Using Kiva to manufacture spend

Old Nov 30, 2012, 7:37 am
  #91  
 
Join Date: Jan 2004
Location: Louisville, KY, USA
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Originally Posted by JDiver

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.

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).
Great post. I only quotes a small part but agree with it all.

Calling the charges interest is a bit unfair.

Kiva uses a calculation called Portfolio Yield to express the average interest rate and fees that Kiva borrowers pay to the Kiva Field Partner administering their loan. 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.

Now it costs as much to put a small loan on the books as a large one. An initial fee of $50 on a $500, six month loan is 20% by itself. Add to that extra ordinary collection costs and a fair (risk based) interest rate, 40% doesn't seem so high. And many Field Partners show lower Portfolio yields.

The real measure is "Return on Assets," an indication of a microfinance institution's profitability. It can also be an indicator of the long-term sustainability of a microfinance institution, as organizations consistently operating at a loss (those that have a negative return on assets) may not be able to sustain their operations over time.

Typical numbers are like

Interest & Fees are Charged
Yes
Portfolio Yield:
38.78%
Profitability
(Return on Assets):
-4.46%

Unless that changes, that 3.5 star Field Partner will be in real trouble. Its focuses include

Anti-Poverty Focus
Family and Community Empowerment
Entrepreneurial Support
Facilitation of Savings
Innovation

This Field Partner is located in Peru (http://www.kiva.org/partners/71). In its five + years with Kiva it has assisted over 17,527 Kiva entrepreneurs and loaned them almost $10 million.

Maybe it needs to be chaging a bit more, not less. Judging MFI by portfolio yield, where not improper, is but one of many factors to be considered. The Kiva detractors here have too narrow a focus. Hopefully this thread will serve to educate them and others.

Again my thanks to JDiver for a great post.
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Old Nov 30, 2012, 8:26 am
  #92  
 
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Posts: 468
Originally Posted by KyRoamer
Great post. I only quotes a small part but agree with it all.

Calling the charges interest is a bit unfair.

Kiva uses a calculation called Portfolio Yield to express the average interest rate and fees that Kiva borrowers pay to the Kiva Field Partner administering their loan. 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.

Now it costs as much to put a small loan on the books as a large one. An initial fee of $50 on a $500, six month loan is 20% by itself. Add to that extra ordinary collection costs and a fair (risk based) interest rate, 40% doesn't seem so high. And many Field Partners show lower Portfolio yields.

The real measure is "Return on Assets," an indication of a microfinance institution's profitability. It can also be an indicator of the long-term sustainability of a microfinance institution, as organizations consistently operating at a loss (those that have a negative return on assets) may not be able to sustain their operations over time.

Typical numbers are like

Interest & Fees are Charged
Yes
Portfolio Yield:
38.78%
Profitability
(Return on Assets):
-4.46%

Unless that changes, that 3.5 star Field Partner will be in real trouble. Its focuses include

Anti-Poverty Focus
Family and Community Empowerment
Entrepreneurial Support
Facilitation of Savings
Innovation

This Field Partner is located in Peru (http://www.kiva.org/partners/71). In its five + years with Kiva it has assisted over 17,527 Kiva entrepreneurs and loaned them almost $10 million.

Maybe it needs to be chaging a bit more, not less. Judging MFI by portfolio yield, where not improper, is but one of many factors to be considered. The Kiva detractors here have too narrow a focus. Hopefully this thread will serve to educate them and others.

Again my thanks to JDiver for a great post.
My two cents on the portfolio yield/interest rate issue...

I will confess that when I first considered making loans on Kiva I was concerned about this question. But I came to understand the factors that Kyroamer explained so well and also that the Field Partners (FP) so often offer an array of valuable services that extend well beyond the loans themselves.

One of the FPs whose work I support is Pro Mujer Bolivia. Pro Mujer provides healthcare and health education in addition to loans. Indeed, when asked, many of the loan recipients to whom I have made loans actually cite health care as one of the things they like best about Pro Mujer.

