Comments on: What does the repayment rate really tell you about the impact of microfinance? http://blog.givewell.org/2009/09/18/what-does-the-repayment-rate-really-tell-you-about-the-impact-of-microfinance/ Exploring how to get real change for your dollar. Thu, 17 May 2012 07:08:47 +0000 http://wordpress.org/?v=2.0.7 by: Rachel http://blog.givewell.org/2009/09/18/what-does-the-repayment-rate-really-tell-you-about-the-impact-of-microfinance/#comment-98652 Sat, 16 Jan 2010 19:12:32 +0000 http://blog.givewell.org/2009/09/18/what-does-the-repayment-rate-really-tell-you-about-the-impact-of-microfinance/#comment-98652 Holden.. I am becoming a real fan of your blogging. Here in East Africa, the average microfinance interest rate if 15-24% which would be considered obscene by western standards for an average bank loan. In addition, most of the loans made available to rural sector communities are too small to generate enough revenue to pay back the loan and the interest within the defined timetable. I regularly see MFIs launch schemes with donor funding that are badly planned without well defined assessment / vetting or offering the necessary extension services needed by the communities they target. But more often than not, I see donors choosing local MFI "partners" without the necessary experience or capacity. Yes, I still believe microfinance can be a good thing but am regularly spent into a rant when I see another badly planned scheme wasting much needed rural sector finance. Scott.. thanks for the referral to SEEP. They have great resources and have saved me more than once. Holden.. I am becoming a real fan of your blogging. Here in East Africa, the average microfinance interest rate if 15-24% which would be considered obscene by western standards for an average bank loan. In addition, most of the loans made available to rural sector communities are too small to generate enough revenue to pay back the loan and the interest within the defined timetable. I regularly see MFIs launch schemes with donor funding that are badly planned without well defined assessment / vetting or offering the necessary extension services needed by the communities they target. But more often than not, I see donors choosing local MFI “partners” without the necessary experience or capacity. Yes, I still believe microfinance can be a good thing but am regularly spent into a rant when I see another badly planned scheme wasting much needed rural sector finance.

Scott.. thanks for the referral to SEEP. They have great resources and have saved me more than once.

]]> by: Holden http://blog.givewell.org/2009/09/18/what-does-the-repayment-rate-really-tell-you-about-the-impact-of-microfinance/#comment-97710 Tue, 12 Jan 2010 02:24:01 +0000 http://blog.givewell.org/2009/09/18/what-does-the-repayment-rate-really-tell-you-about-the-impact-of-microfinance/#comment-97710 Scott, thanks for the helpful comments. I hadn't realized that "average loan portfolio" refers to the average portfolio over the same period for which writeoffs are reported. (This makes sense to me; it's just that the term isn't defined on the page and I hadn't put two and two together.) I also misspoke when giving my example – I should have said "written off" rather than "past due." I am not sure how commonly the "portfolio at risk" includes renegotiated (but not past due according to the new terms) loans. At least one MFI has indicated to us that it does not report in this way. As stated in my <a href="http://blog.givewell.org/2009/12/22/you-cant-take-the-repayment-rate-at-face-value/#comment-97707" rel="nofollow">response to your other comment</a>, I still feel donors are being misled. Scott, thanks for the helpful comments.

I hadn’t realized that “average loan portfolio” refers to the average portfolio over the same period for which writeoffs are reported. (This makes sense to me; it’s just that the term isn’t defined on the page and I hadn’t put two and two together.)

I also misspoke when giving my example – I should have said “written off” rather than “past due.”

I am not sure how commonly the “portfolio at risk” includes renegotiated (but not past due according to the new terms) loans. At least one MFI has indicated to us that it does not report in this way.

As stated in my response to your other comment, I still feel donors are being misled.

