[mfheretic]

Kiva does not state interest rates. You are viewing portfolio yields, which are not interest rates and consistently underestimate the actual rates. For a post specifically discussing this topic with 10 examples using actual data comparing actual interest rates versus the portfolio yield stated by Kiva, see:

http://blog.microfinancetransparency.com/whats-wrong-with-ki...

If you want to see an MFI with rates approaching 100%, look at Mexico in particular. Before the MFI quit Kiva, Brac in South Sudan had a portfolio yield of 88%:

http://www.microfinancetransparency.com/evidence/PDF/11.24a%...

This MFI quit Kiva, but you can see it here: http://www.kiva.org/partners/107 note that Kiva now states the portfolio yield is "only" 69.03%, but you can't lend through them anymore as they are one of the many MFIs that have quit Kiva.

Portfolio yields do not include the impact of forced savings, some fees etc. and can be manipulated, and for a discussiong on why these are absolutely critical in understanding how much a loan costs, see the excellent website www.mftransparency.org, an NGO dedicated entirely to revealing the actual interest rates charged by microfinance banks, many of which exceeed 100% (but are not all Kiva partners). It is not possible to generalise about the ratio between the portfolio yield and the actual interest rates, but as a rule of thumb, a yield over 50% is likely a little too close to an actual interest rate of 100% for me, but this is a very broad rule of thumb that I use if I can't get more accurate data.

But it is good that you look at this, albeit flawed statistic, and try to only make reasonably priced loans. If everyone does this then the MFIs offering lower rates will receive more funding, encouraging those charging high rates to reduce them. Competition basically.

Please do not think this is a trivial detail. As the post above demonstrates, this can make a big difference in the overall cost of the loan that the poor person actually pays, so if you are trying to avoid exploitative interest rates you really must consider this.

But, the more interesting question that is harder to answer, and has far reaching implications, is why Kiva does not publish these rates. See the comments on the Next Billion article. Is Kiva unable, or unwilling to do so? They manage to get all sorts of other information - why not the interest rate? How hard can it be? The bank presumably knows this crucial piece of data, and yet this is replaced with a knowingly flawed portfolio yield statistic. Why?

[curiouscats]

Thanks, I read that article. Even that article agrees that Kiva's rate is suppose to include interest + fees. The article makes some claims that Kiva's reported rates are not accurate. If that is true that is very bad and Kiva should fix it. But the evidence provided seems questionable at best, to me.

I do agree with the article that reporting rates for that loan would be better than some average. If I were in charge that is what I would try to do. Given that I am not, I am willing to accept average - though I wish we didn't have to. I do not think we should accept wrong data though.

There claims about Kiva under-reporting the rate are worthy of response from Kiva in my opinion, but the claims don't seem to be proved to me. It is possible, in fact it should be the case, that Kiva loans from a lender are less than the average portfolio of the lender. Part of the idea of Kiva is to provide interest free (to the "BANK") capital. The Kiva partner "banks"/financial charities... still have other costs of servicing the loan that have to be covered with interest but they don't have to add to that the cost of capital for Kiva loans. That is my understanding about the concept anyway.

If I understand the post correctly they are taking a 2nd organizations estimation of loan costs to borrowers from lenders. And showing those are higher than Kiva reports. But part of the idea with Kiva is that the lenders can loan for less because they are getting free capital (with other capital they may well have to pay interest) so it could be perfectly accurate that Kiva's rates are what Kiva borrowers pay and those other rates are what averages for the whole portfolio of the lender without. In which case it doesn't mean Kiva's rates are wrong.

If Kiva is not managing the financial data well enough to accurately report those figures that is bad. I don't see enough evidence from that post to say they are - though as I said, I would hope Kiva addressed (or will address that claim).

While I am mainly defending Kiva here (because my opinion is that it is mainly good, though could be more transparent) I think it is good that people challenge Kiva. And I wish Kiva was more transparent.

To get good data likely costs money - Kiva has to hire people to assure the accounting is accurate, train people, etc. Given the challenges it may well be hard to do it all at once. If I ran Kiva I would do so with a set of long time parters now. I would indicate that they have this higher level (more accurate and more current) portfolio yield. I would make sure we had good ideas on how to do this from working with a set of partners. Then I would deploy the new improvements to more partners.

People sometimes forget Kiva is doing some pretty amazing stuff. Many of these partners barely have internet connections, they don't have CPAs working for them, they have some very well intentioned people. I do also believe there are probably scams going on. Kiva has quite a challenge to keep that all under control.

[mfheretic]

This article does not proove Kiva's interest rates are higher than those stated, as we don't have Kiva's interest rates (for some reason), but they proove that actual APR interest rates are higher than the portfolio yield. This is ALWAYS the case, because portfolio yield does not incorporate some aspects of interest cost. It is not merely that these 10 banks demonstate this phenomenon, but EVERY bank has this, and it is generally worse in Africa where practices such as forced savings are more rampant. Also, you suggest that this might be okay because Kiva loans are lent at lower rates that the "regular" loans. How can we assume that? The banks are under no obligation to do that. The loans were made some months ago, from their regular loan portfolio, and then the Kivans come in and retrospectively buy this loan from the bank, in effect. What you are suggesting is that the bank gives out certain loans at a cheaper rate than its regular loans, and then hopes that the Kivans buy those specific loans from the bank. I find this extremely unlikely and have seen no evidence of this, either in the field or on the Kiva website.

