I'm back after some tiring days at Dominos. After some digging, I found this at
Kiva:
Why are your Field Partners' interest rates so high?
We often get questions about the interest and fees charged by our Field Partners, as the rates on Kiva's website often seem higher to lenders than what they're accustomed to seeing. The average interest rate and fees charged is noted using the “Average Cost to Borrower” field, and this helps cover the high operational costs of facilitating microloans and providing services to borrowers. At Kiva we believe that sustainability is critical to reaching more families and communities around the world, and charging interest to borrowers enables our Field Partners to cover their costs of providing a service, while working to achieve self-sustainability.
Because our Field Partners don’t have to pay interest to Kiva for funds provided by Kiva lenders, Kiva loans provide Field Partners with the flexibility to reach more communities and more rural or underserved populations. Most Kiva Field Partners do charge borrowers interest in some form, however Kiva will not partner with an organization that charges unreasonable interest rates, and we require Field Partners to fully disclose their rates. In addition, Kiva partners only with organizations and microfinance institutions that have a social mission to serve the poor, unbanked and underserved.
A couple of things to consider when thinking about interest rates:
1. As many of our partners serve communities in rural areas, the labor of distributing and collecting loan payments can add to the organization’s operational costs.
2. Comparisons of interest rates charged by commercial banks in underdeveloped countries and interest rates charged in developed countries can be misleading. A developed banking system can provide funds at lower rates, and when a bank facilitates larger loans, a lower proportion of costs are needed to cover transactional expenses. Microfinance is an expensive business, which is essentially the reason small loans are not provided by large banks.
3. Developing countries also typically have high inflation rates which need to be factored into the interest rates charged. For example, an interest rate of 20% per year in a country where inflation was 22% per year would not cover costs. The interest rate charged by the institution would need to be greater than 22% in order to simply cover the cost of inflation, let alone other operational costs.
In addition to the average cost to borrower, we list our Field Partners' return on assets (ROA) on their partner pages (kiva.org/partners) so that lenders can see how much money the Field Partner is making based on the loans they’re disbursing. ROA is a measure of profitability, and currently, our partner average a negative ROA.
For additional information about interest rates in the microfinance industry, check out: mftransparency.org/
I also found information on the interest rates charged by field partners at
Wikipedia:
Some people, including microfinance pioneer Muhammad Yunus, argue that the interest rates of many microcredit institutions are unreasonably high. In his latest book he argues that microfinance institutions that charge more than 15% above their long-term operating costs should face penalties.[47]
According to its web site, Kiva quotes interest rates as the "self reported average rate charged by the Field Partner to the entrepreneur."[48] As of January 7, 2010, 35.21% is the Average Interest Rate and Fees Borrowers Pay (Portfolio Yield) to All Kiva Field Partners.
For example, in 2009 micro-loans from Kiva partners in Guatemala averaged 23.16% for the equivalent of US$430 lent on average, comparable to the commercial BanRural rate of 24.5% for a loan of US$635.[49] (For reference, the inflation rate for Guatemala typically varies between 5 and 10% and was just 0.62% in 2009).[50]
Kiva does not publish the interest rates charged for the individual loans funded through its website. However, it does publish the average "Portfolio Yield" of each of its field partners, as a way for prospective lenders to estimate the cost to the borrower of the loans they consider funding. The "Portfolio Yield" measures the average income earned from the field partner's outstanding loan portfolio.[51] Some observers have pointed out that the "Portfolio Yield" measure is unreliable, and does not directly reflect the actual price that borrowers are paying for the loans.[52]
Kiva defends the interest rates of its field partners, however, saying its field partners provide much better rates than local alternatives, but must charge what they do because "the costs of making a micro-loan in the developing world are higher versus larger loans in the West."[48] Kiva itself does not keep any of the interest collected, but operates instead exclusively on donations.[53]
The high interest rates inherent in the Kiva model has inspired several other online microlending services, which aim to reduce the cost to borrowers. One example, United Prosperity, uses lender funds as security to leverage matching loan amounts from local banks, at lower interest rates than would otherwise be available to the borrowers.[54] United Prosperity works with field partners in India and Sri Lanka.[55]
Another example, Zidisha, reduces the cost to the borrowers by eliminating local field partners completely, facilitating direct interaction between the lenders and computer-literate borrowers, a model enabled by the rapid spread of internet access among the poor of developing countries in recent years.[56] Zidisha borrowers do not pay interest. Instead, they make a deposit into a reserve fund upon joining Zidisha, and thereafter pay a flat 5% fee for each loan to cover money transfer costs. The reserve fund compensates lenders if the borrower does not repay on time. Zidisha offers loans in Burkina Faso, Ghana, Guinea, Haiti, Indonesia, Kenya, Niger, Senegal and Zambia.[57] There are no intermediaries between the borrower and the lender, and borrowers write their own profiles and share updates and photos directly with lenders.[58]
Kiva itself launched a more direct peer-to-peer microlending platform, called Kiva Zip, in 2012. Kiva Zip transfers funds directly to borrowers without outsourcing disbursements and repayment collection to field partners. Instead, Kiva Zip partners with local institutions called Trustees, who vet loan applicants, provide mentorship, and may post profiles and updates on their behalf. Currently, Kiva Zip borrowers do not pay any interest or fees. Lenders are protected from currency risk but do not earn interest. Kiva Zip is considered an experimental platform, and offers loans in the United States and in Kenya. In the future, it hopes to expand to other locations.[59] Kiva Zip's repayment rate is 89.4%.[60]
Current interest rate statistics[edit]
As of April 2012, there are a total of 188 field partners listed on the Kiva website and their status is as follows: 105 Active, 11 Paused, 30 Pilot and 42 Closed.[61] The following table shows the "Portfolio Yield"of a sampling of field partners.[61] "Portfolio Yield" figures are calculated by dividing all interest and fees paid by borrowers to the field partner by the average loan portfolio of the field partner that given year. The figure provides a more accurate insight into the costs of borrowing because it includes fees associated with borrowing.
