Using Kiva to manufacture spend

Old Nov 20, 2012, 3:52 pm
  #76  
 
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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.

The local microlenders charge high interest rates at the local level. That allows them to generate sufficient interest income to cover their true default rate while ensuring Kiva lenders experience very low default rates. It's a bit of a con game by Kiva to lure people into lending.

I bet 99% on Kiva "think" that actual real world default rates are less than the 1% Kiva reports - and never realize that the "interest free" loans they are providing are only "interest free" to the local microlending organizations - and are completely oblivious that the local borrower is paying 20-40-60% interest rates. If I had to guess, I'd bet "real world" default rates are as high as 20% in some places.

But as I said earlier, those high interest rates are still cheaper than what can otherwise be found locally.
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Old Nov 20, 2012, 4:27 pm
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Does anyone have any proof that Kiva's field partners are charging high interest rates in order to keep default rates? All I am reading here is speculation. I have not seen anyone provide any hard evidence.
You are forgetting many important facts. The most important of these facts is that Kiva is only one of many sources of capital for these field partners. Kiva never provides more than 30% of any of its field partners capital. Often it provides much less.
And you are all neglecting the many other expenses that these field partners entail. I really wish folks would present some real facts and useful information and stop speculating.
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Old Nov 20, 2012, 4:47 pm
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It's an interesting discussion. I made 3 small loans to Kiva earlier this year but it never occurred to me to actually use the organization as a way to meet spending requirements. Good idea!

People have brought up some good points. I'm going to look into Zidisha because it sounds like it might be a better alternative for me because it does bother me about the interest charged to the end borrower. I must say, I get really excited when I get my repayments of $1 and I see that my loan must be helping someone.
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Old Nov 20, 2012, 5:03 pm
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Originally Posted by airbus320
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.
Er... ya... and we should trust whatever Kiva says on their website because they are objective and independently verified by a 3rd-party....
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Old Nov 20, 2012, 5:04 pm
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People who are interested in making Kiva loans, but are concerned about field partner's interest rates should use www.kivalens.org to search for loans.
On the left side of kivalens you will find that you can screen loans according to the field partner's average interest rate (lowest I see right now is 11%).
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Old Nov 20, 2012, 5:08 pm
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Anyway, in conclusion, I have achieved what I wanted to do in this post. To provide a Public Service Announcement on the potential risks of churning large amounts of money through Kiva.

There has been some discussion as to how Kiva operates, the ethics behind it, etc... which to be honest from a manufacturing spending perspective it's totally irrelevant. I don't care how Kiva works, I don't care about the ethics/morals of the way they conduct business, at the end of the day the only questions that point churners should ask are...
1) What regulations are in place that ensures that Kiva is a safe organization and that all loans will be repaid? Note that this is totally unrelated to the question of what is Kiva's loan default rate.
2) What 3rd-party has audited Kiva? What is their level of transparency and accountability? What kinds of checks and balances are in place within Kiva to prevent fraud (if any)? Note that just having all their information posted on their website may not necessarily be enough for some of us.
3) What recourse do I have should Kiva loans default? How likely is it I will get my money back? How long would it take?
4) Kiva operates as a charitable organization, but yet the way we are using loans make it seem like an investment product. Does the fact that Kiva operates as a charitable organization (and thus not subjected to the legislation imposed on real investment products) make me more vulnerable or make the endeavor more risky?

Anyway to each his own, so make up your own mind.

Last edited by Rommie2k6; Nov 20, 2012 at 5:15 pm
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Old Nov 20, 2012, 5:44 pm
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Originally Posted by onthego15
Does anyone have any proof that Kiva's field partners are charging high interest rates in order to keep default rates? All I am reading here is speculation. I have not seen anyone provide any hard evidence.
Are you asking for confirmation that that the field lenders charge high interest rates, or are you asking for confirmation that the high interest rates mask high default rates? If it's the former, I believe someone posted evidence upthread.

Originally Posted by onthego15
And you are all neglecting the many other expenses that these field partners entail. I really wish folks would present some real facts and useful information and stop speculating.
Some of us aren't neglecting this. Some of us acknowledge it and still find the whole thing unsettling. All charities incur expenses. The Red Cross incurs expenses. Mercy Corps incurs expenses. But not all charities charge its benefactors for the "aid" they receive. Just because a charity incurs expenses does not mean it must charge its beneficiaries.
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Old Nov 20, 2012, 5:56 pm
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Originally Posted by sk8uno
Are you asking for confirmation that that the field lenders charge high interest rates, or are you asking for confirmation that the high interest rates mask high default rates? If it's the former, I believe someone posted evidence upthread.

Some of us aren't neglecting this. Some of us acknowledge it and still find the whole thing unsettling. All charities incur expenses. The Red Cross incurs expenses. Mercy Corps incurs expenses. But not all charities charge its benefactors for the "aid" they receive. Just because a charity incurs expenses does not mean it must charge its beneficiaries.
My question concerns the allegations that field partners charge high interest rates in order to cover defaults.

