MicroPlace.com just launched the other day and apparently actually allows you to charge a nominal interest rate so you can get a return on the loan. The point isn't to make oodles of money off of developing world entrepreneurs, but it is a slightly more attractive offer than Kiva's 0% interest loan. If you so decided, the interest you generate from MicroPlace could get then go back into another loan so the cycle continues again. Rinse, lather, repeat.
I really like kiva, my only complaint at this point is that there seems to be more investment interest than loan offices on the ground to sink it. That is ultimate a good thing of course. I wonder if there is a way to actually donate to those loan offices. Since these loan offices could generate income (in theory) it might even be possible to loan them money to setup the office.
I could see doing this if there was reliable third party credit reporting and interest rates starting at 20 percent/year.
Also, how do they make money on this...just through the float? Seems like it:
When my business makes a repayment, can I reloan or withdraw the funds immediately?
No. You will not be credited for your loan funds until the entire loan has been paid back in full, at which time you may reloan or withdraw your funds.
...seems like there would be all kinds of ways to game this.
I gather that the recovery rate of microfinance institutions is quite high. Grameen bank says they recover 98 %. So that means I'm going to lose 2 % on defaults + 2 % inflation + 4 % opportunity cost (what I get for short term funds). So I would do it for 8 % interest or consider it a donation.
fyi, the interest rates on microfinance is about 20 % / year or greater, at least for many microfinance operations here in India.
Microfinance only works because the folks doing the lending do so without collateral. The people who take these loans can't go to a bank and take a normal loan because the banks insist on collateral, which being poor, they don't have. The interest on a microfinance loan is not low in practice.
As a matter of fact, many banks (here in India) are beginning to set up separate divisions/ organizations to work in microfinance because of the increased rate of return on money loaned. Again, this is about what is happening here in India, not necessarily about grameen etc. I have friends who work for such banks and there are many shenanigans that happen there. Nothing strictly illegal but lots of very unethical stuff.
