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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. |
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:
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.