I'm Outraged At Mexican MFI's Interest Charges!

[Guest]

.

[Ed Chandler]

I have made a few loans to our neighbors south of the border, in Mexico! Including one tonight. After making the loan, I decided to check out the MFI involved in the transaction. I found out that these BANDIDOS charge 54% or more, interest on the money they get from me, for free! That's ABSURD! I don't care what the local traffic will bare! I'm providing free financing to these MFI's and they're holding their customers hostage with their interest rates! KIVA needs to be able to say to these bandidos, if you want our free funding than you can't charge more than 10% interest on our FREE Financing! Come on people, we're trying to end poverty and help people that are willing to work at a legitimate endevor. I simply do not want these deserving people to pay extreme interest rates on my Free Funding! Kiva! Please take notice, I will never make another loan to a person in Mexico, until we bring these criminal MFI's into the reality of KIVA! EVERYBODY! Please stop funding Mexican Requests for funding until the Mexican MFI's bring their interest charges down to around 10%. If they see that Kiva loaners are serious, then perhaps they'll adjust their interest rates! I truly want to help my Mexican neighbors, but I refuse to let the MFI's involved to make a huge financial killing from my free money! RAMON, (because I know we are both involved in helping the people of Mexico, Central and South America,)help me in my endevor to stop this true injustice. This injustice in Kiva's quest to help the truly needy people of developing countries has to stop. If if requires putting present MFI's on the carpet to demand explanations of their exorbanant charges, then so be it. But, nothing can justify 50% plus interest charges! MEXICAN MFI's involved with KIVA, count your days to total non-funding from KIVA's funders!

[chris]

nothing can justify 50% plus interest charges!

This was discussed pretty extensively on another thread.

[Ramón]

@Ed, since you mention my name in CAPITALS in your post, I need to react.

Yes, Mexican interest rates are exorbitant, and I have funded some Mexican loans with pain in my heart. I am not sure that non funding the loans would change much in this respect, except that the Mexican MFIs will no longer look to Kiva for their funding and thereby we will lose any possible influence that we may or may not have on this.

In fully understand that market rates will determine the amount of interest an MFI charges to borrower. However, I don't understand why Mexican rates are so much higher than what is charged in the rest of the world. There is competition in the MFI market, and there are no special economic circumstances that makes Mexico more expensive than other countries. Au contraire, Mexico is one of Latin America's most developed countries...

Maybe this is something that Ben could address. (We know you are lurking somewhere around here ).

Ben: Why do the interest rates in Mexico appear to be so much higher than most other countries charge? Is there anything that Kiva can do about this? Or does Kiva just partner with the wrong MFIs in this country?

@Chris: Yes, interest rates in general were discussed in that thread, and I have extensively argued that small loans with no guarantee are expensive and will have high interest rates. But that doesn't explain why Prisma in Honduras can do it for lots less than 20%, while there have been rumors that Compartamos (not a Kiva partner), an MFI that just went IPO in Mexico, charges up to 100% interest per year on some loans.

Thanks,

--Ramón

[BenElberger]

Hey Guys,

A few comments here:

-  The local microfinance institution that Ed refers to is Admic and they do charge 54% as an annual flat interest rate.  This is compared to a local moneylender interest rate of 117%.
-  If Kiva was not a source of funding, my suspicion is that they would look elsewhere for funding and receive it.  We hope that, in the long run, Kiva's lower interest rates (0%) allow microfinance institutions to lower their interest rate through increased savings on the cost of capital (we ask for their interest rate information in the application and will be updating it over time)
-  Mexico does seem to have higher interest rates and I do not know why.  I will ask some colleagues in the field as to why this might be.  Note, as a point of comparison, that Compartamos (an ACCION affiliated MFI that just had an IPO) charge 100% interest to clients.

Hope this helps for now, back with more in the future.

