I refer people to kiva.org routinely, and I get asked about the interest on the loans a lot. So I thought I’d mention how I handle it. I always look at the lending partner details for the average interest rate. Some of them will be surprising by the US standards, where we give credit to anyone with a mule, but these are very small entrepreneurs w. no collatoral, considered high risk by traditional banks, etc. They’re at the mercy of loan sharks who charge twice the highest rate you’re seeing. So yeah, some of them are 35%. I’ve seen 60%. I’ve seen more. What we’re doing at Kiva is skipping the international bank networks like Chase and Citicorp who won’t lend them money, and bypassing the local loan sharks who definitely will. There’s a base cost in every economy to underwrite the loan – it’s higher on no-collateral loans (ask the nearby paycheck loan place). But without capital, these guys can’t grow a business and really sustain themselves.
I set my own ethical standard of a % that I won’t exceed. Basically if it gets to 33%, I’m out. I know they need the money, but I don’t personally feel right about the usury even if there’s no other solution. I’d give it to them outright as a gift, if I could. That’s why I use Global Giving. But with Kiva, I routinely find ones with 19%, 15%, 12%, 5%. Remember, US banks charge 29.99% interest rate to ordinary credit card borrowers with average credit. We have our loan sharks too – they wear suits. But if I can microlend capital (FYI the loan is $25 per person per project) and they get it at less than US credit card rates, I feel no qualms. I’ve watched these guys build their businesses, get on their feet, and feed their families. It’s a good thing. Anyway, this is the answer I always give.
