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Author Topic: MFI's Extortionate Interest Rates ... up to 58% !  (Read 38135 times)
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eileen
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« Reply To This #190 on: May 30, 2012, 08:57:38 PM »

Thanks to Jennifer in Team Obama, we have lists of the MFI's with the highest and the lowest portfolio yields. I found it very interesting to see how much the MFI's differ in the interest and fees they charge. Even some MFI's in the same country have widely different portfolio yields.

Here are the ones with the highest portfolio yields:
CEVI – – Philippines 49.3%
Alalay sa Kaunlaran – – Philippines 50.2%
Tanaoba Lais Manekat Foundation – – Indonesia 50.3%
HOPE Ukraine/Nadiya – – Ukraine 52.4%
FAPE – – Guatemala 53.6%
FRAC – – Mexico 53.8%
SMT – – Sierra Leone 54.0%
Pearl Microfinance Limited – – Uganda 54.8%
ADIM – – Nicaragua 56.5%
MLO Humo – – Tajikistan 57.2%
Hekima – – Congo, Democratic Republic of the 57.8%
FINCA Peru – – Peru 57.8%
Tujijenge Tanzania – – Tanzania 61.8%
Center for Community Transformation Credit Cooperative – – Philippines 62.0%
Fund for Thanh Hoa Poor Women – – Viet Nam 62.0%
Sinapa Aba Trust – – Ghana 62.6%
Urwego Opportunity Bank – – Rwanda 62.6%
Turame Community Finance – – Burundi 71.3%
CrediComun – – Mexico 73.9%
Credituyo – – Mexico 85.9%
BRAC South Sudan – – South Sudan 88.0%

And here are the ones with the lowest portfolio yields:
FUDESCOSUR – – Costa Rica 4.4%
AFODENIC – – Nicaragua 9.7%
EDESA – – Costa Rica 10.8%
Komak Credit Union – – Azerbaijan 14.2%
Patan Business and Professional Women – – Nepal 15.1%
Cooperative San Jose – – Ecuador 15.2%
FATEN – – Palestine 15.3%
IMPRO – – Bolivia 15.8%
CIDRE – – Bolivia 17.1%
Ryada – – Palestine 17.1%
CAURIE – – Senegal 17.5%
FMSD – – Colombia 17.7%
Ameen s.a.l. – – Lebanon 18.7%
Fundación ESPOIR – – Ecuador 20.2%
Accion USA – – United States 20.4%
WAGES – – Togo 20.7%
Juhudi Kilimo – – Kenya 20.8%
Soro Yiriwaso – – Mali 20.8%
Nor Horizon – – Armenia 21.2%
UIMCEC – – Senegal 21.8%
Xac Bank – – Mongolia 19.9%
CEP Viet Nam 22.0%
GHAPE – – Cameroon 22.1%
TYM Fund – – Viet Nam 23.9%
SEDA – – Viet Nam 24.3%
IMPRO – – Afghanistan 24.9%
Asociación ASDIR – – Guatemala 26.7%
Kenya Agency for Development of Enterprise and Technology – – Kenya 27.1%
Hattha Kaksekar – – Cambodia, Thailand 27.3%
Banco DMIRO S.A. – – Ecuador 27.4%
CHF International Access to Credit Services – – Iraq 27.9%
KREDIT – – Cambodia 28.0%
CEPRODEL – – Nicaragua 28.5%
Gata Daku Multipurpose Cooperative – – Philippines 28.5%
Alidé – – Benin 28.9%
MAXIMA Mikroheranhvatho – – Cambodia 29.0%
Apoyo Integral – – El Salvador 29.0%
Credit Mongol – – Mongolia 37.5%
Pro Mujer Bolivia – – Bolivia 29.4%
SMEP Deposit Taking Microfinance – – Kenya 29.5%
Agroinvest Credit Union – – Azerbaijan 30.1%
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nuc
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« Reply To This #191 on: May 31, 2012, 06:16:55 PM »

Strathmore University in Kenya would be worth mentioning, although that's a special case and still new. But they have interest rates (not portfolio yields!) ranging from 2% to 6% .


