Interest rates

[Guest]

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[wind5001]

Thanks for contacting them and sharing, Dan!

[eliztravels]

Thanks from me as well, Dan, for passing along the explanation from HOPE.  I hesitate to loan through an MFI which has religious affiliations but will do so if the loan has strong appeal for me.  This gives me more information to work with. 

eLiz

[madelaide]

Hello,

Let me add some ideas on this thread (sorry if I'm repeating something said before), based on the fact that I live in a developing country (Brazil).  We're certainly much luckier than many countries helped here, but still I see a good portion of our population suffering from no access to reasonable loans. 

Interest rates here in Brazil are amazingly high. In 2007, banks charged roughly 3x what they pay to their investors.  That is, with an inflation rate of around 5% a year, investment funds pay something like 10% and loans cost 30%.  No wonder banks had record earnings.

Banks however don't lend money to people that do not have some guaranteed income - either a formal job or some type of business.  These people can only resort to illegal loaners - I don't know the name in English for that - people that will lend money at much higher interests - and may even criminally threat borrowers who are late in their payments.  I suppose the situation is the same, perhaps even worse, in other countries.  Therefore I totally support this kind of initiative.

And let's not forget that people working in the NGOs are not necessarily unpaid volunteers.  NGOs have employees, have to pay rents and bills.  Therefore is comprehensible that some interest is charged to maintain them. 

Having read about microloans before, I was very happy to find Kiva (people from a forum I take part spread the word).  Sure, if we have better ways to lend money, as directly as possible, the better, but what Kiva has been able to do and the number of people they have been able to support is truly amazing.  Is there is some partner making a profit in the way - ok, it may look unethical - but is it really bad?  Aren't we achieving what is proposed in the end?

I don't mind at all not to receive any interest from what I lend here. Come on, on a night out with friend I may well spend US$50.  So if I lend US$50 and receive US$50 back in one year, does it really matter that I didn't get any interest?  Or even if by chance I don't receive the US$50 back - and the low delinquency rate we see stated is almost zero - will my life be so much affected?  Certainly there is a risk, but the feedback from people who have been here longer than I shows that this risk is very low, and such risk won't refrain me from trying to help people.

Regards,
Adelaide

[Canadian Here]

Welcome to KIVA Friends (KF), Adelaide!
Very well said, and that's one of the joys of lending through KIVA, for me as well. I won't really miss the small amount of money I lend if for some reason it is not repaid. However, I would miss the incredible opportunity to make a positive difference in the life of a family if I did not lend and take that small risk.
Lorna

[KivanSteven]

Welcome Adelaide, Ive always been fond of that name 

[Henry]

Good news!!!    Premal PM'd me back regarding a few questions I threw at him....  here is the answer to one of them and I for one am glad to know they have been working on this issue in the background and it's hopefully about to improve.

Re:  Interest Rates reported by MFI's

his response: 

Thanks Henry.  There's a bunch of data integrity issues and I feel your frustration about the speed with which we can rectify these issues.  Here's what I'm waiting for...we've spent the last 7 months building "Kiva Partner Admin 2.0" -- this is the software that MFIs use to post up content to the website.  It's a complete overhaul.  As part of this, we will now ask for the repayment schedule (principal due + interest due on each collection date) when a business is uploaded to the site.  From this raw data -- which we believe will be more accurate and auditable -- we can construct a weighted average, normalized, interest rate charged.  this will not include fees + penalties -- so it's not perfect -- but it's far better than the mishmash of self reported numbers we see on the site today.  Partner Admin 2.0 may launch in late Q3, but if we miss the dealine, we can't launch it in Q4 b/c of the holidays (need to keep things stable for our MFIs) and hence this will be bumped to Q1 (which would really be frustrating around here).

net net:  a more structural solve is on the way -- just taking a while to gestate.

[feel free to post tot he wider KF community and thanks for the message!]

Go KIVA.org Staff!!!! 

[AccountAbility]

That's great, Henry, and thanks for the post. 
While interest rates will still be a bit mysterious and perhaps too complex in various parts of the world to truly make valid comparisons, this is a big step forward. 

Actually, I think the impact of having a better administration tool for the MFIs is of even bigger impact, since the administration costs of Kiva funds can be significantly higher than alternative sources of funds.

Dan

[Peter S]

Here's news of an important new initiative in the microfinance industry, which promises over the next two years to do away with the uncertainties surrounding the way interest rates are expressed.

Are the MFI interest rates we see stated on the Kiva site true APRs, flat rates, rates applied to the declining balance, do they include one-time arrangement charges, are they even sometimes figures just plucked out of the air - all these questions and more should be answered once MF Transparency - www.mftransparency.org - gets into its stride.

Product Pricing Standards

MFTransparency will enable transparent communication between suppliers and consumers of microcredit products, as well as all microfinance stakeholders, by presenting information on credit products and their prices in a clear and consistent fashion.

In many countries, banking institutions are required to state true product pricing using standards such as the APR (Annual Percentage Rate). Such laws were enacted to help consumers make informed decisions regarding seemingly comparable loans, when in actuality one loan is significantly more expensive. We believe that the same principles of transparent pricing applied within the commercial finance industry should also apply to the microfinance industry.

Objective and Verifiable Information

MFTransparency's paramount value is, indeed, transparency. All operational rules, calculations, and data sources are made public. MFTransparency also operates on the principle of reporting solely objective and verifiable information. The website simply discloses the repayment schedules for each product that MFIs offer and calculates the prices of those products in APR terms. MFTransparency strives to be an organization supported and respected by the vast majority of practitioners in the microfinance industry and believes that staying true to these principles will earn us that respect.

[...]

Detailed Data Collection

All APR pricing calculations will come directly from actual repayment schedules for each product offered by the MFIs. The goal is that all repayment schedules be provided directly from the MFI in order to confirm accuracy of the information and minimize complications and misunderstandings that can occur when communication passes through multiple channels. MFTransparency will ask for supplemental basic product information as well, but this information is not essential to the APR calculation. Collecting all repayment schedules from every MFI in the world requires a systematic, semi- automated, and accurate approach and that will be one of MFTransparency's principle goals.

There is no actual data yet at the mftransparency.org site - it has only just launched, with an endorsement from Muhammad Yunus at the Microcredit Summit Campaign currently taking place in Indonesia.  The stated intention is to have complete data for all MFIs in around two years from launch.

"Microcredit Lending Institutions" who have endorsed the launch of MF Transparency to date include two who are Kiva partners - BRAC and SPBDF - while the "Donors and Social Entrepreneurs" who are listed as endorsers include Matt Flannery of Kiva.  See PR Newswire press release for more details.


This strikes me as an extremely important step in the right direction, and I'm very glad to see that Kiva is endorsing it right from the beginning.


Peter

[RichardF]

Thanks, Peter!

Objective and Verifiable Information

MFTransparency's paramount value is, indeed, transparency. All operational rules, calculations, and data sources are made public.

Now, there's a definition of "transparency" I can understand and support! 

[RichardF]

"Microcredit Lending Institutions" who have endorsed the launch of MF Transparency to date include two who are Kiva partners - BRAC and SPBDF - while the "Donors and Social Entrepreneurs" who are listed as endorsers include Matt Flannery of Kiva.

Has Kiva posted any information about their field partners' and their own involvement with this anywhere?