Interest rates

[Guest]

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[charity]

I see that Field Partners charge interest on the loans. Are they required to use the money they raise through interest payments only to fund administration of the loans provided through Kiva, or can they use some of the funds for other purposes? I ask this because I see that at least one Field Partner is also involved in proselytizing religion to children; I'd like to help the entrepreneurs but I'm not willing to fund the organization's other activities, even indirectly.

Thanks

I also have a concern with dogmatic beliefs being attached to a loan I give, and definitely one way to avoid it would be to not fund loans through those MFIs.  I heard an interview with one of Kivas more religious MFIs, and it became apparent that there could be another way to look at it: it sounded like the group got a lot of outside donors because they were religious, so they were actually able to offer even lower interest rates than typical because their activity was partially subsidized by all their direct donors.  I don't think the interview was with them, but a good example of this could be Esperanza (http://www.kiva.org/about/aboutPartner?id=44), whose average interest rate is 4% - much less than the going rate in the area they work of 127% - and even low by Kiva standards.  So it appears that the money you lend to them is being used even more efficiently to help alleviate poverty, and not necessarily creating an income for them to use to spread religion.  However, there is still the chance of that, and also the obvious chance for them just to use the face to face opportunity of loaning your money out at low rates to spread their beliefs.  So it is up to you.  I have made a few loans through religious MFIs, but do find the experience a little tainted when compared with other loans.  I do believe that they have the real best interest of the people at heart, I just hope they are able to reach everyone irregardless of whether the people accept or play along with the religion, because there should be no requirements like that to receive assistance to help bring yourself and your family out of poverty. 

[Tommy]

This was the one I was looking at:
http://www.kiva.org/about/aboutPartner?id=26
After my earlier post I looked further into their website, which says "All of HOPE’s children’s ministries are supported primarily by proceeds from profitable microfinance offices."
I only discovered Kiva today, and I actually had the registration form filled in ready to submit. I probably will register but I'll have to go through the lists of entrepreneurs and Field Partners very carefully. The notion that my loan would not only be financing business development for a small entrepreneur but also, through sometimes pretty high interest rates, be funding other organisations whose activities may not be immediately clear is quite disturbing to me.
Maybe it's impossible to organise this sort of thing without involving an effective for-profit organisation somewhere, but it's made me pause and take a step back. I think it might be worth stating explicitly on each Field Partner's page whether that organisation takes a profit from loan interest and if so what it is used for.

[AccountAbility]

Thanks for the link, so we see what you were talking about.  I'm a bit surprised by the wording you cite, since the organization is a reputable non-profit.  While even non-profits can make charitable donations, they can't operate very far from their exempt purpose.  The organization does provide consulting services to other MFIs, from which they might earn significant income.  They might be using this as the funding source mentioned.

Since I have made a number of loans through this organization and have great confidence in them, I will try to contact them and get some response.  At minimum it sounds like an overstatement, but in the context of raising loan monies through Kiva it seems suspect as well.  While I personally align myself with the organization's overall goals, transparency is vital--particularly in raising funds from the public.

Dan

[Canadian Here]

Thanks for the link, so we see what you were talking about.  I'm a bit surprised by the wording you cite, since the organization is a reputable non-profit.  While even non-profits can make charitable donations, they can't operate very far from their exempt purpose.  The organization does provide consulting services to other MFIs, from which they might earn significant income.  They might be using this as the funding source mentioned.

Since I have made a number of loans through this organization and have great confidence in them, I will try to contact them and get some response.  At minimum it sounds like an overstatement, but in the context of raising loan monies through Kiva it seems suspect as well.  While I personally align myself with the organization's overall goals, transparency is vital--particularly in raising funds from the public.

Dan

Dan & Tommy:
Thanks for raising this point. I currently have three loans with this MFI and I would be interested in hearing more about this issue also.
Lorna

[bar22mike]

I am still a bit concerned about this interest rate. The Field Partners charge interest which I understand as otherwise they have little incentive to participate. However, their participation seems to involve a free ride as they face no real risk. Unlike a contemporary lending institution, a Field Partner faces no risk of loss because they not using their capital to finance the loan. We, as lenders, obviously assume this risk of loss in the event the loan is not repaid but the Field Partner assumes only the possibility of not making a profit which by no means is a loss of capital invested.

This seems a tad one sided faced with an average historical interest rate charge at around 22%. imagine a Field Partner arranging loans at $100,000. This individual stands to realize a profit of $22,000 and the basic expenditure might involve hanging out a sign saying, "Loans, Apply Within". How would you like to have a business where investors put up the capital for you, charge no interest and are happy to simply get their original investment back within a specified time frame.