For the whole list it'd be interesting (I'm too lazy to pick out all the numbers) to put up all the yield numbers against loan amount (per person), length of the loan, ...

I'm also wondering a bit what the portfolio yield really is. I've seen a few examples like this current one: "Godet is a loyal client of the MFI HOPE RDC who has already received ten different loans and has repaid them correctly."

Hope DRC has a portfolio yield of 80.30% (usually very short repayment terms, so I guess the 80% is more like an APR). Still, this man in the example was doing ok ten times already with the loan conditions.
So, I'm a bit suspicious about the portfolio yield given in the loan/partner description.

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hjs
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« Reply To This #192 on: May 31, 2012, 10:27:02 PM »

I'm also wondering a bit what the portfolio yield really is. I've seen a few examples like this current one: "Godet is a loyal client of the MFI HOPE RDC who has already received ten different loans and has repaid them correctly."

Hope DRC has a portfolio yield of 80.30% (usually very short repayment terms, so I guess the 80% is more like an APR). Still, this man in the example was doing ok ten times already with the loan conditions.
So, I'm a bit suspicious about the portfolio yield given in the loan/partner description.

According to Kiva, "Portfolio Yield is defined as all interest and fees paid by borrowers to the Field Partner divided by the average portfolio outstanding during any given year."  So no, it's not the same as an interest rate.

There are also of course other factors with some MFIs which are not included in that simple equation - such as savings accounts, health care and business education etc.
« Last Edit: May 31, 2012, 10:28:47 PM by hjs » Logged
eileen
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« Reply To This #193 on: June 03, 2012, 05:46:11 PM »


For the whole list it'd be interesting (I'm too lazy to pick out all the numbers) to put up all the yield numbers against loan amount (per person), length of the loan, ...


It would certainly be an immense job to compare all the field partners on the portfolio yield, the loan amount and the length of the loan, and  analyze the correlations. But I've just looked at that data for a few MFI's on the list, trying to compare MFI's in the same country, although it is true that different locations in the same country can have different levels of infrastructure. Here's the data for a sample of MFI's:

Field partner                            Portfolio yield         Avge loan term        Avge loan size as % PCI

CCT – Philippines                             62.0%                4.21 months                5.77%
CEVI – – Philippines                         49.3%                 4.27 months                 6.29%
Alalay sa Kaunlaran–Philippines           50.2%                4.94 months            13.77%
Gata Daku – Philippines                     28.5%                 5.78 months            N/A

FAPE – – Guatemala                         53.6%                9.22 months            6.90%
Asociación ASDIR– Guatemala            26.7%              11.56 months             30.30%

ADIM – – Nicaragua                          56.5%                   5.38 months             20.18%
AFODENIC – – Nicaragua                    9.7%              11.95 months               149.92%
 
Fund for Thanh Hoa–Viet Nam           62.0%              12.24 months                12.34%
TYM Fund – – Viet Nam                    23.9%              11.65 months               24.10%
SEDA – – Viet Nam                          24.3%              10.18 months                  17.64%

The correlation seems to hold for the two in Guatemala and the two in Nicaragua, but not (or not very strongly) for the three in Vietnam. And with the four in the Phillipines, it can't be analyzed because the loan size for Gata Daku is listed as N/A (?).

I always accepted the idea that Kiva did due diligence to make sure the MFI's were not exploiting their clients. It is not possible for me to analyze all the MFI's myself. I haven't even tried to determine which ones offer more services to their clients, and therefore might justifiably have higher interest rates.

But Muhammad Yunus has now said that it is hard to justify any rate above 30%. Here is a link to a long quote from his book (I don't agree with the negative view of Kiva expressed in the article by the author who quotes Yunus):

http://irregulartimes.com/index.php/archives/2011/06/17/a-hand-up-or-usury-kiva-fee-and-interest-rate-review-june-2011/





 
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eileen
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« Reply To This #194 on: July 14, 2012, 08:58:53 AM »

One thing that surprised me was that the MFI with the highest portfolio yield was BRAC South Sudan, with a yield of 88%.