So, supporting the Pro Mujer loans not only empowers the individual, it also helps insure that Pro Mujer can provide the essential healthcare services as well.

From Kiva re Pro Mujer Bolivia

Time on Kiva:
64 months
Kiva Entrepreneurs:
16013
Total Loans:
$4,447,400
Interest & Fees are Charged
Yes
Portfolio Yield:
36.07%
Profitability
(Return on Assets):
3.72%



Quote from Pro Mujer cofounder at article linked below:

"Credit alone is not enough to lift women and their families out of poverty," explains Lynne. "Just as the poor need access to credit to earn an income, they need access to healthcare and education to prevent illnesses that deplete their savings and wipe out their livelihoods."

http://www.huffingtonpost.com/jim-lu..._b_292239.html
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Old Nov 30, 2012, 8:47 am
  #93  
 
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It is also important to know that there is GREAT variety among Kiva's field partners.
Some are non-profit, some are for profit.
Some are part of some larger organization, some work solo.
Some are subsidized by parent organizations/donations/etc. for their work, some are not.
Some have portfolio yields around 10%, some greater than 50%.
Some have return on assets close to +10%
Some have return on assets less than -10%
Some do extensive service work in other fields that benefit the people who borrow from them.
Some are strictly businesses.

Lumping all Kiva's field partners in one general statement only leads to misunderstanding and misinformation. If you are concerned with interest rates charged to borrowers, then you need to pay attention to each loan and each field partner.
They are most definitely NOT the same.
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Old Nov 30, 2012, 9:35 am
  #94  
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Well said. Generalizations only go so far, even though they may be broadly accurate in some instances.

Some prefer to minimize risk, some prefer not funding certain religiously-based organizations, some prefer to use non-profits - and IMO, Kiva allows us to spend some time and use tools to make informed decisions about how (if) we lend.

Originally Posted by onthego15
It is also important to know that there is GREAT variety among Kiva's field partners.
Some are non-profit, some are for profit.
Some are part of some larger organization, some work solo.
Some are subsidized by parent organizations/donations/etc. for their work, some are not.
Some have portfolio yields around 10%, some greater than 50%.
Some have return on assets close to +10%
Some have return on assets less than -10%
Some do extensive service work in other fields that benefit the people who borrow from them.
Some are strictly businesses.

Lumping all Kiva's field partners in one general statement only leads to misunderstanding and misinformation. If you are concerned with interest rates charged to borrowers, then you need to pay attention to each loan and each field partner.
They are most definitely NOT the same.
JDiver is offline  
Old Feb 12, 2013, 8:17 am
  #95  
 
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Kiva FlyerTalk team

I started this group with the intention of using it to generate miles. I admit to not having loaned much, but the team has generated $378,950 in loans (and free-ish miles).

http://www.kiva.org/team/flyertalkers

http://www.flyertalk.com/forum/flyer...-kiva-org.html
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Old Feb 12, 2013, 9:38 am
  #96  
 
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I'm on that team flyertalkers but also joined team milepoint as they have a 1:1 matching challenge. Just added another 1k. Normal loans are somewhat manufactured spend, if the money is all returned. But there is always risk of less than full loan repayment. This risk may be offset if an institution offers more than 1x for KIVA spend. If such an institution currently exists, just PM and keep it off the blogs and posts.
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Old Feb 12, 2013, 11:27 am
  #97  
 
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I love Kiva, almost up to 900 loans at this point with very little in defaults. I like the steady stream of payments coming in and they are good about sending out checks when I get up to around $1000. I prefer it over Microplace where I have to wait until the maturity date to get a repayment.

JudyJFLA
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Old Nov 29, 2013, 5:58 am
  #98  
mx2
 
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Kiva loan expiring... Loan refunded to credit card?