]]> by: Scott http://blog.givewell.org/2009/09/18/what-does-the-repayment-rate-really-tell-you-about-the-impact-of-microfinance/#comment-96634 Wed, 06 Jan 2010 04:53:17 +0000 http://blog.givewell.org/2009/09/18/what-does-the-repayment-rate-really-tell-you-about-the-impact-of-microfinance/#comment-96634 The loan loss rate is divided by the average loan portfolio, not outstanding loans, as you state above. This is because write-offs are an income or 'flow' variable. Growth in the portfolio is also reflected indirectly by use of an average. Regardless, if I understand your example, the loan loss rate would actually be 0 since no loans (appear to) have been written off at that point in time. PAR is divided by the outstanding balance since it looks at delinquency at a single point in time, rather than over a period. Outstanding loans includes all loans on the balance sheet at that point in time, whether payments are late or not. In the example above, the PAR ratio would be 1/3 (= 1000 / (2000 + 1000)). Microfinance reporting standards generally include renegotiated loans in the PAR ratio. For more, see here: http://www.seepnetwork.org/resources/Measuring%20Performance%20of%20MFIs%20Framework.pdf The loan loss rate is divided by the average loan portfolio, not outstanding loans, as you state above. This is because write-offs are an income or ‘flow’ variable. Growth in the portfolio is also reflected indirectly by use of an average. Regardless, if I understand your example, the loan loss rate would actually be 0 since no loans (appear to) have been written off at that point in time.

PAR is divided by the outstanding balance since it looks at delinquency at a single point in time, rather than over a period. Outstanding loans includes all loans on the balance sheet at that point in time, whether payments are late or not. In the example above, the PAR ratio would be 1/3 (= 1000 / (2000 + 1000)).

Microfinance reporting standards generally include renegotiated loans in the PAR ratio. For more, see here: http://www.seepnetwork.org/resources/Measuring%20Performance%20of%20MFIs%20Framework.pdf

]]> by: Taylor http://blog.givewell.org/2009/09/18/what-does-the-repayment-rate-really-tell-you-about-the-impact-of-microfinance/#comment-81787 Fri, 16 Oct 2009 13:55:44 +0000 http://blog.givewell.org/2009/09/18/what-does-the-repayment-rate-really-tell-you-about-the-impact-of-microfinance/#comment-81787 I agree with Erik in that micro-lending and micro-credit can improve lives. Look at the pioneer of credit, Muhammad Yunus, who won the Nobel Prize in 2006 (I believe it was) for his efforts to promote small business and financial independence in Bangladesh. That said, you ask some very real questions in this article. Questions that must be asked. What is the truth behind these repayment rates, is micro-lending all it's been made out to be by its proponents, or are there unsustainable borrowing practices beneath the surface? I'd really like to see some stats on the demographics of the borrowers. That might give us some better insight. I agree with Erik in that micro-lending and micro-credit can improve lives. Look at the pioneer of credit, Muhammad Yunus, who won the Nobel Prize in 2006 (I believe it was) for his efforts to promote small business and financial independence in Bangladesh.

That said, you ask some very real questions in this article. Questions that must be asked. What is the truth behind these repayment rates, is micro-lending all it’s been made out to be by its proponents, or are there unsustainable borrowing practices beneath the surface?

I’d really like to see some stats on the demographics of the borrowers. That might give us some better insight.

]]> by: Erik http://blog.givewell.org/2009/09/18/what-does-the-repayment-rate-really-tell-you-about-the-impact-of-microfinance/#comment-77660 Thu, 24 Sep 2009 05:02:14 +0000 http://blog.givewell.org/2009/09/18/what-does-the-repayment-rate-really-tell-you-about-the-impact-of-microfinance/#comment-77660 I know that micro finance can help improve lives. Unfortunately, it is vague when it comes to repayment scheme. Will it facilitate the needed assistance that has been the concept of micro finance in the first place? Or so it seemed it contradicts the very concept of micro financing. I know that micro finance can help improve lives. Unfortunately, it is vague when it comes to repayment scheme. Will it facilitate the needed assistance that has been the concept of micro finance in the first place? Or so it seemed it contradicts the very concept of micro financing.

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