Why do we need Microfinance Institutions (MFIs) and Interest rates?

Why do we need Microfinance Institutions (MFIs) and Interest rates?

A blog in response to comments under “Bad Roads, Interest Rates, and MFI Sustainability”

Food for thought on Interest rates

   * Have you ever seen a microfinance institution?

Working with Community Economic Ventures (CEVI) in the Philippines I have come across the most passionate, forward thinking bunch of individuals who really care about the community in which they operate.  They are of similar mindset to the lenders, Kiva staff, and us fellows.  They are a part of this because they really care. Of course, they have operational costs! They have staff.  They need to distribute the money.  The loans are small.

   * Kiva loans make up a maximum of 1/3rd of their total operations (for the purposes of risk) – can you imagine the confusion of some loans being zero interest and some being 30%?

3   23 February  2010

I don’t know about you but I’m pretty confused by the concept of a zero interest loan in general.  The fact if the matter is if you borrow money you get charged interest and this is happening globally.  It would not be fair to give Kiva borrowers 0% interest while others pay the full amount.  And I think equality is a big part of what we are trying to do here.

   * What is the interest rate on your home loan? Is it fair?

Perhaps not – but you have to pay it. So you pick the best rate on offer and you roll with it.  YOU MAKE THE CHOICE that the capital gain will offset the interest.  This is exactly what these entrepreneurs do.  Don’t doubt their intelligence.  Sure they might not always make the best decisions but neither does everyone in the developed world.  That’s just life.

   * Do they have better option for access to capital?

I think that in these situations it’s best to ask the borrower’s! Here is part of an interview with a CEVI client who directly talks about her loan with CEVI and ‘small interest’.  She is slow to speak as she is translating into English so please bear with her.  I promise you this video was shot before I was aware of the blog comments.


Food for thought on the need for Microfinance Institutions

   * Can you imagine the logistics of getting the exact same $25 that you donate to Kiva into the hands of a lady who lives somewhere that is not accessible by road, only by foot?

If you are worried about microfinance reaching the poorest of the poor then you know that “exact”person to person money transfer is impossible.  I urge you to suck it up and realise that you are possibly contributing to that person’s next loan.  Or read about Kiva’s new philosophy on lenders taking on loan risk in Claude’s Fellows Blog.

   * How on earth could Kiva be expected to have enough local knowledge in the 52 countries around the world and the ability to disburse funds in numerous different languages when Kiva is a small operation with extremely dedicated individuals, on small pay and low operating costs themselves?

What Kiva manages to achieve, for the number of staff is amazing BUT  Local knowledge is imperative – Kiva NEEDS the MFIs.

Please don’t let perceivably “high” interest rates and the presence of microfinance institutes deter you from lending on through Kiva!  Be realistic and jump on the website now to get reloaning!

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