Hi there, I needed to spend another $850 this month to reach minimum spend on a credit card, and decided to try out Kiva and just lent $875. However, looking at my loans, I realize that some of them are very slow in being funded and might expire before fully funded (one is at just 10% funding in 2 weeks for example). I was wondering what happens then with my loans? Searching online, it seems my loans will be refunded, but does that mean they'll go back to my credit card (in which case I'll land below minimum spend), or go back to my Kiva account (in which case I should be safe)? Thanks for any advice!
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Old Nov 29, 2013, 8:50 am
  #99  
 
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MY experience has been that they go back to the Kiva account, not the credit card.
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Old Nov 29, 2013, 6:06 pm
  #100  
 
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They go to your Kiva account so that you can use these for other loans. However you can not withdraw them to Paypal and then to your bank account. Kiva flags these withdrawals and will only send them back to the original source of payment (your initial credit card).
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Old Nov 30, 2013, 1:09 am
  #101  
 
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Originally Posted by cyclotron
They go to your Kiva account so that you can use these for other loans. However you can not withdraw them to Paypal and then to your bank account. Kiva flags these withdrawals and will only send them back to the original source of payment (your initial credit card).
Wait, if that's the case, then Kiva never generates spend in the long run?
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Old Nov 30, 2013, 8:53 am
  #102  
 
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Originally Posted by hitman1420
Quote:





Originally Posted by cyclotron


They go to your Kiva account so that you can use these for other loans. However you can not withdraw them to Paypal and then to your bank account. Kiva flags these withdrawals and will only send them back to the original source of payment (your initial credit card).




Wait, if that's the case, then Kiva never generates spend in the long run?
No no, you can withdraw repayments to PayPal - just not refunded loans.
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Old Nov 30, 2013, 10:11 am
  #103  
 
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If your loan gets expired/refunded then you can not withdraw to Paypal-> Bank Account. You can only withdraw back to your credit card.

If the loan is successful and gets repaid over time then you can withdraw to your bank through Paypal. That is how Kiva generates spend, by actually loaning the money out.
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Old Nov 30, 2013, 10:27 pm
  #104  
 
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This may be a bit OT, but reading the explanation of how Kiva works reminded me of a discussion a friend and I had about Zidisha.

Note:
(Zidisha is an alternative microfinance lending program that is peer-to-peer, as opposed to Kiva, where there is a local intermediary. Lenders can set an interest rate and earn that interest. You can fund via Paypal with credit card, subject to Paypal fees, but you can earn that back on your interest.)

The discussion boiled down whether Kiva was really helping these people out, as opposed to Zidisha where both lenders and borrowers benefit - the lender earns money while the borrowers gets a reduced interest rate as opposed to going through a traditional microfinance lending program.

Anyone have insight on the merits of one versus the other? Why would a borrower go through Kiva instead of Zidisha? Does Kiva serve a niche of the truly underbanked that Zidisha cannot reach?

Sorry for the long post! I'm considering doing some MS through this route, but am not sure that Kiva is the best there is.
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Old Nov 30, 2013, 10:49 pm
  #105  
 
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Originally Posted by onthego15
My question concerns the allegations that field partners charge high interest rates in order to cover defaults.
No legitimate organization needs to charge 40-60% interest rates. And no legitimate lender EVER enjoys 97+% repayment rates to subprime borrowers (and most are a lot worse than subprime)

And when you realize the borrowers are the poorest of the poor, are almost certainly financially illiterate, are mostly in 3rd World hellholes, and are being charged 40-60% interest, it defies belief that ANYONE could think that these same people could possibly have 97+% repayment rates.

Even in the first world, with ~5% (or less) interest rates, 3% default rates would be considered fantastic (in 2010, CC companies had close to 10% default rates). Hell, subprime mortgage defaults peaked around 30%.

It's blazingly obvious that the microlenders are using the outrageous loanshark interest rates to subsidize the "97+%" repayment rates that Kiva loves to tout.

Last edited by farwest101; Nov 30, 2013 at 11:03 pm
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