Most of Kiva's field partners are not charities and do not claim to be.
If the interest rates charges by the field partners really bother you, then it is easy enough to choose field partners whose interest rates are lower. Above I mentioned kivalens as one way to search for those. Also, interest rates are posted on each Kiva loan. Kiva's terminology is Portfolio Yield which is an avargae of that field partner's interest rates. It is also useful to look at each field partner's profitability (return on assets). Some are losing a lot of money on lending and some are making a profit.

Last edited by onthego15; Nov 20, 2012 at 7:26 pm Reason: typo
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Old Nov 20, 2012, 7:15 pm
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Originally Posted by sk8uno
+1. What is the point of this thread? The same warning can be given for every other miles-earning opportunity. No new information has been given about Kiva and no information has been given that tends to show Kiva is more likely to shut down than any other company. Bizarre.
Doesn't Post # 25 give weight to the OP's warning and at the same time demonstrate that the whole of Kiva doesn't have to collapse for one to lose his money? Is his view really Bizarre?
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Old Nov 20, 2012, 7:40 pm
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I've had online dialogue with many dozens of Kiva lenders here and on Milepoint. I can't remember anyone saying they were doing it just to earn points/miles. Personally I would recommend staying away from Kiva if that is your only motivation.
Personally I believe that the vast majority of Kiva lenders (even those on the FlyerTalk and Milepoint teams) do it for other reasons and earning miles/points is secondary.
Personally I enjoy Kiva a lot. I enjoy making loans and connecting with people around the world thru the info and pictures on Kiva. I enjoy learning about micro-finance. I appreciate that my small loans can make a difference in another person's life.
Yes, I have earned some miles/points/cash back. That makes up for the few loans on which I have lost some money and for some of the interest I would have earned had my money been invested elsewhere. It does not make up for the donations I have made to Kiva - not even close.
So, if your only interest in Kiva is earning miles and points, you will probably be better off trying something else. But if you have a feeling for helping folks around the world with your loans, then you may come to enjoy it.
Kiva is something I am giving thanks for this week.
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Old Nov 20, 2012, 8:12 pm
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How long does is it take you to get your money back on an average loan?
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Old Nov 20, 2012, 8:28 pm
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Originally Posted by al613
How long does is it take you to get your money back on an average loan?
There is enormous variance in loan terms. I've seen loans which paid back within two months and I've seen loans which pay back in seven five or more years.
It is easy to sort loans according to their repayment.
At this particular moment in time, loans are available which should pay back completely in March 2013 and loans are available which should pay back in December 2019.
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Old Nov 20, 2012, 11:32 pm
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Originally Posted by rmiller774
Doesn't Post # 25 give weight to the OP's warning and at the same time demonstrate that the whole of Kiva doesn't have to collapse for one to lose his money? Is his view really Bizarre?
His view is not bizarre. His view is perfectly normal, and accurate in my opinion. What I found bizarre was the need to start a thread, completely out of the blue and with no newly revealed information, with the goal of warning people about obviously inherent risks in a tool that has existed for a long time. It's no secret that people might not get paid back. It's no secret that Kiva might go bankrupt (that's a risk with any company). It's no secret that they are not subject to the regulatory oversight that comes along with traditional securities. It just seemed rather strange to post such a warning in this manner, that's all.

That said, I have learned plenty of valuable information about Kiva that I was otherwise unaware of...it just wasn't information relevant to the OP's warning.

In any event, he felt the need to post it. Something must have motivated that. I wasn't trying to come down on him on a personal level and I realize my tone may have been a bit harsh. My apologies if OP, or anyone else, felt attacked.
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Old Nov 29, 2012, 4:44 pm
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Well, though I am unsure why this discussion is in this forum, here's the view of one who has been a Kiva member for years and 569 loans over the years.

If Kiva were fly by night, do you imagine Chevron, Visa, Moody's, American Express, PayPal, Ernst & Young, et al would be supporters?

One has a number of tools to manage risk; one can choose what kinds of loans, via which microcredit bank, etc. one can make if they choose to empower microentrepreneurs in this way. Though I have chosen to make some riskier loans, my default rate over the years is less than 0.5%.

Do some microcredit institutions charge more? Of course they do - and yet some still are not awfully solvent. Think about credit a moment - in the US, say, you go to purchase an automobile. You have various assets, a credit history and the lender instantly has credit risk information on you - FICO score, etc. and you get a loan that is based on your risk factors, as determined by the predictive analytics software used by one (or more) of the three credit rating agencies.

You receive notifications every month in the mail - but you may also choose to make automatic payments (either pulled by the lender or pushed by your financial institution). Cost to service a loan? Virtually nothing.

Now: you are an illiterate woman in Cambodia, living in a rural area, who wishes she could afford silk for weaving or a sewing machine, so she can expand her home-based crafts business to support her family. There is no bank locally, but if she traveled to Phom Penh asking for a $500 loan they would laugh her out of the bank - where is her credit history, what assets does she have, what connections does she have in the city? She is, essentially, nobody.