While many of the MFI's on Kiva are organizations which I am not familiar with, BRAC is well-known and highly respected. The organization was founded not by First World outsiders, but by Bangladeshis providing assistance to refugees in Bangladesh in 1972, and now exists in many countries. It has won many awards and is recommended by Nicholas Krostof and Sheryl WuDunn in their book "Half the Sky".

Should I avoid high interest rates, but make an exception for BRAC, given the difficulty of working in South Sudan with the poverty and conflict, and given the high opinion that so many experts have of the organization?
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Amy-in-PHX
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« Reply To This #195 on: July 14, 2012, 02:59:48 PM »

One thing that surprised me was that the MFI with the highest portfolio yield was BRAC South Sudan, with a yield of 88%.

While many of the MFI's on Kiva are organizations which I am not familiar with, BRAC is well-known and highly respected. The organization was founded not by First World outsiders, but by Bangladeshis providing assistance to refugees in Bangladesh in 1972, and now exists in many countries. It has won many awards and is recommended by Nicholas Krostof and Sheryl WuDunn in their book "Half the Sky".

Should I avoid high interest rates, but make an exception for BRAC, given the difficulty of working in South Sudan with the poverty and conflict, and given the high opinion that so many experts have of the organization?


Maybe there is high inflation there due to the conflict and being a new country.  The "real" interest rate (or portfolio yield) is the nominal rate minus the rate of inflation.  On the other hand, high inflation will also expose you to greater currency risk, unless currency risk is set to N/A or "covered" on the BRAC loans.  I don't know the answer for you - just food for thought.
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hjs
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« Reply To This #196 on: July 15, 2012, 03:47:55 AM »

One thing that surprised me was that the MFI with the highest portfolio yield was BRAC South Sudan, with a yield of 88%.

While many of the MFI's on Kiva are organizations which I am not familiar with, BRAC is well-known and highly respected. The organization was founded not by First World outsiders, but by Bangladeshis providing assistance to refugees in Bangladesh in 1972, and now exists in many countries. It has won many awards and is recommended by Nicholas Krostof and Sheryl WuDunn in their book "Half the Sky".

Should I avoid high interest rates, but make an exception for BRAC, given the difficulty of working in South Sudan with the poverty and conflict, and given the high opinion that so many experts have of the organization?

Portfolio Yield is defined by Kiva thus:  "Portfolio Yield is defined as all interest and fees paid by borrowers to the Field Partner divided by the average portfolio outstanding during any given year."

BRAC South Sudan has quite a few short term loans (six or seven months), so one chunk of money is rolling over a couple of loans in the one year, thereby raising more than one set of fees.  To my mind this would result in inflating the Portfolio Yield % . . .  ??
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« Reply To This #197 on: July 18, 2012, 10:45:32 AM »

Peter mentioned this book on microfinance in his post in this thread in March, 2012. The following review of the book may be of interest to Kiva lenders:

Book review for the microfinance news site microDINERO about Hugh Sinclair’s controversial new insider/whistleblower account of the microfinance industry. July 10, 2012

“Confessions of a Microfinance Hertic: How Microlending Lost Its Way and Betrayed the Poor.”

“Outside of the mainstream and microfinance’s promotional campaigns, many academics, NGOs, critical journalists and also former microfinanciers have quietly criticised microfinance for years – only to be ignored or dismissed as lunatics or ideologues. The problems in microfinance, however, are very real, and Hugh Sinclair’s controversial new book “Confessions of a Microfinance Heretic” makes them impossible to ignore.

For the few independent researchers, fortunately able to study microfinance without reporting to microfinance-supporting bodies or the major research groups (which happen to be mostly funded by the same organisations which fund microfinance), the problems of microfinance are not news. They include that microfinance, by its very nature, supports only the simplest, least-productive and lowest growth-potential activities, as Milford Bateman argues. They also include the fact that most loans are simply used for consumption, which even CGAP recognises in its attempts to redefine microfinance in terms of “financial inclusion”, ignoring the problem of these loans’ unsustainability. This is linked to the risk of overindebtedness and debt traps researched bravely by Jessica Schicks, and evidenced most gruesomely in the Indian microfinance crisis. There is also the problem of microfinance building on and employing immense power asymmetries, particularly between men and women, as Lamia Karim has shown, rather than removing these asymmetries through actual processes of empowerment. These are just a few issues.