Ben

[RichardF]

Ben,

If you ask for interest rate information in the MFI application, why doesn't Fundación para la Vivienda Progresiva have any loan rate info?  Or AlSol (Alternativa Solidaria Chiapas) for that matter?

[Henry]

I also was shocked to see the 54% charged by Admic Nacional, I questioned KIVA and the response was:

me:  > I've found several lenders who are not reporting or your not showing the
> interest rate they are charging their clients.  This is something I would
> like to see when choosing who to sponsor.

Response:  Dear Henry,
We're in the process of collecting this information.  We want to have
a standardized method of determining interest, and are trying to make
this happen.  In the meantime, I'd suggest you support organizations
that you feel are charging fair interest rates.

I would have thought that KIVA's due diligence of each field partner would have included this information.  I'm deeply concerned about the lack of information on field partners. I have found interest information missing from several.

I hope that KIVA will address this quickly.

This is one piece of information I would like to know when sponsoring a loan.

[RichardF]

For now, I'll chalk up missing information here and there to "growing pains."  Kiva is working with field partners around the world that operate in "challenging" situations, to say the least.  Since they do have a good track record of delivering where they promise to make improvements, I'll give them the benefit of the doubt on how they currently report MFI interest rates.  After the next round of reporting improvements, it should be much easier to review, discuss and act on the relative merits of those rates.

[RichardF]

Ed, I think it's very hard to compare lending practices, especially across countries, when we're on the lookout for "predatory lending practices," which is an important concern for all of us.  I went looking for some better way to compare Kiva Field Partners and about the best I could come up with for now was "profit margin," a simple number that throws all income and expenses into the pot to see if a Field Partner's operations are "in trouble," "sustainable," or "predatory." 

I went to the List of Kiva Microfinance Institutions and found 13 Field Partners with MIX Market profiles.  I listed their most recent profit margins below.  From that list, I would say four MFIs are "in trouble."  They're operating at a loss (negative profit margin).  All the other MFIs are at least "sustainable."  They're operating at some level of profit. I'll leave it up to you where to draw the line between "sustainable" and "predatory."  Of the nine profitable MFIs, Admic Nacional ranks 7th at 10.99%.  While that profit margin seems "comfortable" and is growing from previous years, I personally don't get the impression that looks like they are employing predatory lending practices, especially since their rates for lending to Kiva entrepreneurs are about half of those charged by other local lenders.

Profit Margin	MFI
10.99%	Admic Nacional
62.62%	Ebony Foundation (Eb-F)
9.31%	Fundación Paraguaya
25.01%	Hluvuku-Adsema
28.65%	IMPRO
-13.98%	Kraban Support Foundation (KSF)
16.07%	MAXIMA Mikroheranhvatho Co., Ltd.
-14.95%	Microfund Togo
-38.40%	Microinvest
8.54%	Mikrofond EAD
33.06%	Norwegian Microcredit LLC (Normicro)
15.21%	SEED Development Group
-17.33%	South Pacific Business Development

[optimistic.bob]

I can get outraged when I see micro loan sharking being touted as a solution. It seems even Muhammad Yunus has his critics in this area. http://www.zmag.org/sustainers/content/2006-10/19bond.cfm

I have been considering the impact of Kiva's remarkable growth and the different metrics that will now be used to measure success. I wonder if there is a reverse economy of scale involved in microfinance. Can a macro organization still have the passion, commitment, and evaluation criteria that a smaller organization exhibits? I still very much support Kiva but I am building a portfolio and a team to take micro loans to Poland (LidzbarK) in the next year where we will meet the borrowers and support them with other skills and resources through an existing fiscal agent.

[Carol]

Perhaps Kiva should actively look for another MFI in Mexico with a charity base.  Knowing Mexico, a little, it may be a closed shop for lenders but why not take it to their Government thru their supporters like the Clinton Foundation.  I have advised Kiva of World Neighbours and thought it could be a good fit,  www.wn.org, they do work in Peru, Honduras, Africa and Asia but I didn't find a reference for Mexico.
Carol