I guess what Kiva was trying to say is that the lower the loan amount is then the cost of the transaction (the Fixed cost) becomes a greater % of the total leading to higher interest rates.

I have been lending on Kiva and I see the average loan size being >$500 and now they are doing group loans which average $1k or more — this means that the transaction cost is a rather small % of the overall loan and wont impact the interest rate in a huge way.

MFI is not the magic bullet for poverty alleviation but it does go a long way. Wish the Indian government stopped its obsolete license raj hangover and let Kiva in. Wouldn’t we love to contribute towards Sulabh toilets, clean water projects, solar panels, CNG autorickshaws…the list is endless.

western agenda set by lending institutions like world bank and imf

I mean this in a nice way, but (almost) nobody of any significance in the “West” (in which I would include myself as a charter member, being an ABD) thinks that the World Bank or the IMF are anything but cr@p.

Even if we think that they are crap, lending institutions directly or indirectly do control a lot through their aid packages to poor countries in Africa and Asia. Probably this microloans phenomena, whether it it is good or bad, is an outcome of that resentment ?

I mean this in a nice way, but (almost) nobody of any significance in the “West” (in which I would include myself as a charter member, being an ABD) thinks that the World Bank or the IMF are anything but cr@p.

microfinance is tool to engineer an (a) alternative model that can either suceed or fail in its mission to open the chinks in the armor of capitalism being “one size fits all” for the world (b) remixing technique to suit the local realities and agendas instead of listening to western agenda set by lending institutions like world bank and imf.

Just trying to keep the definitions clear here–who are the “shareholders” on a non-profit? Do you have donors in mind? Also, what do you have in mind by (seemingly) calling non-profits “private”? Aren’t for-profits “private” too (i.e., as compared to gov’t agencies)? Just trying to keep us all on the same page here–this is a very interesting topic, but I think people (me included, no doubt!) tend to use confusingly different terms which can inhibit analysis.

I apologize — I was unclear with my definitions and definitely blurred concepts. I would argue that donors are NOT the formal shareholders of a nonprofit, although the politics of nonprofit financing certainly tend to inform major programmatic decisions. In that specific sentence, I meant to differentiate between when shareholders and the board split on decisions in the PO context, versus when the board and staff split on decisions in nonprofits. In using the term “private,” I meant to distinguish between nonprofits and for-profit non-public (i.e., not PO) entities. You’re correct, though, both are privately held.

It is not my intent to advocate a policy prescription regarding the proper organizational model for microlending institutions; while we often think of Grameen, and other NGOs (or nonprofits) as the standard model, it’s also the case that more traditional, for-profit banks are extending their services into these same areas. I simply meant to highlight that Compartamos is HIGHLY unique, that it does not exist in a “less distorted” market than other microlenders, that it has run into pretty significant, and in many ways justified, criticism, and that there may be a better equilibrium out there between organizational goals and entity type.

There is a strong argument for why the “bottom-line” is easier to maintain in a non-profit or private organization, where shareholders and boards have different goals.

Just trying to keep the definitions clear here–who are the “shareholders” on a non-profit? Do you have donors in mind? Also, what do you have in mind by (seemingly) calling non-profits “private”? Aren’t for-profits “private” too (i.e., as compared to gov’t agencies)? Just trying to keep us all on the same page here–this is a very interesting topic, but I think people (me included, no doubt!) tend to use confusingly different terms which can inhibit analysis.

1. They are one of the only PO microfinance organizations.
2. Even for microcredit, their interest rates are substantially higher than the market demands.
3. In beginning as an NPO, Compartamos also had first-mover advantage and state support in crowding out “competitor” microlenders.

I don’t think it’s correct to abstract from a unique case to the whole industry. When Compartamos first chose to go public after its first 10 years operating as an NPO, it received a number of rebukes and more benign criticisms from its peer organizations, including CGAP. Further, its sphere of impact decreased as overhead costs increased and as the priority shifted from providing as many cost-recovering loans as possible to increasing shareholder profits. There’s a strong argument here, not for the failure of microlending, but for the impact of business organization, or entity type, on bottom-lines. I am all for double (or triple) bottom-line companies, but in the case of Compartamos, the current board has often opted for profit over the more socially beneficial aims of microlending, in part because the original nonprofit does not maintain the same level of governance or input (although it still holds a substiantial share of the decision-making power). A major principle of microlending is that it should not be usurious; it is trying to provide capital outside of the traditional markets that moneylenders occupy. What good then, is a state-supported, market distorting PO group using the rhetoric of microlending while adhering to different principles? There is a strong argument for why the “bottom-line” is easier to maintain in a non-profit or private organization, where shareholders and boards have different goals.

However, Compartamos does NOT fit the profile of many other microlenders, and so it would be unhelpful to take their unique development and apply it to all other agents in the same field. It is an interesting cautionary tale — one that will continue to play out — for new entrants into such a system, but it is otherwise not indicative of trends within the microlending/microcredit world.