With Hugh Sinclair along comes someone who has extensive real-life experience, a fascinating story to tell – from his original belief in microfinance to his disillusionment and ultimate heresy against it – and a knack for writing. His book, as devastating as it is entertaining to read, presents a serious challenge to large elements of the microfinance industry. Sinclair adds a new problem to the list of reasons why microfinance cannot keep its promise of poverty reduction, showing that the incentives within the microfinance industry are structured in such a way that positive developmental outcomes can – at best – occur as an accidental by-product; and mostly won’t occur at all.

Let us call this the “problem of industry structure” and investigate it. To begin with, contrary to many other critics, Sinclair assumes that the interests of the people at both ends of the microfinancial chain are actually aligned: that is, both the funders and the borrowers of microfinance loans actually want the loans to relieve the poverty of the borrowers. Be that as it may; in between the two sits a microfinance industry which controls the flows of both capital and information.

To simplify, this industry consists of two types of actors – MFIs (microfinance institutions) and funds – whose interest is usually to lend or invest money at the highest possible rate of return. For the MFIs, the only source of revenue are the clients who pay interest (and often deliberately-hidden fees, as Sinclair alleges) on their loans. Rather than engage in costly screening of clients, it is easier for MFIs to charge excessive interest rates to everyone, through which they can absorb any losses on bad loans. To this scheme Sinclair adds the typical practice of not writing off failing loans, indefinitely postponing default with replacement loans instead, plus a general incompetence among MFIs at making good choices. As a result of these, high rates are most MFIs’ only possible survival strategy. The second set of actors, the investment funds, need to find MFIs to invest in, which promise an assured return on their investment. For the fund’s own fees and for its investors’ tastes to be satisfied, this return need not be particularly high, but funds (just like MFIs) find it costly and difficult to screen for the right partners to give money to. Their easiest and safest option, therefore, is to give it to the MFI with the highest returns, and preferably one in which other funds have already invested (the herd-instinct), so that at the end at least some money is certainly left over for the fund and its investors.

The losers in this scheme, according to Sinclair, are the poor people who pay excessive interest rates – with all the imaginable effects, from business failure to overindebtedness and worsened poverty – as well as and the original investors and donors, who are duped. The control of the industry over information about microfinance (from glossy photos essays to heartwarming client stories to pseudo-regulation initiatives like the SMART campaign) keeps the investors in the dark about the bizarre ground realities of microfinance. Sinclair’s main message therefore goes out to the investors and donors, warning them that they are being taken for chumps. No doubt, his book will be most vehemently opposed by the microfinance industry because it seeks to unsettle the industry’s truly most valuable stakeholder: not the poor (who do the work) but the rich who give the money, from the casual Kiva “investors” to the committed long-term donors.

Sinclair isn’t saying that the entire idea of microfinance was wrong, nor that most people in the industry are in it to get filthy-rich (even though a few are getting so). Rather, his point is that the for-profit microfinance model, as promoted under the auspices of the Washington institutions IMF, World Bank and USAID, which was intended to make microfinance more efficient and pro-poor, is having the opposite effect. By assuming there to be no need for any real evidence-checking on social impact, because of course “the market will solve it” through competition and client choice, the for-profit microfinance model created a comfortable environment for fraud, greed, and incompetence.

Others have launched more fundamental and principled critical investigations into microfinance, before Sinclair. Nonetheless, this insider-turned-whistleblower’s deeply personal account of how he realised that the industry he worked for committedly was unable to fulfil its promises may have a major impact on the public imagination of microfinance. How Sinclair realised that trying to reform microfinance from the inside via constructive criticism wasn’t working, because it ran against the interests of everyone involved (except the poor), is an enthralling tale which interested readers will find difficult to put away. The story of how microfinance has been hijacked by corrupt, greedy and callous actors whose finest skills are self-praise at lavish conferences, promoting their own business as a cure-all for poverty (against all evidence), and luring already-poor people into crippling debt traps presents a direct challenge to those actors. No doubt, those who fail to recognise this challenge as an opportunity for reflecting on the real mission of microfinance, rather than denying the lack of systematic evidence of microfinance’s beneficence (after 35 years!), and refusing to root out the bad players, will be enraged. The others should take the opportunity seriously.

