Why we do what we do...

A really good friend of mine posted an article on my facebook wall a few days ago detailing the problems with traditional microfinance. The article contended that microfinance was not able to yield the results for which it was aimed: elimination of poverty.

Here is the article if you are interested: http://www.theguardian.com/global-development-professionals-network/2015/jun/10/the-microfinance-delusion-who-really-wins?CMP=share_btn_fb

It is no lie that borrowers have not benefited under traditional microfinance platforms. When microfinance loans are being served to the poorest of the poor at 20-25% interest rate, there is something wrong with the picture. However, even though it may seem the lenders are those who are benefiting from exorbonent interest rates, it is not always the case. Under the traditional microfinance platform, a lot of money is spent on the traditional team of loan officers. The loan officers are those who check to see if the clients are loan-worthy as well as follow up with clients who are having problems paying their loans. All-in-all its these expenditures which cause the interest rates of the poorest of the poor to be very high. How can this system expect to be a poverty alleviator?

Now it is time that we shake up the traditional model of microfinance. I have spent the last two years in support of Zidisha's peer-to-peer mission. Zidisha is the first microfinance organization to be purely online, without expensive offices and loan officers. The team is a group of dedicated individuals (like myself!) who are a mixture of volunteers and interns. The only costs encountered by the platform are the costs for web design, the salary of the four paid staff members (the director and the web designers), and the costs of communication (text messaging and the occasional phone calls). Zidisha removes the cost of the middle man to benefit their borrowers. Recently Zidisha has slashed their interest rates to just 5% in effect to eliminate the potential of profit making for lenders.
This is in effect why we do what we do at Zidisha and why I am here in Dakar for my second summer with the non-profit. Zidisha is slowly gaining recognition for its new approach to microfinance but there is still much work to be done on the ground.

I will keep you posted with updates via this blog.