Making money, charging interest

Discussion in 'Zidisha | Fostering Peer2Peer Entrepreneurship' started by fcjapan, Jan 26, 2013.  |  Print Topic

  1. fcjapan

    fcjapan Gold Member

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    A big Zidisha common question, what to do with charging interest?

    Very interested to hear how others approach this.

    I will start.

    New to Zidisha, just trying it out.
    Used to lending on Kiva, which is my entire history of any involvement of microfinance.

    So I came to Zidisha, here is how things rolled out and how thought progressed:

    1. try it out. Interest to collect? hm. Nah, I'm good. 0% is fine. They need it more.
    2. Oh. 3.5% Paypal fee. Should I absorb it?
    Here I have someone wanting and willing to pay to borrow my money for a good cause.
    Seems no point in absorbing cost myself and seems fair. Borrower still getting a great deal compared to current rates. OK, this is not charity, which I handle differently. Should I pay to let someone borrow my money? Nope, so ok, 3.5%

    Once this jump from 0% started, it continued.
    Noting here that repayments received and further lent again would not incur the 3.5% and
    KyRoamer's info that U.S. bank based checks to Kiva do not have this fee (but I cannot take advantage of this).

    3. Default rate. I assume I will lose some money to defaults at some point.
    So up the percent to compensate, maybe 1 to 3%. Once I had taken the step of going from zero, it seems logical.

    4. Inflation rate. Kenya with average inflation rate of 12%+ over the last 5 years. This confuses me greatly and do not know how to handle.
    But should compensate. How much? No idea.
    So let's see. Sometimes lots of loans at 10% are available, which seems to be the max. on any given day (though have seen higher). Was already at 6.5% after default rate, so to compensate for inflation rate, 10% still seems small.

    Borrower still getting a bargain to all other rates currently available?
    Absolutely. Even at 10%

    For me, not looking to profit. I just want preservation of lending capital. Others on the Zidisha site do look to be looking to profit. But not making judgment call of others. If they can make money and help people at the same time, without gouging the poor and profiting excessively from the working poor in Africa, hey, OK. 10% is still a helluva deal, for the Kenyan borrowers at least.

    So then I lend at 10%. If another member lends at 10% and spend any profits on a nice dinner out or something, more power to them. For me, if somehow money is made, I have no need for profit and would just plow it back into further lending, donations, or other charitable causes.
    If anyone is upset at 10%, they can outbid me, and they have my blessing, even my encouragement to do so.

    Whatever is best for the borrower is best, even though this contradicts lending to them at 10% (!), which is what I am wrestling with.

    At first, 10% sounded excessive. Though, in the scheme of things and keeping things in relation, if the rates were 0 to 2%, then 2% would sound excessive.

    Then I considered cost to send, default risk, and inflation rate.

    My goal is preservation of lending capital.
    I really have no idea of what is going on, but trust the system enough to try.
    Given a choice of lending rates, I chose max rates for the most part for my lending at this time to cushion against losses, but still choose other borrowers at lower amounts sometimes if I like, gotta keep it fun.

    So this is my current idea until I get better grasp the system.

    I would be very interested to hear other peoples ideas on this, because when I loan at 10%, even though I explained out the above, something still doesn't feel right.
    IDGflygirl and mtlfire like this.
  2. HaveMilesWillTravel
    Original Member

    HaveMilesWillTravel Gold Member

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    I have no desire to make money. I do have a desire to preserve my capital, if only so that my perpetual lending machine doesn't run out of steam. I've only made two loan offers so far (lack of time, really) and so far I have accepted the % that the borrower offered (2% on the most recent loan). I generally think I agree with your thoughts.
    IDGflygirl and fcjapan like this.
  3. zphelj

    zphelj Gold Member

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    Breaking even is my goal though inflation and currency fluctuations may prove more difficult than I am used too.

    I'm taking a best-guess approach for now and will see how that turns out :)
    IDGflygirl and fcjapan like this.
  4. TravelBear

    TravelBear Gold Member

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    Having just signed up for Zidisha I am glad I found this thread! I too am not looking to make money out of this but like the previous posters want to preserve capital when I can. So I would definitely want to recoup the Paypal fee at least....I think. I am not so concrete with choosing loans so I will likely accept some loans under the Paypal fee from time to time. I am still perusing the site and getting a feel for it and won't likely make a loan for a couple of weeks.
    IDGflygirl and fcjapan like this.

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