Using Kiva to manufacture spend

Old Nov 17, 2012, 7:54 pm
  #61  
 
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Originally Posted by sk8uno

I now see Kiva is not a charity service. In fact, I now wonder if it actually limits the amount of capital poured into microfinance. Since the borrowers are willing to pay interest, imagine how many more people would be willing to invest in microfinance if the lenders made a modest return.
Actually this I disagree on ... see what they have done here that is very "clever" is to make it look like you are lending directly to some individual in some stricken country and you can do it interest free and the default rate is almost zero. I work in finance and this is where my spidey-sense went tingling. There are very few entities with a default rate close to zero. As Europe is learning, not even most sovereign entities have that kind of credit-worthiness. So what they do is they effectively lend out a much smaller amount, at high interest rates, and the default rates on the actual end loans are likely through the roof. I mean Wilma in Sudan borrowing $1,000 to make mats is not a sure-fire loan. But they make enough in interest and on those that do pay back, plus the fees they no doubt make (I think more likely the local orgs not Kiva itself which I am guessing has honorable intentions) means they can always afford to pay back the dollar lent close to whole. So everyone thinks they are doing basically charitable, risk free lending. It is frankly marketing genius.

By doing this they vastly increase the amount of money pouring in. That may well be a good thing. Imagine if you really were lending directly to Wilma in Sudan at 40% interest rates. The forums here would be awash with stories of how someone made out like a bandit, has made a fortune, along with other tales of how Wilma pissed it all down the drain and they lost everything and this is no better than the Nigeria money laundering scam. No they smooth out all those ups and downs at the local level so the middle class guy in middle America can do this and feel real good and comfortable about himself.

With that said, if your aim is really just to meet CC spend, then maybe it's fine. The risk of default probably really is quite small. I'd rather screw over Wells Fargo than Wilma in Sudan but hey we all pick our poisons.
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Old Nov 17, 2012, 10:03 pm
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Originally Posted by ma91pmh
Actually this I disagree on ... see what they have done here that is very "clever" is to make it look like you are lending directly to some individual in some stricken country and you can do it [I]interest free and the default rate is almost zero.......
So everyone thinks they are doing basically charitable, risk free lending.
Untrue and at the least a misrepresentation. I urge readers to go to the kiva site itself, read the material, and make your judgments. It is very clear you in most cases are replenishing funds already lent locally to the people not lending directly. It is very clear there is risk involved and the delinquency rates are shown and possibility of exchange loss.

And, the posters are using the wrong frame of reference for the lender. These lenders are more than the US-centric model for financial institutions.

But don't take my word for it. Go to the Kiva site and read it. Actual facts can be more useful than FT postings sometimes.
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Old Nov 17, 2012, 10:15 pm
  #63  
 
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Originally Posted by ma91pmh
It is frankly marketing genius.
I wholeheartedly agree. I think this is the takeaway point of the whole thread!
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Old Nov 17, 2012, 10:23 pm
  #64  
 
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question already asked.

Last edited by rmiller774; Nov 17, 2012 at 10:35 pm
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Old Nov 18, 2012, 8:12 am
  #65  
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Check the quality and depth of the Kiva board.....they are captains of industry who certainly would not be associated with the antics described in many of the posts above.

http://www.kiva.org/about/team/board

I would rather trust their due diligence than certain statements found in this thread.
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Old Nov 18, 2012, 8:38 am
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Originally Posted by SiberianTiger
Another place to help less fortunate and to increase spend:

https://www.zidisha.org/

What are your thought FTs?
An interesting alternative to Kiva. It does not use Field Partners to select borrowers and the recommendations often come from sources that are not disinterested. Still, my personal experience there has been excellent and all of the loans I have made are repaying as scheduled except one where the borrower requested more time but continues to repay at the slower rate.

So for those who do not understand or who dislike the Kiva model, try Zidisha. I like both and am active on both.

Kiva has a Zidisha like model called Kiva zip you might want to check out. Unlike Zidisha though, Kiva zip lenders get no interest. Zidisha lenders receive 0 to 5%, maybe a bit higher, interest.
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Old Nov 18, 2012, 12:04 pm
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Originally Posted by global_happy_traveller
Even though Kiva is a lending/payback program, one should treat it as a charity....... Donate something that you are comfortable with the intention of helping someone in need.......

