Paying interest to lenders - pros and cons

[Guest]

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[AGullen]

I believe it is possible for Kiva to return a small percentage to lenders that comes NOT from additional interest charged to individual borrowers, but rather from the MFI itself.  It would be something similar to subsidized funding rather than free funding.

What if there was interest returned, but an option not to accept it and instead donate it to Kiva "overhead"??  It would be very similar to the donation option they have now...

Would this still turn some people away?

This is a very good thought and one that I hadn't had. I might be in favor of an option like this...

[FANAFI]

Hmmm... If the fee wasn't excessive to the MFI and still allowed them to keep their low default track record, I would support it. How much do you think is fair? Money Market rates (5%+/-) or something smaller?

-Jeff

-Updated-

Ok, couldn't take it any longer... Blogged my thoughts...

http://lmyg.wordpress.com/2007/04/11/paying-interest-to-kiva-lenders/

[Nick]

Hi all,
Thanks everybody for posting.  This is such an important topic for Kiva's future and I'm glad everyone is chiming in.

I want to clarify a point in my earlier post that I should have emphasized more.  If Kiva returns a small percentage to lenders, it WILL NOT be passed on to specific borrowers in partner countries, but rather from the income of the partner MFI.  This has very important implications for social investors...

Bob--In response to your point regarding the comparative advantage of MFIs partnering with Kiva, I am sad to say that it could easily go the other way as well.  While some MFIs may be more more "entrepreneurial, adventurous and ultimately more responsive because they are attempting to achieve a social return on investment rather than an economic return", it could just as easily be said that they would be inefficient and would not reach potential outreach and capacity simply because they don't have to in order to be profitable.  Of course, different MFIs will react differently...

I think all of us here are very interested in a social return (SROI), myself included, but keep in mind that an MFI serves both social and financial purposes.  This is the "double bottom line" that is continually being more talked about.  While I think the SROI is very important, the financial component also plays a HUGE role...even for non-profit MFIs.

I do not think that MFIs should pay market rate for their borrowings, because the market rate only takes into account financial factors.  While it is hard to calculate the social impact of an MFI, assuming it is greater than zero, the market rate for MFI borrowings should be lower than the market rate for a strictly financial organization because of the social impact MFIs contribute.

Jeff--if we assume a financial market rate of 5%, maybe we can say a "fair" rate would be 3%+/-.  In this example, we quantify the social impact at the spread of 2%...once again, social impact is so difficult to quantify...

-Nick

[FANAFI]

Nick,

I assumed 3% as a fair, average inflation adjusted amount in my blogged opinion. I'm in favor of making it an option within the lender's options so it's not forced upon everyone and is an option to those who desire some growth, albeit small, to satisfy fears of value loss on their dollars.

Maybe once Kiva grows larger and is more important to the MFI's can we request this.

-Jeff

[optimistic.bob]

Thanks for the input. I am not sure how valuable or important this discussion really is as it will be Kiva that makes the decision. I did some research before choosing Kiva and discovered that other 'nonprofit' MFI's with a similar plan like Prosper.com but charged a bid interest rate, had much higher published default rates and carried arms length FDIC policies.
I like the peer to  peer  nature of Kiva and am only investing money that I can afford to lose ( as I do with most higher risk investments) so I am not concerned about profit. I don't understand how charging the MFI interest is different from charging the borrower (everything trickles down) or how efficiency is related to where the funds the MFI receives come from. It still seems to me that it is what they do with the funds that measures effectiveness.

[hunger4god]

I really hope the Kiva model doesn't change drastically. I really don't care to make money off these loans. My satisfaction is the return on generosity factor...or paying it forward..whatever nice label you want to give it. I just enjoy the "warm fuzzy" I get from knowing I impacted a person's life and family in a meaningful way. I think charging interest would detract from this satisfaction. For instance, I also lend on Prosper for profit but I find I have no interest in those I loan to other than that I get my money and interest...it's just not the same. Once profit gets involved your feelings change, like it or not.

Adam
I Love Kiva!
 http://gokiva.blogspot.com

[dstrack95]

Obviously all of us feel very strongly about Kiva and what they do.  I'm not sure how much the "Kiva team" checks these message boards, so I would suggest writing an email to Kiva directly and let them know how you feel about interest being paid to lenders.  After all, we are what drive there business.

[randulo]

Obviously all of us feel very strongly about Kiva and what they do.  I'm not sure how much the "Kiva team" checks these message boards, so I would suggest writing an email to Kiva directly and let them know how you feel about interest being paid to lenders.  After all, we are what drive there business.

At the risk of sounding like an ass (which has never inhibited me before) I really would like someone to take this on (Hi Julia!) but I'm too busy myself at the moment, I barely have time to log in here. We (as typical Kiva lenders IMO) need to make our reticence known to them. I have spoken to several Kiva staffers and believe me, they're REALLY BAD with email. Using the "I want to help" link it took days to get an answer and it was useless. Someone needs to call them and somehow get this message across. I wish I had time for it, but I don't and I'm 9 time zones away so it isn't an option for me.

Most of us seem to be very much against the interest idea although the last variant above is good (contribute it to kiva for running costs).

To sum up, Kiva would no longer be Kiva to me if additional interest is charged and I don't want the interest nor do I want it to be charged to entrepreneurs.

[Wood Fairy Glenda]

  I absolutely agree with Adam and all the others who don't want interest.  The possibility of personal gain from loaning, however small the interest, would fundamentally change the concept.... and it is the concept that got me so wholeheartedly involved.  All I want from KIVA is a way to use the "extra" money I have (the money that I and my family do not need, but exists in my accounts simply because I was lucky enough to be born into a good family in a rich country) to be spread around the world a little.  Wood Fairy Glenda

[FANAFI]

Just to clarify our stance, we are in favor of it as an option. It is an option we aren't likely to take if it were given, however it could drive a larger pool of people into the community.

-Jeff