Peer Pressure: What Microloans And Your Next Group Purchase Might Have In Common

James Beshara picked up the idea for Crowdtilt as a microloans collection officer in South Africa.

Crowdtilt is a platform anyone can use to raise money for anything.

Sound familiar? Kickstarter shares the same crowdfunding focus. But what sets Crowdtilt apart from its better-known competitor is something that one of its cofounders, James Beshara, picked up as a microloans collection officer in South Africa: peer pressure.

Instead of advertising a fundraising objective to the world, Crowdtilt encourages users to share them within their social networks. The objectives can be more diverse than Kickstarter would allow: renting a vacation house with a group of friends, buying a birthday present for a coworker or collecting money for a self-financed production. Crowdtilt makes public who chips in and, implicitly, who doesn’t. Want to avoid being known as that guy who went on vacation with the group but never paid for the hotel? Pay up.

Microfinance is built on the same type of social collateral. Here, Beshara explains how leveraging social pressure door-to-door helped him build Crowdtilt, which powered $1 million in transactions within its first six weeks of business and was recently named Reddit’s official fundraising platform.

FAST COMPANY: What was working as a microloans collection officer in South Africa like?

JAMES BESHARA: I didn’t have any guidebook or guidelines. My orientation for being a loans collector was literally, they told me, “you’re big, you’re pale, you’ll be somewhat intimidating ... so you’ll make a good loans collector.”

To give some color to what that means, it’s where you go regularly house-to-house or shanty-to-shanty in the townships right outside of Cape Town, and you are telling delinquent borrowers that they owe “X” amount back to the organization. I went to South Africa for “on the ground” experience, and that’s about as on the ground as it can get.

What did you learn there that factored into Crowdtilt?

Instead of putting up collateral, [in microfinance] you put up your social collateral. You put up your reputation among your family and friends. That guarantees higher repayment rates. I was fascinated by social reputational collateral surrounding groups and money. That’s where the fascination started.

How is social collateral built into Crowdtilt?

The whole model hinges on that you and your friends can see who has, and implicitly, who hasn’t paid. It creates some pure motivation to pay up quickly, and that has been pretty remarkable to see.

Kickstarter you hope that as many people as possible sees your project, and their success rate is about 40%. Our success rate is 91%. I think the biggest reason for that is that with Crowdtilt, you generally know the network that you’re funding your objective with. And since everyone knows each other, there is an amount of peer pressure to pay your amount and make something happen.

I understand the idea of social pressure helping you get a trip to Tahoe paid for, but what made you feel that was what made microfinancing successful?

My academic background has been economic development with a focus on microfinance and microinsurance. And that element of reputational collateral has been widely studied.

Have you seen it, though?

As a loans collector, in all my bag of artillery, that was my biggest motivation in getting them to pay their loans back. I would say, “the rest of your group has paid their part of the loans,” and I would list off the names: “Tibe, Simon, they’ve all paid back their part of the loan.” [If one person in a group that takes out a microloan does not pay his or her portion, the whole group is banned from taking out further loans.]

The groups are completely voluntary, so it’s similar to a Crowdtilt campaign and the social dynamic that it’s not random strangers that are lumped together as a group. That group comes as a unit to the bank for a loan. They organize themselves and the bank just provides the financial side of it.

With Crowdtilt, you already know the group. You bring the group to crowdtilt, and our site just facilitates financial aggregation.

I’ve heard that when you started Crowdtilt, you intended it to be a platform for charities to raise money. What happened to that?

Studying economic development, I knew the non-profit world really well. But the realization was that in the most consequential and impactful events in the last few years, socially, have taken place on Twitter and Facebook. In the Arab spring, people didn’t use social networks built for social change. They didn’t use social networks built around revolutions or social activism. They used the too their friends were already comfortable using.

If you can build a platform that they’re used to using with their network and their group for trivial things, then you can basically onboard people, get them used to this system on a bigger scale and they'll know it exists for them to use it for socially conscious objectives as well.

We’ve already started to see it actually. Our biggest use case in terms of number of campaigns are the fun thins like a party buses, like birthdays, tailgates, fantasy football, but he largest campaigns to date have been things like raising $100,000 in five days for a private school in Florida that was going to lose their charter.

So do you feel as good about helping people raise money for the party bus as you do helping people raising money for the school?

Well, I can say that we as a company, we believe the heights of our existence are the things we do as groups. So I would say in that respect, yea, it actually is as important for us to be able to go out and have the best birthday of all time because your friends all pitch in for a party bus for your birthday. I do think actually that it’s just as important.

I know most of the world might not think that’s as important, but we kind of see all of our campaigns as collective demand for something to happen. It’s hard to say which is more important than another.

You also own a fly-fishing store?

I own a fly-fishing company with one of my best friends from high-school. We started it in college.

Every product we sell provides fresh, clean drinking water to someone in the developing world for a full year. There’s a social bent to everything I’ve done so far. The one that’s been most successful to date, Crowdtilt, doesn’t have an explicit social bent to it. It’s kind of ironic.

[Image: Flickr user Bolandrotor]

Add New Comment

0 Comments