Increase in first-time loan amounts

Discussion in 'Announcements' started by Julia Kurnia, Aug 13, 2015.

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  1. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    This week, the maximum loan amount for first-time members increased by $25. This means a maximum loan amount of $75 for uninvited members, and a maximum loan amount of $125 for invited members. To protect lenders from credit risk, the deposit into the Members Loan Fund has also been increased in each country.

    Larger initial loans has long been one of the most frequently cited requests among borrowers. Up until recently, however, very small initial loans were necessary to control credit risk: with a maximum loan size of $50, for example, the maximum possible loss to an unproven first-time borrower would be $50.

    Starting early this year, we began asking borrowers to make a one-time deposit into the Zidisha Members Loan Fund in lieu of paying interest to lenders. The Members Loan Fund does not go to Zidisha, but rather is used to refund lenders for loans that go into arrears. Since new members must make this deposit before receiving their first loan, the maximum possible loss to a first-time borrower is reduced, because any default is covered at least in part by the Members Loan Fund deposit.

    Thus far the Members Loan Fund has proven to be sustainable, in that the total value of loans in arrears held by borrowers who made a deposit into the fund has been less than the total amount of deposits into the Members Loan Fund by borrowers whose loans have had time to go into arrears.

    The ability to increase the Members Loan Fund deposit along with initial loan sizes makes it possible to offer larger first-time loans, while keeping credit risk roughly the same. The main advantage of this is to help borrowers who have repaid initial loans on time access substantial amounts more quickly, as the larger initial loan size leads to higher credit limits for second and subsequent loans.

    That said, we will monitor repayment performance of the new loan cohorts carefully. Depending on their performance, we may go back to the old system of smaller first-time loan amounts, or we may increase the initial loan size further.
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