Zidisha Members Loan Fund

Discussion in 'Announcements' started by Julia Kurnia, May 8, 2015.

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  1. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    We have about two months' worth of performance data for the Loan Loss Reserve service, which is described here. Here is what we learned:
    • The average loan period (including borrower adjustments to repayment schedules) has not increased since interest was removed. In fact it has decreased slightly, from an average of about 28 weeks in January / February, to an average of 22 weeks in March / April.
    • It is too early to be certain of the long-term effect on repayment performance. Thus far, there has been a slight improvement.
    • The majority of lenders who receive Loan Loss Reserve payments relend the funds, rather than withdrawing them.
    • Demand from new borrowers who are being asked to pay into the fund does not seem to have decreased - if anything, it is stronger than ever.
    • We received much feedback both for and against the change. Many expressed concerns that lender funding would decrease due to the removal of interest as a financial incentive. In fact, some lenders did stop lending due to the change. However, both lending activity in aggregate, and average satisfaction levels (as measured by surveys), have increased since we removed interest. Many lenders expressed that they felt more comfortable participating in loans when other lenders were not receiving higher interest rates than they were.
    • Thus far, payments into the Loan Loss Reserve fund have been sufficient to cover predicted defaults for the newly joined borrowers who paid into the fund.
    • However, they have not been sufficient to cover predicted defaults for all the borrowers who raised loans since the Loan Loss Reserve fund launched, but did not pay into the fund because they were not new borrowers.
    • The fund balance has nevertheless been more than sufficient to reimburse every lender who has opted to receive an early repayment. Many lenders who have loans past due are opting not to receive an early repayment from the fund.
    Based on what we have learned, we have made a couple of modifications:
    • The Loan Loss Reserve Fund is renamed the Zidisha Members Fund, to reflect the fact that it is financed by Zidisha members and the funds go exclusively to Zidisha members, and to prevent confusion with the formal Loan Loss Reserve term used in financial reporting.
    • To help ensure the fund will cover loan losses by borrowers who predated it as well as the new borrowers, we will begin asking each member who has never made a contribution to the fund, including repeat borrowers, to do so upon taking their next loan. We will continue to maintain the principle that the contribution is paid only once in the lifetime of each person.
    We will also take action as needed to ensure the Zidisha Members Fund fulfills its intended purpose of restoring capital lost to late repayments to the lending pool, rather than sitting unused in a bank account. This may include adding more prominent prompts for lenders to be reimbursed by the fund, or an option to be reimbursed automatically when a loan falls into arrears.
    Last edited: May 8, 2015
    Ibrahim maganga, jeff, ani and 8 others like this.
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