Fundación para la Vivienda Progresiva

[Guest]

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[Henry]

If I understand that right, they are able to do great things.  I sent him a thank you letter, and also invited Matt to come share some success stories with us if he ever has spare time.   

I also suggested he spread that around to the other MFI's!

HMMMMM, does that method actually calculate out to be about 28%?  I have no clue, but my little excell spreadsheet gave me 28 %apr  ...  in the unlikely event i'm correct it's still lower than some.

[RichardF]

Disclaimer: I make no warranties on the accuracy of the following interest rate calculations.     Nor will I help pay them!   

Esperanza International example for Iselsa Lara Ramirez

Loan Amount: $750
Loan Term: 6 months = 1/2 year = (1/2) * (52 weeks) = 26 weeks
Payment Frequency: Every Two Weeks (Biweekly)
Number of Payments: 13
Interest Rate: 4.00% of Remaining Biweekly Balance
Total Interest Paid: $210
Total Cost of Loan: $960
Total Interest Paid as Percent of Loan Amount: 28% Over Six Months
Annualized Total Interest Paid as Percent of Loan Amount: 56%

Note.  These estimates do not take into account any loan amounts withheld (2%) as part of the mandatody savings program.  The effect would be to increase the annualized interest rate.

Okay, now which MFI's interest rate looks better, Esperanza International (56%ish) or Fundación para la Vivienda Progresiva (36%)?

Does anyone else think this is an issue yet?           

[Henry]

i forgot bimonthly payments, so i was close (not) 1/2 what you came up with.

I've got another email out to Matt to clarify this for me/us. 

........  and I was making fun of prosper people for being loan sharks,......  guess I should take a look in the mirror.


Thank you RichardF for bringing this to my/anyone else's attention.  I don't mind going into something open eyed...but this was 'pull the wool over' eyed!

[RichardF]

The reality is that microfinance is expensive.  Kiva needs to bite the bullet and come up with a consistently used method of reporting MFI "effective interest rates."  If lenders don't like it, then all I can say is, "Welcome to the real world."
 

[AccountAbility]

Richard, I think you are right in that Kiva should seek a uniform way to show interest rates.  But since they literally are still the little guy on the block, I'm not sure they have the wherewithal to do this unless they piggyback on some other outfit that covers all of Kiva's MFIs.  In the meantime I will be patient.

But I think the larger issue is that we the lenders don't have the interpretation knowledge to parse interest rates in different regions and countries.  So if money costs more or less or is plentiful or scarce or whether a governmental jurisdiction gets its take for each step the money takes-- all these need to be factored before we can reach any comparative conclusions.  Without this knowledge the most accurate chart of rates won't really amount to a hill of beans.  We will be railing at low rates thinking they are outrageous (as we do here) and we may be praising rates that have some hidden expense component that we can't see from our perspective.

Take the price of gasoline as a poor starting example.  We could get an accurate list of a price for a gallon or litre all over the world and shake our heads over the wide variations and wonder who is getting ripped off. But in truth we have little knowledge of how that price came to be-- and more importantly how that price level affects the people who use it. 

Dan

[RichardF]

Dan, all good points.  My take is 4% is not the same as 56%.  That was the big point my Wikipedia microfinance buddy was making.  If Kiva can't find a way (e.g., go with something along the lines of the CGAP paper I posted) to report MFI interest rates even remotely more consistently, then maybe they would be better off not posting them at all.

[AccountAbility]

My take is 4% is not the same as 56%.

In actuality they are the same, because these are in reality only classification jargon for what they charge in real money.  We use the jargon to set up comparisons -- sometimes useful and sometimes not.

Dan

[RichardF]

My perception is 4% is not the same as 56%. 

[Henry]

I don't see it as the same, in fact when I received that email back from Matt, I thought wow, what a great group or MFI......  it read that way to me, then I thought about it.  And was/am very dissapointed in what I think the outcome will be.

I think my post hoodwinked Kay as well, it reminds me of those car commercials you see, a new car for only $99 a month!  then you read the fine print, it's for 3 months, then the real monthly payment or lease kicks in. 

[AccountAbility]

My perception is 4% is not the same as 56%. 

This reminds me of a story of this fella who came over from the old country and since he couldn't find a job he opened a little shop and soon was doing very well.  When his friends asked him how he succeeded so well, he said his secret was to always make a 3% markup.  Many years went by and his friends one by one failed in their businesses.  The last one came back to him and asked him how he could make it on 3%.  He replied, it's easy I buy it at $1. mark it up 3% and sell it at $3.

We can call what Esperanza charges anything we want.  But what they do is what they do.  Its 4% in one lingo, its 56% in another.  (And don't get me wrong.  I think it is useful to try to find a common "lingo".  I just think that only gets us to first base--which is better than striking out.)

Dan

Dan