New members can now choose their own deposit and starting credit limit

Discussion in 'Announcements' started by Julia Kurnia, Dec 2, 2015.

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  1. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    We have begun piloting a new feature which allows first-time borrowers to choose the amount they will deposit into the Members Loan Fund, within a given range. The amount each borrower chooses to deposit will determine his or her starting credit limit.

    Since March this year, each borrower has been asked to make a one-time deposit into the Members Loan Fund in lieu of paying interest to lenders. The borrower may withdraw the Members Loan Fund deposit in full at any time he or she does not hold an outstanding loan with Zidisha. In the event of default, the Members Loan Fund is used to reimburse lenders.

    The Members Loan Fund made it possible to offer larger starting credit limits to new borrowers, because it allowed us to maintain credit risk protection for lenders by increasing the deposit amount in line with the starting credit limit. This had the advantage of allowing borrowers to progress to substantial loan amounts more quickly, enabling larger, more transformative investments in their education and businesses. At the same time, though, many of our members were concerned that the larger deposit requirements that came with the larger starting credit limits would make it hard for members with more limited payment capacity to join Zidisha.

    The flexible deposit pilot aims to keep the option to access larger starting loans in return for larger deposits, while also offering the option to pay a smaller deposit in return for a smaller starting credit limit. (Choosing a smaller deposit affects only the starting credit limit. It does not limit the ability to eventually progress to larger loan amounts, following the standard credit limit progression criteria. The only difference is that those who make small deposits will need to take more time establishing a track record with small loans before accessing larger amounts.) We hope that this will help ensure that cost does not prevent anyone from joining our community.

    For now, new borrowers who have an invite from a current borrower in good standing may choose a starting credit limit between $100 and $200. New borrowers who do not have an invite may choose a starting credit limit between $50 and $150. In countries with a substantial deposit requirement, the deposit amount needed for a given credit limit varies at the same rate as the credit limit, based on our experience of the amount needed to maintain credit risk protection for lenders at a given starting loan size.

    It is likely that the starting credit limit and deposit options will be adjusted from time to time. For lenders, the current deposit amounts for each country are published here: https://www.zidisha.org/faq#faq-7. In addition, the deposit amount that has been or will be asked from each borrower is published under "Cost details" in each loan profile page.

    For borrowers, we've taken great care to ensure that every user of our website fully understands the Members Loan Fund deposit policy before deciding to take out a loan. In borrower countries, our homepage displays clear and comprehensive information on the credit limit progression and deposit requirements for that country in local currency. Each new borrower, before beginning to fill out an application to join Zidisha, is presented with the same information, asked to choose a starting credit limit and deposit amount. As before, each borrower is then required to type out a confirmation that they understand and agree to the deduction of the deposit amount from the loan size they have chosen, the net amount they will receive, and the net amount to be repaid with the first loan. The same information is presented, with requirement to type agreement, at the time of loan application posting, and again at the time the loan is fully funded and the borrower confirms acceptance of the loan disbursement.

    This change only affects new members; the deposit requirements and credit limits for members who have already received loans remain unchanged. Anyone who has not yet received their first loan may use the loan application form to adjust their desired starting deposit amount and credit limit.
     
    Last edited: Dec 2, 2015
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