tag:blogger.com,1999:blog-37378399.post2878773170984604305..comments2008-02-05T14:47:59.751-05:00The Canadian Money Reviewerhttp://www.blogger.com/profile/12558527698737914440noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-37378399.post-12384312256092838652008-02-05T14:47:00.000-05:002008-02-05T14:47:00.000-05:002008-02-05T14:47:00.000-05:00they do have a decent explanation on the Kiva FAQ:<BR/>What are the interest rates that the Field Partners charge?You can find the average interest rates that our field partners charge on our partner pages: www.kiva.org/about/partners . <BR/>Why are your field Partners' interest rates so high?The average interest rate that a Kiva field partner charges is about 21%, and Kiva.org only partners with microfinance institutions that have a social mission of lending to the poor. To obtain more information about how Kiva.org evaluates and selects its field partners, please see our Risk and Due Diligence center: www.kiva.org/about/risk/overview .<BR/><BR/>The nature of microcredit ' small loans ' is such that interest rates need to be high to return the cost of the loan. To quote (CGAP) (Consultative Group to Assist the Poor):<BR/><BR/>'There are three kinds of costs the MFI has to cover when it makes microloans. The first two, the cost of the money that it lends and the cost of loan defaults, are proportional to the amount lent. For instance, if the cost paid by the MFI for the money it lends is 10%, and it experiences defaults of 1% of the amount lent, then these two costs will total $11 for a loan of $100, and $55 for a loan of $500. An interest rate of 11% of the loan amount thus covers both these costs for either loan.<BR/>The third type of cost, transaction costs, is not proportional to the amount lent. The transaction cost of the $500 loan is not much different from the transaction cost of the $100 loan. Both loans require roughly the same amount of staff time for meeting with the borrower to appraise the loan, processing the loan disbursement and repayments, and follow-up monitoring. Suppose that the transaction cost is $25 per loan and that the loans are for one year. To break even on the $500 loan, the MFI would need to collect interest of $50 + 5 + $25 = $80, which represents an annual interest rate of 16%. To break even on the $100 loan, the MFI would need to collect interest of $10 + 1 + $25 = $36, which is an interest rate of 36%. At first glance, a rate this high looks abusive to many people, especially when the clients are poor. But in fact, this interest rate simply reflects the basic reality that when loan sizes get very small, transaction costs loom larger because these costs can't be cut below certain minimums.' (CGAP)The Canadian Money Reviewerhttp://www.blogger.com/profile/12558527698737914440noreply@blogger.comtag:blogger.com,1999:blog-37378399.post-68931483934521111212008-02-05T08:38:00.000-05:002008-02-05T08:38:00.000-05:002008-02-05T08:38:00.000-05:00MDJ: thanks for the "warning"! I'll have a closer lookThe Canadian Money Reviewerhttp://www.blogger.com/profile/12558527698737914440noreply@blogger.comtag:blogger.com,1999:blog-37378399.post-90248127718300877552008-02-05T08:32:00.000-05:002008-02-05T08:32:00.000-05:002008-02-05T08:32:00.000-05:00Hey CMR,<BR/><BR/>I've written about Kiva before. It seems like it's a great idea, except for the fact that the "field" partners do charge HIGH interest rates. Check out my review of Kiva by clicking on my name.MillionDollarJourneyhttp://www.milliondollarjourney.com/kivaorg-lending-to-third-world-entrepreneurs.htmnoreply@blogger.com