Changes to endorsement requirement and loan size progression

Discussion in 'Announcements' started by Julia Kurnia, Nov 24, 2013.

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  1. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    Dear all,

    In response to feedback from our members, and our recent loan performance metrics, we have made some important changes to our lending criteria:
    • New applicants will no longer be required to secure endorsements in order to join Zidisha. Instead, endorsements will be optional for all applicants.
    • All endorsements that are submitted after today's date will be published on the applicant's loan profile page. All things being equal, applicants who have more high-quality endorsements are likely to be better credit risks than applicants with few or none. Lenders may decide whether and at what interest rates to fund applicants with few or no endorsements, based on their own risk preferences.
    • In order to improve credit risk, the maximum loan size progression will now start at $50 for first-time borrowers, and increase to $150 and then $450 upon each successful repayment. (The previous progression was $100, $200 and $400.) Thereafter, the maximum loan size will increase by 150% as previously.
    We will monitor performance closely under these new criteria, and would welcome your questions and comments in the meantime.

    Best,

    Julia
     
    russell and Paige Klunk like this.
  2. Paul Gitau Kamande

    Paul Gitau Kamande Gold Member Volunteer Mentor

    Hi Julia,
    I highly welcome the new changes. I know its meant for the best and growth of \Zidisha.
    Mine is just a query, the first loan is subject to deduction of Ksh. 1000 membership fee. $50 is roughly Ksh. 4200, so that means the loan will only be ksh. 32oo which will be disbursed to the new member. Isn't that a relatively low loan amount? Or why opt to go reduce the loan size for starters?
    Will the new criteria affect loan progression for older members on their subsequent loan sizes?
     
  3. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    Thanks for your quick response.

    Yes, the first loan size especially after the registration fee is very small. For people who do not repay the initial loan on time and graduate to larger amounts, it is not a very attractive deal. That is intentional, as we only want people who know they will be able to participate responsibly over the long term to join Zidisha.

    At the same time, the smaller initial loan size reduces the risk of lending to applicants who do not yet have a repayment history from which to judge credit-worthiness.

    The new criteria will not reduce the credit limits for members who have already received loans below what they would have been under the old criteria.
     
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  4. AHTS

    AHTS Forum Member


    Can someone help me please? I am struggling to imagine what sort of worthwhile business might obtain any significant benefit from a $50 loan?
     
  5. Tricia

    Tricia Tricia

    I think this idea is great and could boost lender confidence as well.
     
    russell and Paige Klunk like this.
  6. Paul Gitau Kamande

    Paul Gitau Kamande Gold Member Volunteer Mentor

    This is where patience comes in especially on new applicants, but I'll emphasize to them to look at the bigger picture- Growing with Zidisha.
     
    russell likes this.
  7. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    The intent is to strike an optimal balance between minimizing risk to lenders and maximizing the impact of the loans. We aim to see how the new criteria work out in practice, and continue to adjust our credit policies in response to performance.
     
    russell likes this.
  8. russell

    russell Forum Member

    Reliable borrowers can still work their way up to accessing 20 000 dollars with no credit history or collateral.That is still a great opportunity for an african with no money who is not well connected or educated.I only want to help the reliable borrowers.
     
  9. Paul Gitau Kamande

    Paul Gitau Kamande Gold Member Volunteer Mentor

    I also tend to think VM's assistance will also come in handy. ......but atleast now the margin of fraud or even money loss for lenders will reduce significantly as only serious people will be interested.
    Now Zidisha will not be for the faint hearted but those who are reliable, serious and definitely those that look to the future and not just immediate satisfaction.
     
    Levi and russell like this.
  10. Tricia

    Tricia Tricia

    I agree. It can help to reduce fraud which is what lenders have been asking for.
     
  11. AHTS

    AHTS Forum Member

    If I can fight my way through some of the smoke and mirrors, there seems to have been a long-held confusion between individual risk/loss and collective risk/loss.

    For example:
    If I invest $15 in a $500 loan, and the borrower defaults, then I lose $15
    If I invest $15 in a $100 loan, and the borrower defaults, then I still lose $15.
    And if I invest $15 in a $50 dollar loan, and the borrower defaults, I STILL lose $15.

    So my individual risk/loss isn't reduced at all by the lowering of the overall loan size, although the collective risk/loss is significantly less.

    Clearly, the only way that an individual lender can reduce his/her risk/loss is to reduce the size of the amount they lend. But that is the same with any sort of investment.

    And TAW, much the same logic applies to fraud. Unless you hold the view that any potential fraudster won't bother with a $50 loan, there is absolutely no reason to suppose that the number of frauds will be reduced. As above, the only likely difference is that the collective loss to Zidisha lenders will be less. That may help Julia's stats, but is unlikely to be much consolation to an individual lender who has lost his/her money!
     
    mewesten and Texas like this.
  12. Jean Wendpanga

    Jean Wendpanga Gold Member Volunteer Mentor

    Hi,
    I noticed yesterday that the new changes increase the current limit for new applicants credit also affect the former candidates. Personally my current credit limit decreased from 350 usd for my next loan. Thanks
     
  13. Jean Wendpanga

    Jean Wendpanga Gold Member Volunteer Mentor

    I concur with AHTS
     
  14. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    Dear Mr. Wendpanga, I'm sorry for the trouble. Your "Current Credit Limit" page should now be displaying the same loan size progression as before. Does it look correct?
     
  15. Jean Wendpanga

    Jean Wendpanga Gold Member Volunteer Mentor

    Hi Julia,
    My current credit limit is now correct as before. Thank you very much.
     
  16. Kasamba

    Kasamba Forum Member Volunteer Mentor

    Dear Madam Julia,

    Thank you for what you are doing for us. Mine , is to do with VM, i believe , once in a while , they should be a forum , where we meet and exchange notes. Zidisha is a great idea, and it needs committed and well informed VM , to do a good job. Zidisha must succeed at all cost.

    regards
    Martin
     
  17. KirstenShute

    KirstenShute Gold Member

    I like the plan to make endorsements viewable, but I'm not sure how useful a loan of $50 - or, with the registration fee, about $38 - will be for a new borrower. Is the loan progression timeline still in place? That is, will a borrower be able to obtain the next loan amount 3 months after the first one is disbursed (provided of course it's paid back)?
     
  18. Sverre

    Sverre Forum Member

    Could it be possible to in some way to let borrowers With 100% repayment track that know the New borrower , endorse New borrowers? So that the endorser is vissible on the loan page? Not a a requrment, but as a tool for making lower interest possible.
     
    KirstenShute likes this.
  19. Jean Wendpanga

    Jean Wendpanga Gold Member Volunteer Mentor

    Hi Julia,
    Another modification of my current credit limit decreases from 250 usd. I don't know if there's other people who have this same problem. Thank you to review
     
  20. KirstenShute

    KirstenShute Gold Member

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