But, perhaps we might not agree on this, but I am deeply worried about the use of the portfolio yield rather than stating an actual interest rates. In part this is because I think the poor are paying more than we are being told. Also I find this poor transparency, and Kivans are offering their money interest free, the least Kiva could do is be open with them. Other lending platforms are perfectly willing and able to do this. I also find this a worrying sign regarding Kiva's ability to control and monitor what is going on - if they can't even report an interest rate how good are the internal controls. They have had a number of "problems" with rogue banks - this doesn't surprise me given what I see of their controls. But most interestingly perhaps, this is perhaps a function of a flawed business model. It is not that I think Kiva CHOOSE not to publish these rates. I believe they simply CANNOT, and that is more worrying.

Kiva is, in some regards, similar to a retail bank (this is an analogy, not literal). It takes money from some people and lends it to others. Obviously there are major differences, but in essence these are the two key transactions - get money from A (you), lend to B (poor person) via agents (banks). It intermediates. And yet it doesn't know the interest rate in what is meant to be a P2P model? It can get you the photo and the story and some of the loan details like amount and number of months. Isn't this a little strange?

However, broadly I think we agree here - this is ultimately about transparency and reporting obligations, we disagree on the severity of the problem. But I would urge you to look into this further.

Another interesting comment is that you suggest change you personally would make - improved reporting, greater transparency, improved control, more accurate portfolio yield (by which you are referring to some proxy for interest rate) etc., good points. What is interesting is that there are other institutions already out there that have managed to overcome these problems, albeit to varying extents, and thus demonstrated that these are not deal-breakers, but relatively simple hurdles. Kiva has substantial funding and is heavily subsidized by volunteers, and yet can achieve none of this. And don't forget, it is not even as complicated as a bank. The most expensive stage of the chain is not collecting money from US citizens via PayPal and a website, nor sending money over to the banks in other countries, but doing the actual loans to the poor people in the field, and Kiva doesn't do this final stage, so has no actual costs of due diligence of clients, visiting their businesses, completing the forms, paying the loan officers, collecting repayment and dealing with non-repaying clients. It is only dealing with the relatively simpler and less onerous parts of the chain of money from your pocket to the pocket of the end client, and yet cannot even do this well.

[curiouscats]

I didn't understand if the post shows "actual APR interest rates are higher than the portfolio yield." They seem to say that but their explanation didn't convince me (maybe I am just not comprehending what they do show).

I couldn't understand how they showed "portfolio yield" was less than costs to borrowers. "Portfolio yield" as Kiva uses it is intended to include all costs to borrowers.

> They have had a number of "problems" with rogue banks

I agree, but I expected this. Look the banks in the USA and Europe have been shown to be incredibly corrupt all the way to the top. That is a huge moral failure we seem to not care about - those same people continue to buy our politicians with no significant push back. I only say this to set that stage that while some of Kiva's partners have issues none of them even approach systemic failure of the large USA and European banks actions have been doing continually for a decade or more.

These tiny "banks" Kiva is dealing with have some issues. There isn't an infrastructure of financial auditing and regulation. There isn't a large number of qualified accounting experts. So these "banks" and some are more charities than "banks" are trying to do this stuff but there are likely to be issues.

How you judge how Kiva does in rooting out fraud and ineptness by banks is partially going to be based on your expectations. I expect fraud and ineptness to be part of what the first few years of Kiva would include. I might be getting to the point where i think Kiva should have improved more by now.

I think Kiva is too focused on growth and not enough focused on making sure the dollars at work are producing the most value (and avoiding causing harm). This is a a typical problem the USA mentality that growth is nearly everything (look at the silly frustration with Apple for only making $13 billion a quarter because growth is slowing down as a very visible example).

The challenges to expand those reached with beneficial micro-loans are much greater than I think many want to admit. I expected Kiva to have a bunch of work to make that happen (and in doing so for their to be substantial issues).

I agree it is good there are a bunch of options to Kiva.

I am not at all sure "It is only dealing with the relatively simpler and less onerous parts of the chain of money from your pocket to the pocket of the end client, and yet cannot even do this well." is accurate. I think they do that very well.

I trust charity navigators ranking much more than one blog post that says expenses are high without any details. My guess is the expenses may appear high for very good reasons. And as I stated those costs matter not to borrower or lenders (only donors - donors bare the full cost of Kiva expenses not lenders or borrowers on Kiva). It wouldn't be amazing if Kiva got greedy given all the money flowing to them. I am not saying they did, but I wouldn't be shocked if expenses have increased because they got enough donations that they could (people often take what they can even in charities - not necessarily greedly just justify it because there is a big pool of money...). I looked closely years ago and found Kiva good on this front. I haven't looked now but shifted my donations to Trickleup.org and through GlobalGiving.org the last few years so haven't had to look.

The part I question with Kiva is oversight on the hard part. Kiva sends lots of people (many volunteers but Kiva has costs paying I think for expenses) to the field to audit and train these partners. And I believe (though could be wrong) they do lots of auditing at the headquarters level.

My concerns with Kiva I are basically related to the hard part you mention:

  1) measurements of success in improving people's lives (you didn't mention that as a hard part, but I think it is)

  2) are they auditing these partners well
    a) is all the loan data accurate, are payments credited properly, are loans going where they say they are...
    b) is Kiva able to block fraud
    c) since I figure for at least some partners they are going to be issues is Kiva able to provide good training and resources to help where necessary (and verify it is working)
    d) is the data provided to Kiva lenders accurate (costs to borrowers, those borrowers are actually getting the money...)

It seems to me it is the hard stuff where there is a real question about if Kiva is doing as well as it should be.

Also, as I mentioned in at least one comment - Kiva Zip (new in the last year) is (I think) basically direct peer-to-peer for those that want that.