreneurs You Supported" so that that total dollar amount and total number of projects funded by borrowers whom we funded in the past wouldn't appear?
I'd rather not see that at all.
By default, I'd rather see only the "Amount Invested" and "Projects [Directly] Supported",
and then have a choice to show the "Follow-on Projects Funded By Entrepreneurs You Supported" anytime I might want to see that information (which wouldn't be often, and one of the reasons is because that information doesn't seem to be accurate and seems to be way above what is realistic, which I understand is for the reason you mentioned; however, another reason is that I don't like to be reminded that I'm "enabling" projects that I actually never would fund myself, such as mining projects, selling petroleum-based plastic products, or engaging in any form of animal exploitation, most especially animals crowded into cages, for example).
Jan de Wit and Anya like this.
One more question - is the 'Advance repayment' option gone for good with this change?
Jan de Wit likes this.
No, but currently we do not have a mechanism for replenishing the fund since loan funding structure is different (optional extra Pay It Forward payments instead of risk fees). We hope later to be able to allocate some fee revenue to the Members Loan Fund but do not know when at this point.
Also, I think the original announcement indicated that we may bring back or introduce classic loans or other funding structures at some time. We can't guarantee now what will happen in the future because it depends on performance of the current model, and on the availability of resources.
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