So, she can get money from local moneylenders - they might charge interest in the hundreds percentiles, and they might threaten her family or become physical if she has a late payment for any reason.

She can now get support form other villagers and apply for a microloan, and when she receives the money she may indeed have an APR of 40%, to mention one figure from a prior post.

The microcredit institution is likely to have to provide significant support - business education, regular visits (made by a staffer on a motorbike from Phnom Penh), recovering cash monthly rather than using the Internet for automatic payments. As discussed elsewhere by FlyerTalk member Giblet, who was an unpaid Kiva fellow with MAXIMA Mikroheranhvatho Co., Ltd. in Phnom Penh, it takes a lot to service a microloan - often with services and support a bank would never provide, for a small loan a bank would never get involved in.

So, from one who has travelled the world for well over 60 years and has wished he could make a difference - without succumbing to requests or scams for money - I have seen how Kiva works and choose to support it as a way of paying it forward in many countries I have visited or others I am concerned with. And FlyerTalkers have chosen to lend over $300,000 to date.

Kiva is, IMO, not a way to earn miles and points, nor interest (since there is none) primarily - it is a way to offer those who wish to raise their economic station by hard work a hand up, rather than a hand out; a network that allows those of us fortunate in circumstance in developed nations to make loans to those not in as fortunate a circumstance. Our goals as lenders may include miles or points as a way of getting some "interest" but we acknowledge not everyone feels as we do (in fact, many of us merely re-lend as our money is returned to us without worrying about miles or points).

This is why Kiva is discussed primarily in the FlyerTalk Cares! Forum, concerned with FlyerTalk's charitable endeavors.

Since Kiva was founded in 2005:

850,029 Kiva lenders
$378,157,100 in loans
99.00% Repayment rate

We work with:
170 Field Partners
450 volunteers around the world
66 different countries

Last edited by JDiver; Nov 29, 2012 at 5:22 pm Reason: add quote box with figures
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Old Nov 30, 2012, 5:25 am
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Originally Posted by JDiver
Well, though I am unsure why this discussion is in this forum, here's the view of one who has been a Kiva member for years and 569 loans over the years.

If Kiva were fly by night, do you imagine Chevron, Visa, Moody's, American Express, PayPal, Ernst & Young, et al would be supporters?

One has a number of tools to manage risk; one can choose what kinds of loans, via which microcredit bank, etc. one can make if they choose to empower microentrepreneurs in this way. Though I have chosen to make some riskier loans, my default rate over the years is less than 0.5%.

Do some microcredit institutions charge more? Of course they do - and yet some still are not awfully solvent. Think about credit a moment - in the US, say, you go to purchase an automobile. You have various assets, a credit history and the lender instantly has credit risk information on you - FICO score, etc. and you get a loan that is based on your risk factors, as determined by the predictive analytics software used by one (or more) of the three credit rating agencies.

You receive notifications every month in the mail - but you may also choose to make automatic payments (either pulled by the lender or pushed by your financial institution). Cost to service a loan? Virtually nothing.

Now: you are an illiterate woman in Cambodia, living in a rural area, who wishes she could afford silk for weaving or a sewing machine, so she can expand her home-based crafts business to support her family. There is no bank locally, but if she traveled to Phom Penh asking for a $500 loan they would laugh her out of the bank - where is her credit history, what assets does she have, what connections does she have in the city? She is, essentially, nobody.

So, she can get money from local moneylenders - they might charge interest in the hundreds percentiles, and they might threaten her family or become physical if she has a late payment for any reason.

She can now get support form other villagers and apply for a microloan, and when she receives the money she may indeed have an APR of 40%, to mention one figure from a prior post.

The microcredit institution is likely to have to provide significant support - business education, regular visits (made by a staffer on a motorbike from Phnom Penh), recovering cash monthly rather than using the Internet for automatic payments. As discussed elsewhere by FlyerTalk member Giblet, who was an unpaid Kiva fellow with MAXIMA Mikroheranhvatho Co., Ltd. in Phnom Penh, it takes a lot to service a microloan - often with services and support a bank would never provide, for a small loan a bank would never get involved in.

So, from one who has travelled the world for well over 60 years and has wished he could make a difference - without succumbing to requests or scams for money - I have seen how Kiva works and choose to support it as a way of paying it forward in many countries I have visited or others I am concerned with. And FlyerTalkers have chosen to lend over $300,000 to date.

Kiva is, IMO, not a way to earn miles and points, nor interest (since there is none) primarily - it is a way to offer those who wish to raise their economic station by hard work a hand up, rather than a hand out; a network that allows those of us fortunate in circumstance in developed nations to make loans to those not in as fortunate a circumstance. Our goals as lenders may include miles or points as a way of getting some "interest" but we acknowledge not everyone feels as we do (in fact, many of us merely re-lend as our money is returned to us without worrying about miles or points).

This is why Kiva is discussed primarily in the FlyerTalk Cares! Forum, concerned with FlyerTalk's charitable endeavors.
An extremely well thought out post. Thank you.
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