New and disappointed

[Guest]

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[seavr]

I know this has been hashed to death but I need to vent. I joined Kiva, made a couple of loans and was very excited about making more. And then, I discovered (my bad for not looking deep enought), that the poor person I sent my money to has to pay 54% interest. I don't think I'll be investing any more money but will recycle the little I've got out there now just to keep in touch with Kiva and see it things improve over time.
We're going to Mexico on holiday tomorrow and I went to the bank today and got some cash that I intend to give to someone when we're down there. Just handing out money is not the answer I know, but neither is taking advantage of poor people to the tune of 54% interest.

[Diane R]

Compared to the locally prevailing interest rate of 117%, Admic's 54% is a bargain.  The clients know going in what their payments will be, and they get business training and other benefits from the MFI as well.

Other Kiva Friends will go into more detail on the rationale for the interest rates we're seeing and how they enable the local MFI to stay in business, but I'll just say that there are 2 MFIs whose loans I don't "do", except in rare circumstances, and Admic is one of them, despite its 5-star status.  We all learn what our preferences and tolerances are in lending, and we choose accordingly from there on out.  Now that you realize the interest rate Admic clients pay and know that it disturbs you, you could easily avoid their loans in the future. 

I hope you'll stick with Kiva and fund loans through other MFIs or in other areas instead, if this is a show-stopper for you.  And, welcome to Kiva Friends!

--Diane.

[Dottie b]

Yes, Seavr, microloans are a lot different from what we consider typical loans in developed countries. Some things contributing to the higher interest rates are the cost of servicing the loan, which is the same as for a large loan, plus in most places the borrowers live in remote areas that are hard to access; and corollary services the MFI may provide, such as basic business training, etc. I believe all of Kiva's partners are non-profit organizations, but they are working to become self-sustaining (i.e., not depending on grants) in order to be of continuing service.

And as Diane indicated, the MFI's each charge a different rate of interest, so keep on the lookout for the lower ones!

Dottie B

[i Live 4 Kiva]

Seavr,

That was also my initial reaction when I heard about what would seem to be predatory loan practices.  After doing more research and completing the United Nations Capital Development Fund Microfinance Course I had a better understanding of why and how these conditions exist.  For most aspiring businessmen/women, MFI's are their only hope for starting a business, as the banks won't lend to them without the needed collatoral.  Local loan sharks charge many times more than 54% annual interest, some as much as 5000%.  It's the nature of the beast in some parts of the world.  We need the MFI's to become financially solvent and self sustaining, 54% interest is a necessary evil in order for that to happen in some places.


The UNCDF Course can be found here:  http://www.uncdf.org/mfdl/index.php?_mode=students.home

 

[KivanSteven]

Hi Seavr and welcome to Kiva Friends...this concern has been expressed many times over, and its a legitimate one.  I dont know if any explanation can suffice for the high interest rates that will thoroughly satisfy everyone, but in the meantime, here are a couple of links to MFIs that Kiva works with who charge a VERY low interest rate and are highly regarded.  Hopefully that will help assist your eagerness to lend in the midst of some MFIs who, for various reasons, charge a bit more.

Dominican Republic: http://www.kiva.org/about/aboutPartner?id=44
Dominican Republic: http://www.kiva.org/about/aboutPartner?id=66
Azerbaijan: http://www.kiva.org/about/aboutPartner?id=30
Mozambique: http://www.kiva.org/about/aboutPartner?id=23
Kenya: http://www.kiva.org/about/aboutPartner?id=24

[AccountAbility]

It is a shame that lending in the western world is so standardized and regulated that we assume that it is the only measure to determine value. 

If the Partner simply stated that it charged a fee to provide training  and consulting and other vital services for the success of the entrepreneur, we might feel differently.  Instead, since the loans are so small and for such a short duration, these things create high interest rates the way western lenders are required to compute interest rates (APR).

Dan

[KivanSteven]

And based on Dan's post above, which I agree with wholeheartedly, you might now ponder if the entrepreneur's you loan to are receiving the essential non-loan services that some of the other MFIs offer.  If thats a concern you can always send an email to the MFI if the services they offer are not made available on Kiva or Mix Market.  Ask them to provide some detail.  However, based on both Kiva and Mix market reports, the MFIs I quoted to you, for the most part, claim to offer a variety of services, some consulting, others business development, others savings plans, or insurance...and the list goes on.

Before coming to Kiva Friends and during my first few weeks here, I always questioned the interest rates--I didnt fully understand them, and in fact still dont enough to debate them, but Kiva probably does offer a variety of places to loan and MFIs to loan through that should satisfy most peoples preferences and concerns, and thats merely the point I am trying to emphasize for you seavr...hope all of our wide ranging input helps.

[Marijke]

Hi! I'm new here and reading your messages.

One thing is not clear to me is how I can see which interest the field workers charge.

Please help me out.

Marijke

[Claus-Peter]

One thing is not clear to me is how I can see which interest the field workers charge.

Hi Marijke,


 

this can be looked up on the MFI's-page on Kiva.

One exmple:

Go to the Kiva site of Peru > Manuela Ramos / CrediMUJER

http://www.kiva.org/about/aboutPartner?id=72

on the second last row you will find that this MFI is charging 35% on average (in comparison to an average of 120% of local money lenders)


Claus-Peter

[Natasha]

 

Welcome Marijke!

Please find enclosed the link from Kiva for all Field Partners. As you click each MFI you will be able to evaluate information such as charged interest rate versus local lenders, coverage of journal entries, ratio of female entrepreneurs etc.  The services, interest rates etc vary between MFIs, so if any of these issues impact your lending decisions, its best to become familiar with some of the information that Kiva offers on its website.

http://www.kiva.org/about/partners/

Hope this assists you.

Cheers,
Natasha

[Marijke]

Question answered. Thank you all for helping me!
Every day I learn!
Marijke

[i Live 4 Kiva]

Welcome to KF Marijke!

I flew with someone the other day that recommended Mastricht as the best place to go in the Netherlands.  I've been to Soesterburg, but only for a quick overnight trip to go to the altitude chamber at the NATO base.

Cheers,

Shane

[sweetiepetes]

54% interest? I wasn't aware of this either. I am not so certain this is where I want to invest my money. Since I am not earning anything off of what I am giving out (and that's just fine with me) who is gettingthe 54% interest? While I was/am excited with Kiva this is very disturbing to me as well!

[AccountAbility]

Welcome to Kiva Friends, Sweetiepetes.  While the number may come as a shock, with extremely small loans for very short periods of time, even a very small amount of interest in real terms can produce a high percentage.

As a simple example, if the Partner passes on the $50 it costs them to process a $500 loan for 6 months, the simple interest rate would calculate out to 33.5%.

And when you understand that many borrowers are a distance from any branch office, requiring loan officers to sometimes travel hours to meet a borrower each month, and that the borrower is often provided with training and other help to ensure that the business is successful, these interest amounts are put in perspective.

Lastly, since many of the Field Partners are themselves non-profit organizations, their goals are to charge only enough interest to pay expenses and to grow to be a solid sustainable micro-lender in their area.  This too is Kiva's goal.

There is another thread here on this forum that has had lengthy discussion about interest rates charged to borrowers and what is fair and reasonable.

Dan