There is a list there too of the interest rates of field partners -- which opens up if you click on "show."
I have had some other concerns when lending. For example, once I saw several loans showing up all by the same field partner and all with groups of people who wanted loans so they could buy used clothes for resale. It seemed pretty clear to me all these people didn't come up with the idea of selling used clothing on their own. Where would they get the clothing? I figured maybe the field partner was selling it or in partnership with the person who had a large stock and wanted to sell it to others for resale.
And I also asked myself how a group of people buying clothes would make a profit selling them. I could understand one person making a profit or maybe a husband and wife partnership; but how could seven or eight people make a profit? Could they turn it into a business venture that would last? I didn't think so, so I didn't make loans to them.
I am doubtful about some other loans too. It's not that I doubt the sincerity of the people or of the field partners; I just wonder about the wisdom of loans for some things. Why would someone want or need to buy seeds if he's an established farmer? If he's borrowing money to buy seeds which are the GMO kind that he can't save seeds from to replant in the coming years, am I helping him by lending him money? Some want to buy both seeds and fertilizer; and I wonder if the land they are trying to farm is fertile enough to justify trying to grow crops on.
It may sound callous, but I have ideas at times that may strike some as unkind. Some people have had loans before. Okay, that tells me the borrowers are probably honest and hardworking -- but it makes me wonder if the loans are actually helping them. If a farmer needs to borrow money every year to buy seeds and fertilizer, I have to wonder about it. Mostly I wonder about the wisdom and the integrity of the field partner. Is he making money by keeping these people coming back to him for loans? I don't know and can't judge; but I tend to avoid this kind of loan.
I am also beginning to wonder why a group of people would want to buy calves, baby goats or other young livestock to raise and make a profit. Do they know what they're doing? Have they done this in the past? If they have done it, why do they need to buy baby animals? Don't the animals they raise have offspring?
I'm wondering now about the loan I made to the woman who wanted to buy baby bees. I wondered about it then and wondering more now. If she already had bees, why did she need to buy baby ones?
It's a bit like the other loans where people want to buy baby goats or sheep, etc. And the other day I saw a bunch of loans where groups of people wanted to buy young livestock to raise -- all in the same area, all the same field partner. Who was selling them these baby animals? I'd say he was making some money! Was it the field partner or one of his relatives? I asked myself if the group of people were actually wanting to buy these animals to raise so they could eat them themselves later. That would make sense financially since it would save them money; but that's not what their aim was according to the listings.
Sometimes I can see the wisdom of the listing and don't need to depend on intuition; but sometimes I do rely on intuition. When I saw lots of listings for hygienic toilets in India, I can see how people would benefit. While it may also be true that the field partner is involved in selling something himself or one of his relatives, the people getting the toilets are getting something that will last and prove beneficial over time.
The same thing holds true for the field partners making loans so people can buy solar panels. The field partners or their relatives may be making a profit by selling them; but perhaps they are charging lower interest rates since they're making money by the sales. Maybe I should look into the interest rates charged there. But still, the people will have their solar panels after they buy them -- and the benefits will last as long as the panels do.
I was talking the other day to my sister about Kiva; and she said her husband probably wouldn't approve. They have other charities they contribute to -- some of which make me wonder about. I offered to send her a gift certificate so she could do it without annoying my brother-in-law that maybe they were wasting money. Why that bothers him, I don't know -- they give the other money away -- and they'd probably get the money from Kiva back. Oh well, he is a quirky fellow -- I love him, but he is quirky. The stories I could tell. But his heart is in the right place -- I really think so -- most of the time. He gets disturbed when people are ungrateful. I can't blame him for that, not at all. So I couldn't get my sister to get involved in Kiva, not even by giving her the gift certificate. He is a quirky guy. He and my sister once visited the Czech Republic to help Christians build a church -- that's a lot of effort if you ask me -- but he'd disapprove of my sister wasting time and money on Kiva? Go figure! They didn't get much done in the Czech Republican at that because of all the government regulations that made any kind of progress tediously slow.
But if you want to try Kiva on my dime, Brad, let me know and I'll be glad to send you a gift certificate so you can try it for free. At the moment I don't have the cash at PayPal, so it might take a week or a few days for the funds to clear.
The offer is good for other members too. Just let me know, and I'll put the money into Pay Pal and send you a gift certificate when the funds clear.
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