About Zomia & Our Lending Model
Zomia SPC is a social purpose corporation launched in 2014 to increase access to higher education among students in marginalized communities. We do so principally by facilitating affordable student loans, engaging a community in a peer-to-peer lending process that connects students in need with individual lenders.
Registered in Washington State, Zomia SPC is a for-profit corporation with a social mission. Legally, Zomia cannot profit from its education loans.
In 2012, Washington State (USA) passed legislation that enabled the creation of companies that fulfilled a social purpose. Combining elements of for-profit and charitable organizations, social purpose corporations are similar but not identical to the more common “benefit corporations” found in many other U.S. states.
Peer-to-peer lending (often abbreviated “P2P”) occurs when one or more individuals lend money to another without the involvement of a traditional financial institution such as a bank. Zomia employs a peer-to-peer lending model tailored for higher education, in which individuals can contribute a small loan towards financing a student’s education. Learn about P2P lending on Wikipedia.
Visitors to zomia.org register as lenders and fund student loans using a credit card or PayPal account. Over the course of a student’s education, lenders and borrowers can interact virtually through updates and messages to each other. After graduation, a borrower’s financial situation is assessed; if appropriate, Zomia begins collecting income-based repayments, which are then distributed to lenders proportionally via their lending accounts. Lenders can then withdraw their funds or re-use them to support other students.
It depends, although often it does not. In some cases, Zomia transfers money to a student before lender support is secured online. In effect, Zomia owns such loans until an external lender funds a portion of the loan, at which point a proportional share of the loan and future repayments is transferred to the lender. Lenders who provide funds in this scenario reimburse Zomia for pre-funding the loans in a process we call “backfilling.”
In other cases, if a loan has not been fully disbursed, Zomia must secure additional lender contributions to meet a student’s total funding need. Loan funding secured on the website is effectively passed along to the student when the next advance is made. (Loans are typically disbursed twice per academic year.)
Funds provided by lenders to support student loans cannot be used to cover Zomia’s operational costs.
Technically, no. Zomia does not charge traditional interest on its loans. Instead, repayments are made as a percentage of a graduate’s income over a finite period of time. Students may repay more than they borrow, however, since repayments are collected until the contract term ends or a repayment “cap” is reached.
Repayments are capped to ensure that no student is unfairly gouged; excess payments never exceed the equivalent of 3.5% annual interest. Neither Zomia nor its lenders earn financial returns. Any excess funds generated via repayment of an individual loan enter Zomia’s Peer Support Fund, which is used to fund or offset losses incurred via other student loans.
We could, but we don’t. In the event that financial gains on our loans exceed losses (something unlikely given the various incentives we provide), any gains are used to fund additional student loans. We’ve incorporated what we refer to as a “concrete wall” separating our income-generating and lending activities. We seek to generate revenue in other ways, but we exist first and foremost to serve our students. Our salaries and operational costs will never be funded by loan repayment.
Zomia is not a charity because we seek to avoid donor dependency and achieve greater operational flexibility and efficiency. We have some charity experience, and while we believe that charities serve many necessary and important functions in society, they do have weaknesses. We wish to avoid being wholly dependent upon the financial goodwill of others to sustain our organization. Some charities spend more time keeping donors happy (and contributing funds) than they do serving those they set out to assist! Others pay too little attention to efficiency and results.
We believe the future requires a modified corporate model, an entity that coexists with traditional charities and for-profit firms but combines elements of each. Fulfilling a vital social mission and generating profits need not be mutually exclusive, so we registered as a social purpose corporation rather than a charity.
Our goals when we set out included making loans affordable and helping as many students as possible realize their educational dreams. We sought to ease the burden that traditional loans place on students. By accepting repayment as a percentage of income and imposing a minimum income threshold before repayment is expected, the burden of loan repayment is decreased. You repay gradually, as your income allows. What’s more, given our finite contract periods, you’re not on the hook for the rest of your life.
Yet in implementing this model, we’re almost certain to incur losses on a subset of our loans. That’s the cost of easing the financial burden for our students. Those students who cannot repay in full effectively don’t have to. If our model involved traditional loans with 0% interest, the anticipated losses would make it difficult to sustain. We still anticipate being forced to cover some losses, but we can come closer to sustainability if students who do well financially after graduation pay what amounts to very modest interest. In effect, we’re asking those who do well financially to chip in for the good of the Zomia community and their fellow loan recipients.
While we do not make money on the loans provided to our students, we participate in other business activities to generate revenue. In the initial phase of Zomia’s development, we have focused on providing services to our students and refining our lending model; to date, most of our operations have been funded via capital injections separate from the funding of student loans. Over time, revenue-generating activities will be given higher priority as we work to become self-sufficient in covering our operational expenses.
For its first two years of operations, a small group of team members, family, and friends provided Zomia’s startup and loan capital. Over time, we will seek additional investments and revenue-generating services to cover operational expenses.
As a potential starting point, Southeast Asia made sense for our team because of both significant need and longstanding interest and involvement in the region. Cumulatively, our founding team represents more than two decades of efforts in advocacy, education, and business in the region.
Zomia was formed in an attempt to address the unusual disparity of opportunity that exists in Southeast Asia. The 10-country ASEAN region includes some of the wealthiest and poorest countries in the world, and educational opportunities vary widely from one community to another. While high-quality universities exist in the region, the lack of traditional financing available to students from marginalized communities makes them prohibitively expensive.
We aspire to reach students in other communities and bring our model to scale, but only after it is tested and refined. In our first few years, we will offer services to students in Myanmar, Cambodia, Laos, Thailand, and the Philippines.