Should you lend via Kiva’s for-profit Field Partners?

21 April 2010 at 01:35 9 comments

By Rosalind Piggot, KF10, Tajikistan

Following the recent New York Times article questioning the interest rates charged in microfinance, I looked back at recent blogs by Kiva Fellows about interest rates and sustainability. In comments on those blogs and on Kiva’s lender team sites, a lot of people were asking: “Do I want to lend via a for-profit institution?” and similar questions.

As a fellow in Tajikistan, I don’t think for-profit status undermines social mission. Why?

1.The other side of borrowing is saving

Lending on Kiva is about enabling people to access credit. But the same entrepreneurs that need credit might also want access to checking and savings accounts.

The problem is that if you are a non-profit microfinance organization in Tajikistan, you cannot offer savings services. Under Tajik regulations, joint stock companies or limited liability companies can be registered as deposit-taking institutions, but not non-profits. Since deposit organizations hold the public’s money, sustainability is necessary so depositors can be sure their savings will be there in the longer term.

As with microfinance generally, there is much debate over the role that micro-savings play in alleviating poverty (you can visit CGAP for case studies). But savings products can help reach out to individuals that do not have the appetite to take on the risk of credit. And, unlike using credit, there is no interest to pay when withdrawing savings to cover costs. In a sense, transitioning to a for-profit in Tajikistan can enable a microfinance institution to serve new, under-served groups and help low income savers access cheaper funds.

2.Where do the profits go?

On average, the Return on Assets of Kiva’s Field Partners is near to nil. Some of Kiva’s Partners do, however, make profits.

In Tajikistan, I was interested to discover that major (if not majority) shareholders of Kiva’s for-profit Partners are actually non-profits that work locally. These non-profits are dedicated to assisting women entrepreneurs or establishing other types of social outreach programs. If Kiva’s for-profit Field Partners distribute profits (currently, any earnings are generally reinvested in the Field Partners’ businesses), the non-profits benefit. In this way, profits stay in the sphere of social outreach.  For me, this makes the distinction between for-profit and non-profit less clear than I imagined.

So…

As mentioned in Dennis’ recent blog, I agree that social investors are critical to determining microfinance’s future. Kiva screens its Field Partners. Lenders who want to conduct additional research should do so too.  I hope my own research on Tajikistan will be helpful when you decide how to lend, so let me know your thoughts!

If you would like to support entrepreneurs in Tajikistan, you can lend, join the team Supporters of Tajikistan, or learn more about Tajikistan from Kiva Fellow blog posts

Entry filed under: KF10 (Kiva Fellows 10th Class), Tajikistan. Tags: , , , , , , , , , , , .

..did she just say, “The “C” word? The Many Faces of Microfinance

9 Comments

  • 1. John B  |  28 April 2011 at 22:35

    Is there an easy way to tell if a partner is not-for-profit? I suppose if the ROI is negative, they’re not profiting now, but is there a way to be sure? Kiva is too big and for-profit MFIs have been too nasty for me to trust the screening completely.

  • [...] Should you lend via Kiva’s for-profit Field Partners? [...]

  • 3. Rosalind  |  22 April 2010 at 22:13

    Hi All-
    Thanks for your comments!

    I wanted to write this post because, in the jungle of field partners, I think it can be tempting just to say “NGO good, for-profit bad.” As Antoine says, efficiency and mission should be examined in both for and non profits equally.

    I think the critical question of profits for greed/growth that Fehmeen brings up can easily be neglected: it is quicker just to look at the nominal interest rate and/or return on assets. Greed/growth is about where to draw the line. Personally I think some greed can be ok… e.g. if it leads to more efficient operations and services to clients. Does anyone have examples of whether this happens in practice?

    To some extent, as the industry develops, I think competition will limit the possibility of excessive profits. In Khujand, Tajikistan, pricing decisions are affected by the number of competing microfinance organizations in the city. I thought the info on public disclosure of interest rates in Monica’s recent post ( http://fellowsblog.kiva.org/2010/04/08/by-putting-a-ceiling-on-interest-rates-are-we-protecting-the-borrower ) was interesting on this point.

  • 4. Fehmeen  |  22 April 2010 at 11:28

    I think the main question we should ask is when to stop lending to for-profit MFIs (for it’s vital for the growth of MFIs to be profit oriented). The distinction, then, is between greed-based profits and growth-based profits

  • 5. Bill Sweitzer  |  22 April 2010 at 03:07

    Thanks for taking the time to share this information. This is an example of the value that Kiva Fellows add to the process.

  • 6. Antoine Stépane Terjanian  |  22 April 2010 at 02:22

    Rosalind:
    I agree with you, not-for-profit MFI who are efficient, well-managed and keep some money aside to distribute for charitable purposes are ideal for partnership with Kiva.
    I also agree with Mr. Zugman about the importance of providing working capital to ‘hard (and smart)-working entrepreneurs’ because they are the ones who will ultimately create efficient operations and create jobs that will relieve poverty in a sustainable fashion.
    My argument has been clearly aimed at for-profit (or inefficient not-for-profit) MFI who take Kiva money at 0% interest rate and turn around and gouge borrowers with 3% per month (repeat PER MONTH) interest and more.
    Thank you for shedding more light on this issue from Tajikistan.
    AST

  • 7. izekiel Baison  |  22 April 2010 at 01:39

    Please i really want more information on this issue am from Malawi and would like to be a partner so that this program will benefit a lot of Malawians so what are the requirements i should do to earn me to be a partner please i have seen that this is so beneficail and i would like to help my fellow Malawians to earn someting. help send me all requirements on my email please.

    • 8. Rosalind  |  22 April 2010 at 04:55

      It is great that you are involved in microfinance in Malawi! Kiva actually has a page that lists the information for prospective Kiva Field Partners (http://www.kiva.org/partners/info). I think that is a good first step if you are interested in partnering with Kiva.

  • 9. Howard Zugman  |  21 April 2010 at 06:32

    Hi Rosalind,

    Thank you for shedding some light on the sometimes confusing comparison between profits and non-profits in the microfinance arena. Personally I don’t give any preference when choosing a loanee. The fact that a hard-working entrepreneur is given access to critical financing is enough for me.


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