“Confessions” is a thrilling and chilling read. But while the book makes a powerful argument, and is meticulously referenced, allowing the reader to do her or his own background check, it does remain opaque in a few places. The evidence of funds engaging in active cover-ups, rather than just being pitiably incompetent at their job, is insider material which remains difficult to corroborate with public-domain information. How exactly the funds reacted to Sinclair’s attempts at critique and reform is irrelevant, however, to the main point about the problem of industry structure in microfinance.

This book is therefore most important for three reasons. First, it prompts a long-overdue questioning of whether the solution for poverty can actually be found in giving people more debt through an extension of Wall Street-style finance into the slums and villages of the Global South. Second, the book’s critique may help to root out the bad players in microfinance, for whom social impacts are mere advertising stratagems, while making a quick buck on the backs of poor people is the bottom line. Third and finally, it offers some actual solutions beyond rhetoric and promises.”

From: Governance Across Borders
http://governancexborders.com/2012/07/10/heresy-or-opportunity-book-review-of-confessions-of-a-microfinance-heretic/
« Last Edit: July 18, 2012, 10:46:44 AM by Harvey:) » Logged

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Diane R
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« Reply To This #198 on: July 18, 2012, 11:31:06 AM »

Another review, by David Roodman, appears here:  http://blogs.cgdev.org/open_book/2012/07/review-of-confessions-of-microfinance-heretic.php
 

Roodman loves the stories in the book, but is critical of other parts of Sinclair's narrative. Some quotes from Roodman's review:

Quote
I can’t recall feeling such an acute combination of fury and delight at a book before.  ...

What delights in this book are the stories.  ...  What riles me about the book is not the affront to the thesis that microcredit is a miracle cure for poverty but, as in Milford Bateman’s book, the easy and unsupported condemnations of a class of people. The preface and first chapter drip with derision. Often it contradicts the hope professed elsewhere for the potential of microfinance. ...

This book has helped me appreciate how the arrival of microfinance investment intermediaries, by adding a stop to the route your money takes on its way to a microfinance user, can add to the principal-agent problems.
[Roodman defines "principal-agent problems" as the limitations and distortions of truth passed along in the ever-lengthening intermediary chain between microlender and microborrower, which he refers to as "sing[ing] the songs donors want to hear".]


This comment particularly resonated with me:

Quote
After pounding the industry for 200 pages (did I mention the 10-page diatribe against Kiva, much of it disconnected from the question of what helps the poor?), the author offers surprisingly little guidance on how to do better: “I don’t know how to embark on this massive cleanup.” Now, I don’t have a detailed reform plan either, but I don’t imply that most people in the movement are fools are [sic] worse. I think that the more you put down others the more you raise the bar for yourself.
[emphasis mine]

The book would appear to be a mixed bag, but worth a read for those interested in microfinance and especially in stories from the field.

--Diane.
(EDIT: Roodman makes another comment which I appreciated.  In saying he chose not to blog about LAPO last year, even though he knew about the serious problems there, he says, "I recognized that helping poor people sometimes requires choosing the good over the unachievable perfect.")
« Last Edit: July 18, 2012, 11:42:38 AM by Diane R » Logged
The White Cat
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« Reply To This #199 on: August 19, 2012, 07:20:13 AM »

Why doesn't an MFI's actual APR for a loan get quoted? Am I being too Simplistic? The APR has a direct impact on the individual or group requesting the loan, the interest rate charged is how the MFI makes the profit and covers their costs.

When I look at a repayment schedule all I see are the repayments that are returned to Kiva (I think), what I don't see is the %age interest in dollars paid to the MFI and the real cost of the loan to the individual or group.

From my point of view, my money is here to help others and be as efficient as possible, high percentage yields seem to be telling me something different.

Please shoot me down.... I want to know that I am wrong.
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