About Zomia & Our Lending Model
Zomia SPC is a social purpose corporation launched in 2014 to increase access to higher education among students from marginalized communities. We do so by providing students from marginalized communities affordable education loans that are funded by philanthropic individuals and institutions from around the world.
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.
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.
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.
Due to the short time between students applying for funding and starting school, we provide funding upfront. We then recover that capital through crowdfunding on the Zomia website. We call this process of funding loans upfront “pre-funding” and the process of lenders replacing pre-funding as “backfilling.”
Pre-funding loans prevents a situation in which students are accepted to a university but haven’t been able to attract enough funds on our website in time to begin classes. Very often, we have less than two weeks between contract signing and tuition deadlines! Our pre-funders include individuals and institutions that have agreed to support students before they are listed on our website.
When you backfill a loan, your funding replaces the pre-funding, and your support is directly linked to the student you fund. You then receive updates on the student’s progress while in school and, once they enter repayment, a percentage of each repayment.
Supporting students is done with a credit card or PayPal account. To get started, either create an account or find a student to support via our Student Roster. If you choose this latter option then you’ll create your account at checkout. Creating an account is necessary to receive repayments and updates from students.
We are striving to build a sustainable and scalable finance model for higher education. Providing loans instead of scholarships allow us to cover our costs and reach more students over time. Because we exclusively provide higher education loans, repayments from graduates ensure that a future generation of students can go to school.
Referrals from current Zomia students are the most common way we find new students. We also work with partners who serve our target student population. This includes schools, NGOs, charities, and universities serving students from marginalized communities. Additionally, students can apply directly on the Zomia website if they meet our eligibility requirements. See here for a full breakdown of our student demographics.
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.
We charge a flat 5% each year on the total amount a student borrows for as many as 12 years. If a student is unable to repay the loan within 12 years of graduation, no additional interest is charged. The interest does not compound and does not accrue until after the student finishes or withdraws from school.
Although our contracts run 10 to 20 years, most students will fully repay their loans in under 10 years. The average student makes full repayment within 7 or 8 years after graduation.
All of our contracts call for payments between 14% and 16% of a student’s income after graduation (or after withdrawing from a program). If a graduate earns less than our Minimum Income Threshold, then we automatically grant the graduate a deferment based on insufficient earnings.
Our funding partners and individuals lending on the site provide the bulk of our student loan funding. At scale, we expect to be able to sustain ourselves through interest payments on loans, tips given on the website, and the occasional donation.
Cumulatively, our founding team represents more than two decades of advocacy, education, and business efforts in Myanmar, so it was a natural place to start. It’s a place we know well, feel comfortable working, and have networks that feel comfortable communicating their needs.
Although we seek scale, we also want to make sure we get our model right. Until then, we will continue to experiment with lending in other countries, but will remain committed to Myanmar for the foreseeable future.