Does repayment amount include the interest?

[Guest]

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[Kevin]

When we get a notice saying that someone has made a payment of, say, $200, it looks as if the whole $200 is getting credited back to the lenders. But if the vendor is paying interest, does that mean that the vendor has actually payed more than the $200? The wording is misleading. It seems to me it should read: has made a payment of $XXX, $200 of which is being applied to the principal. I would like to know how much money the vendor is really paying. Or am I missing something?

[Diane R]

I am fairly certain (read something about this here before, but can't find it right now to quote) that what we see is only the portion of the client's payment that will be returned to Kiva lenders. We never see anything about any interest the client pays to the MFI.

[AccountAbility]

Where a Kiva lender provides the principal amount, a repayment is the return of the principal amount.  Any interest, or fees or any other aspect of the loan is not germain to the lender of the principal.  There has been quite a bit of discussion here concerning the actual activities of the MFI with their borrowers, including interest rates, which are now listed in the MFI partner page.  But these are not part of the Kiva accounting.

[BenElberger]

That's correct, just principal repayments are counted.

Ben

[Ramón]

Ben-- since all automatically reported payments appear to be equal, wouldn't it be more accurate to state that the reported payments are normalized over the loan period?

If you take into account that (hopefully) many loans use a "simple" interest calculation, one would expect the amount of principal paid to go up as the loan gets repaid. See for example this post from Kendall Mau on the topic.

For example:

A $1000 loan, 12 months repayment, at 20% annual interest looks as follows. I assume that the auto-reported repayments would be $83.33, which is $1000/12, right?

Amortization Table for $1000.00 borrowed on Jan 1, 2007

Month/Year	2/2007	3/2007	4/2007	5/2007	6/2007	7/2007	8/2007	9/2007	10/2007	11/2007	12/2007	1/2008
Payment ($)	$92.63	$92.63	$92.63	$92.63	$92.63	$92.63	$92.63	$92.63	$92.63	$92.63	$92.63	$92.63
Principal Paid($)	$75.97	$77.23	$78.52	$79.83	$81.16	$82.51	$83.89	$85.29	$86.71	$88.15	$89.62	$91.12
Interest Paid($)	$16.67	$15.40	$14.11	$12.80	$11.47	$10.12	$8.75	$7.35	$5.93	$4.48	$3.01	$1.52
Total Interest($)	$16.67	$32.07	$46.18	$58.99	$70.46	$80.58	$89.33	$96.68	$102.60	$107.08	$110.10	$111.61
Balance($)	$924.03	$846.80	$768.28	$688.45	$607.29	$524.77	$440.89	$355.60	$268.89	$180.74	$91.12	$0.00

Thanks,

--Ramón

[AccountAbility]

Does the borrower pay equal payments, or for these short loans do MFIs make the principal payments equal and then add the interest on top?   
If regular amortization is used, then Kiva extracts a premium by expecting cash payments larger (at first) than the principal portion.  But this is offset by Kiva allowing the MFI to keep the cash until the end of the month. 

So (now I am speculating), but after all this, maybe Kiva just is operating on the KISS principle regarding principal.