INTEREST FREE LOANS

[Guest]

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[jaclynsorenson]

Hello, which third party (if any) allows for interest free loans?  I would like to participate, however, I do not want to earn interest, and I don't want the receiver to be charged interest....

Thanks!

[Henry]

jaclynsorenson, I think you might find this topic in the Help Section helpful.

http://www.kivafriends.org/index.php/topic,1035.0.html

[KivanSteven]

Hi Jaclyn....here is a list of MFIs that charge less than a 5% interest on their loans through Kiva.

TOGO - Microfund Togo   1%
BULGARIA - REDC Bulgaria      1%
UGANDA - Uganda Microfinance Limted  1%   (Inactive)
BENIN - Alide    2%
HONDURAS - Adelante Foundation   3%
AZERBAIJAN - Komak Credit Union   3%
DOMINICAN REP - Esperanza International  4%
DOMINICAN REP - Fundacion San Miguel Arcangel  4%

WITEP AND SEED also charge a minimal interest but arrangements with these MFIs have been closed.

Here you can find these MFI's Kiva pages:

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

[Henry]

in the past, KIVA has not been strict with these numbers.  I wouldn't expect these to be accurate. 

3% compounded daily could be a lot of money in interest.

1000 @ 3% monthly is 19.5% annually.  (I know this is close - not 100% on target but close)


3% on balance each month

Loan      paymen    interest
1000   83.333   30
916.667   83.333   27.50001
833.334   83.333   25.00002
750.001   83.333   22.50003
666.668   83.333   20.00004
583.335   83.333   17.50005
500.002   83.333   15.00006
416.669   83.333   12.50007
333.336   83.333   10.00008
250.003   83.333   7.50009
166.67   83.333   5.0001
83.337   83.333   2.50011


total Interest   $195.008 over 12 months = 19.5 %

I wish KIVA would audit the interest numbers for EVERY MFI

[KivanSteven]

thats a good point Henry, unfortunately we have no way of knowing if or when these are supposed to have been changed and updated and its all we really have to go on--if they are inaccurate though I guess we could say that the %s they provide are as good as having no info on %s at all.  Has anyone ever noticed if in fact Kiva has ever changed any of the interest rate %s?

[AccountAbility]

Hello, which third party (if any) allows for interest free loans?  I would like to participate, however, I do not want to earn interest, and I don't want the receiver to be charged interest....
Thanks!

Lets go back to the original issue.  Micro loans are not charity.  They are designed to be honest transactions between a borrow and a self sustaining lending agency.  That they are not a hand-out gives the borrower dignity and self confidence.  No matter how you cut it, it costs money to lend and the lender should recoup its costs in order for this to be a legitimate transaction.  On small short loans the costs (when expressed as an interest rate) seem high, although the actual amount remains very small. 

There are many different ways that interest rates are expressed, and many of the Field Partners use differing methods, thus the confusion about rates.  I would like to see the loan interest expressed in the actual amount, not some esoteric rate calculation which is open to interpretation.

Dan

[waywardcats]

Hi jaclynsorenson,

I am also new.  As I understand it, as a lender you do not earn any interest on your loans.  You are providing the principal only.  I hope you take some time to look at the other replies and feel better about your part in helping through Kiva.

Waywardcats

[cpbailey]

Whatever happened to APR, annual percentage rate?  I prefer this as it takes into account compounding interest effect and how long the client has use of the money.  If a client pays $50 for the privilege of using $1000, it is 5% if they have the entire amount for a year.  If it is for a day, it is outrageous.  Sometimes clients repay every week, and that reduces how long they have the money compared to monthly. 

Also, if the client pays the loan early, this amount will change to a lower sum in reality.  If the loan is detained (say in Kenya), the amount of interest will be increased.  Even though the interest rate or APR remains constant in calculating things.

Reminder, SEED and WITEP may not have charged much interest, but neither have they returned principle to Kiva on a regular basis.  Look at the credit risk of the organization as well. 

Colette

[AccountAbility]

I would agree that standardized APR (Annualized Percentage Rate) makes for accurate comparisons.  Unfortunately, its complexities are not simple to understand--and more importantly it is not easy to predict actual interest. 

Since micro-loans need to be simple for them to be "transparent" to the borrower, MFIs will often come up with a formula which meets the criteria of simple, but does not equate to the APR methodology.  In the grand scheme of things, I think it is more important that the entrepreneur borrowers understand exactly what they are getting into, even though an APR calculation might reveal a differing percentage rate than the one quoted.  We may be loan shoppers by rate, but I doubt the average borrower on Kiva uses that criteria.

Dan

[cpbailey]

Dan,

I agree that things need to be explained to the borrower in terms that are comfortable and understandable.  That is one aspect.  On the Kiva site, it could be expressed so that we can compare APR to know which partners have lower APRs.  It doesn't have to be the same thing measurement for different audiences.

Colette

[RichardF]

I agree with Colette.  If Field Partners want to use a flat interest rate to tell borrowers how much they will pay for a loan, that's fine with me.  However, Kiva should report to lenders a comparably calculated interest rate from all partners, e.g., an average APR.  Who knows what we're really seeing now?

[AccountAbility]

To be clear, I agree with both of you regarding comparative rates on Kiva (or MIX).  I suspect, though, that the MFIs are simply quoting the rates they use for the borrowers.

Dan

[RichardF]

Okay, then I agree with Dan too!!! 

[Soriak]

Real transparency would probably require these three points to be noted separately:

* Fix costs for disbursing the loan
* Cost of training that is provided along with the loan
* interest on loan

Knowing only that an MFI charges, for example, 60% APR is not very helpful if that cost includes a course on running a business.

I'm not sure how reasonable it is to expect that level of detail though... but it would be very interesting to see.

[AccountAbility]

Precisely.

[cpbailey]

Wow, we should all go and have a drink or something!  I love it when we all can find common ground.

Kiva--do you hear?  On Kiva website, a common APR is desireable.  If there is a way to put a description of the training or other support that they get (value add) for that, it would be gravy and make the MFI look better for the price the borrow pays.  The borrower needs to get their costs explained in terms that are locally common, honest and easily understood.  Different regions will have different methods of calculating things, and different individuals will be have different levels of sophistications with money (as they do in the U.S.). 

Colette