However, while typing this, I'm thinking is there's a better way to assist people in need of a loan other than the above scenario? Other than Kiva negotiating a better interest rate with the Field Partners, I can't think of one so I guess we'll continue to be enablers for these Partners.

At least I will until this loan is repaid. I'm not certain I'll participate again.

[Tatiana]

Welcome to kivafriends!

It is not that simple. Microloans are very time consuming, the MFI's invest a lot of time in their clients, and besides that they often provide business trainings or other courses as well.

And there is the currency risk. the dollar might not be the strongest currency right now, the inflation in the countries the MFI's are working in is likely to be much higher. The loans are paid back in the local currency by the borrower, but the MFI has to pay Kiva back in dollars.

[Dottie b]

Yes, servicing microloans is very labor-intensive. It can cost as much as for a big loan, but for much less income. Many borrowers live in remote areas, and just getting there can take a long time. Plus, as Tatiana said, there's usually a big educational component to teach the responsibilities of a borrower and often even how to run the business!

But interest rates do vary - although apparently they are not all figured the same way, making comparisons tough - so the lender can search for ones he's more comfortable with.

Dottie B

[RichardF]

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[AccountAbility]

Thanks for the link, so we see what you were talking about.  I'm a bit surprised by the wording you cite, since the organization is a reputable non-profit.  While even non-profits can make charitable donations, they can't operate very far from their exempt purpose.  The organization does provide consulting services to other MFIs, from which they might earn significant income.  They might be using this as the funding source mentioned.

Since I have made a number of loans through this organization and have great confidence in them, I will try to contact them and get some response.  At minimum it sounds like an overstatement, but in the context of raising loan monies through Kiva it seems suspect as well.  While I personally align myself with the organization's overall goals, transparency is vital--particularly in raising funds from the public.
Dan

As a follow-up, I did contact HOPE international, and had a very positive and forthright email exchange with them. What follows is a condensed version of their response.  I for one am fully satisfied with their response.  However, as someone else has pointed out here, each lender has their own criteria for lending through the various MFIs, so I can respect other opinions.

Dan

[Kiva Lenders]... do not directly support [HOPE’s]children's ministries, but they do support the ministries indirectly in the sense that a small portion of interest payments from offices that have already become profitable is donated as a charitable contribution to children's ministries.

HOPE sees this as a value-added, "microfinance plus" service for our clients and their communities, much as other organizations might use a portion of interest payments to provide healthcare services for clients (which some HOPE programs also do).  It is important to note that HOPE does not make decisions on a discriminatory basis.  Individuals of any religion, race, ethnic group, sexual orientation, etc. are eligible to receive loans from HOPE.  There are no financial benefits or preferential treatment associated with conversion to Christianity. There are also no requirements that children of clients participate in the children's program, though many choose to do so.

HOPE has run comparisons of our rates against the rates of these other lenders and found that our rates are more affordable than theirs.  We also place a great emphasis on transparency, taking extra measures to explain our interest rates to clients and make sure that they understand the business decisions they are making.  Once a client has received a loan from HOPE, HOPE provides continued business training.

HOPE is constantly evaluating its lending methodology and interest rates to ensure that we are achieving the delicate balance between a sustainable program and a fair, relatively-low interest rate.  In Ukraine we recently lowered interest rates and made our loan product more cost effective for the poor by modifying how we calculate interest.

HOPE's main objective is not profit.  We seek to maximize value for our clients, and this means that when we do make a profit (despite our reasonable interest rates) we try to find ways to plug that profit back into the community so that it is benefiting those we seek to serve, not enriching HOPE International.  HOPE has never returned any profit from its programs back to the U.S.   

HOPE, too, is concerned with predatory lending practices and unfair interest rates, and for that reason we invited a nationally-known microfinance expert and watchdog for the poor to evaluate our interest rates, network-wide.  The expert concluded that HOPE's interest rates are lower than average for our program locations.   

In short, we appreciate and share your concern that the poor are not exploited through the practice of microfinance.  We believe that we have taken many precautions to avoid this type of detrimental situation by offering competitive interest rates and adequate business training, and
we continue to evaluate our products to ensure that they are returning the maximum value to our clients.  Thank you again for supporting HOPE's clients in Ukraine, and please don't hesitate to ask if you have any further questions.

[Canadian Here]

Dan:
Great response from HOPE and very fast, too! It sounds like they are being very fair to their clients (borrowers) and that the loans are only minimally associated with their religious programs/activities. I am pleased with this outcome because I recently lent my third loan (to the Ukraine) through HOPE.
Thanks for checking them out.
Lorna