Kiva vs. Zidisha: Comparing Microfinance Alternatives
I've received many inquiries regarding the differences between Kiva and Zidisha. This article is meant to serve as a comparison guide to the two online microlending alternatives. As founder of Zidisha, my intent is to outline what I see as the most important differences between Kiva and Zidisha, so that readers interested in comparing online microfinancing opportunties can make an informed choice.
The information on Kiva was taken from Kiva’s website and the Wikipedia article on Kiva, and is the most recent data I was able to find. I hope that readers who have made a microloan with Kiva or Zidisha will add their own comments and questions to this article. I would be happy to elaborate as desired on any of the points presented here.
First, the similarities:
Kiva Microfunds and Zidisha Microfinance are both 501(c)(3) nonprofit organizations based in the United States, which allow individual web users worldwide to fund microfinance loans for economically disadvantaged individuals for charitable purposes. Both organizations operate microfinance lending websites that feature stories of the individuals who receive the loans.
Here are the main differences between Kiva and Zidisha:
Interaction Between Lenders and Borrowers
Kiva does not normally allow for direct interaction between lenders and borrowers. Instead, lenders’ funds go to local microfinance institutions that have often already disbursed the loans profiled on the Kiva website. Lenders cannot dialogue with the borrowers. Instead, the local intermediary institutions post updates on the borrowers’ behalf.
Zidisha does not lend through intermediary institutions. Instead, Zidisha targets computer-literate borrowers who pass rigorous background checks in each country. The borrowers post their own loan applications and interact directly with lenders, carrying on conversations and responding to lender questions via their loan profile pages.
Financial Impact for Borrowers
Though Kiva itself does not charge interest or fees for loans, the intermediary microfinance institutions that manage the loans charge interest and fees to borrowers to cover their operating costs. As of January 2010, the average interest and fee rates paid by borrowers to the Kiva intermediary institutions was 35.21%.
Zidisha prides itself on making microfinance loans available to borrowers at substantially lower cost. Zidisha borrowers pay a service fee of 5% to Zidisha, plus interest to lenders averaging about 3%, for a total average of 8% of initial principal per year the loan is held. New borrowers who successfully fund a first loan through Zidisha also pay a one-time registration fee of about $12 to cover the cost of background checks.
Financial Impact for
Kiva does not allow lenders to earn interest on loans, or to profit from currency fluctuations. Kiva does provide some protection from losses due to currency fluctuations. Kiva also allows lenders to upload credit to their accounts at zero cost thanks to a donation of services from PayPal.
Zidisha lenders may have their available credit increased by both interest payments and profits from currency fluctuations. Lenders may choose to fund loans at any interest rate they desire, from 0% to the maximum interest rate offered by each borrower.
Zidisha does not provide any protection from losses due to currency risk. Zidisha lenders may credit their accounts at no cost only by mailing a paper check or by making a direct deposit to Zidisha’s bank account. Since Zidisha has not yet been able to benefit from a donation of payment processing services, it covers costs by applying a fee (currently 3.4%) to lender credit uploads that are made via PayPal. On average, lenders’ interest earnings must compound for several months in order to compensate for the amount paid for PayPal fees.
Risk and Repayment Rates
Kiva lenders may lose money due to borrower default, or to poor performance and fraud on the part of intermediary microfinance organizations. Zidisha lenders may lose money due to borrower default, or to depreciation of borrowers’ currencies.
Size and Reach
Kiva has over 1.2 million lenders, who have funded more than $330 million in loans in 63 countries since Kiva’s founding in 2005. Zidisha has 1,375 lenders who have founded $338,000 worth of loans in four countries since Zidisha’s founding in 2009.
Kiva’s 2010 operating budget was over $6 million. Zidisha’s operating budget was $6,201 in 2010 and $10,699 in 2011.
Kiva’s larger size allows for more frequent and varied interactions with other lenders, and a greater variety of loan applications to choose from at any given time. As a smaller organization, Zidisha is able to provide more personalized service to lenders, and to make changes rapidly in response to their suggestions.
The Bottom Line?
Kiva and Zidisha represent different approaches to philanthropic online microlending, each with its own advantages and tradeoffs. Which microfinancing opportunity is right for you will depend on how much importance you place on interaction with borrowers, financial impact on borrowers, financial impact on lenders, and size of the lending community.
Have you participated in Kiva or Zidisha? What do you think are the most important differences between the two platforms? Please post a comment here and let us know!
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