If you are serious with getting something in return and repayments etc, I highly suggest bonds/fixed deposit.
I like that. Sort of like donations to Sandy for points.
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Old Nov 18, 2012, 12:13 pm
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I don't understand why some are attacking Kiva here, they try to be transparent about interest paid by borrowers and yes, the rates are high, but I haven't seen anyone pipe up who is remotely qualified to put their finger on what rates are commonly in a lot of these places to borrowers like these. Also, allowing "field partners" to charge "market" rates means that you can do a lot more with less overhead at the top level, e.g. field partners can hire staff/cover costs and have incentives to get paid back. Of course, I hope all of this is closely scrutinized by Kiva and its users to avoid corruption and/or loan sharking.
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Old Nov 18, 2012, 12:52 pm
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Originally Posted by Thunderroad
BUT are you sure the 40%+ interest rates apply to half of the Kiva lenders, as you claim? What is your source?

More generally, I value this discussion in that it has made me more aware of Kiva, including possibly contributing. If anyone can decently address the 40%+ allegation, I'd very much appreciate it.

It's not an allegation. I's a fact. Kiva posts what each microlender charges and 40% (and higher) is not unusual. Think microlenders use those high interest rates to ensure "reported" default rates are minuscule - it's a semi-con game by Kiva to advertise such low default rates when it is almost surely much higher.

That said, microlenders typically offer far cheaper loans than other loans that can be obtained locally (local loan sharks, er money lenders, typically charge much higher rates). As such, while such rates seems obscene compared to the uber-low rates in the west, it's far better than the alternative - and why Kiva has grown so rapidly
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Old Nov 18, 2012, 2:07 pm
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Originally Posted by farwest101
That said, microlenders typically offer far cheaper loans than other loans that can be obtained locally (local loan sharks, er money lenders, typically charge much higher rates). As such, while such rates seems obscene compared to the uber-low rates in the west, it's far better than the alternative - and why Kiva has grown so rapidly
One of the primary purposes Kiva was created in the first place is to make capital available in places where it's not available or only available at outrageous rates. If you think the rates charged by some of the micro-lending organizations are high, then you would be truly appalled if you could see what the rates are when there are no micro-lending organizations Plus these micro-lending organizations provide many other services.

A few folks here have made allegations that Kiva's field partners use tricks to keep default rates low. I have yet to see proof of these allegations.
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Old Nov 18, 2012, 2:54 pm
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Here is an important piece of information. Even when a micro-lending organization has an established relationship with Kiva, Kiva provides no more than 30% of that organization's funds for lending. Also, there are probably thousands of micro-lending organizations worldwide which have no relationship with Kiva. So, Kiva is just a small part of the world of micro-lending.

And yet, each and every loan is important to the recipient. I once made a loan of $25 (yes, that was the entire loan). That's why we say every loan is important.
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Old Nov 18, 2012, 3:55 pm
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Originally Posted by farwest101
It's not an allegation. I's a fact. Kiva posts what each microlender charges and 40% (and higher) is not unusual. Think microlenders use those high interest rates to ensure "reported" default rates are minuscule - it's a semi-con game by Kiva to advertise such low default rates when it is almost surely much higher.

That said, microlenders typically offer far cheaper loans than other loans that can be obtained locally (local loan sharks, er money lenders, typically charge much higher rates). As such, while such rates seems obscene compared to the uber-low rates in the west, it's far better than the alternative - and why Kiva has grown so rapidly
Thanks very much. You make a very good, crucial point in your second paragraph.

I'm not sure I understand the bolded point you make in the first one, though. I'm missing the connection between the high rates and the claim that defaults are very low.
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Old Nov 19, 2012, 10:47 am
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The bigger problem is that the administrative cost of each loan is pretty high relative to the amount borrowed. This is why banks in america usually have a fairly high minimum installment loan amounts (generally at least $2000)
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Old Nov 20, 2012, 3:07 pm
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Originally Posted by Thunderroad
Thanks very much. You make a very good, crucial point in your second paragraph.

I'm not sure I understand the bolded point you make in the first one, though. I'm missing the connection between the high rates and the claim that defaults are very low.
I think it's a contrast between number of loans that default vs. dollars repaid per dollars loaned.

So if you charged 100% interest and 50% of the borrowers defaulted, you'd still be breaking even. If you pooled the money, you'd be able to repay every investor in full.
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Old Nov 20, 2012, 3:38 pm
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Originally Posted by ma91pmh
Actually this I disagree on ... see what they have done here that is very "clever" is to make it look like you are lending directly to some individual in some stricken country and you can do it interest free and the default rate is almost zero... So everyone thinks they are doing basically charitable, risk free lending. It is frankly marketing genius.

^Exactly. That said, the alternative for the borrowers is to visit their local loanshark who demands significantly higher interest rates - rates that "shock" most people used to getting 30 year loans at 3%.
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