Microlending Update: Kiva and MicroPlace Loan Performance
I saw some ads for Microplace today (probably targeted due to my internet browsing habits) and decided to check on my Microlending portfolio. If you’re not familiar, microlending tries to alleviate global poverty by offering small loans to entrepreneurs in developing countries who would otherwise not have access to credit.
MicroPlace
Microplace is actually a for-profit site owned by eBay that packages microloans into investments with varying risks, focuses, and returns. Some people think that “for-profit” equates to evil, but I don’t agree. Here’s a link to a recent newscast done by CBS News.
I currently have $1,200 invested there, ranging from a 100% liquid note paying 1.75% interest to a 3-year note paying 5% interest. Payments are made quarterly, and I haven’t gotten my first interest payment yet. You can even fund using your credit card via PayPal.
Here are my previous posts on Microplace.
Kiva
Kiva is a non-profit site where you can match up your contributions to a specific individual, starting with as little as $25. The entrepreneur is still charged a certain interest rate, but you don’t get any interest. I have lent out $350 to 14 loans, and all have paid back my principal so far except for one which paid back 92% total. Still, my overall default rate is only 1.32%.
Here are my previous posts on Kiva.
I am still very intrigued by the idea of setting up a pseudo-”foundation” to which I can contribute money and have it perpetually reinvest the principal and any interest earned into future microloans. It would be really cool to have something like $100,000 constantly being lent out to entrepreneurs around the globe.
Find more in Giving Back | 8/21/09, 5:28am | Trackback
August 21st, 2009 at 6:10 am
If people with money didn’t lend it “for profit” to those that needed it there would be a whole lot less things getting done in the world.
I don’t think a % or two is going to be killing these people its not like a 20% loan and nobody is forcing them to take it or they starve to death. These are mostly people wanting to start or expand their business.
August 21st, 2009 at 1:42 pm
Mr. My Money Blog, I have been playing with Lending club as well. But you make me interested in these other sites. If you had have enough time to really get a feel for each site, could you possibly do a post as to what your experiences, pros/con comparisons, are for each site (from an investor perspective)?
Thanks
August 21st, 2009 at 5:27 pm
While I don’t necessarily disagree with Brad, he should be aware of the facts on microfinance interest rates–they range from 18 to 60%. See MicroPlace FAQs, or below. https://www.microplace.com/learn_more/microfinancefaq
Why are interest rates charged to borrowers higher than I expected?
Lending organizations need to charge interest rates to cover their costs so they can operate as viable institutions that provide services over the long term. Interest rates charged by lending organizations vary by country and range between 18 and 60 percent.³ These rates have to cover the high transaction costs of managing small loans, administrative costs, loan defaults and the costs of borrowing capital to make these loans. While they may seem high, they are often a better alternative to local moneylenders who can charge between 120 and 300 percent.4
August 22nd, 2009 at 7:46 am
Mr. My Money Blog,
Possible answer to your surprise at an A-quality account going south: Job loss in a recession. It adds greater risk to loans. You borrower may have a great credit score….then lose his job……and source of income. Food, house payments, utilities, etc. take precidence over a loan payment. Need to re-evalutate risk in these uncertain times.