Lenders can now propose interest rates

Discussion in 'Announcements' started by Julia Kurnia, May 9, 2014.

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  1. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    Starting today, we are trying something new: borrowers are no longer requested to propose a maximum interest rate in their loan applications. Instead, lenders may bid to fund loans at the rates they believe are fair and reasonable, up to a maximum of 15%.

    This is the first time that lenders, rather than borrowers, have had the responsibility to determine at what rate loans are funded. Our hope is that the additional flexibility will make participation attractive to a wider variety of lenders, resulting in more funding availability overall.

    We will monitor the effect of this change on funding volumes and average interest rates, and continue the new policy as long as the net effect is positive.
     
  2. Evelyn

    Evelyn Forum Member

    Will there be a way for the Muslim borrowers who offer 0 interest to still be able to do this?
     
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  3. ojtos

    ojtos Forum Member Volunteer Mentor

    Julia,
    We are happy you listened to the many dissenting voices on the maximum interest you had capped at 5%.
    With this new development, I hope the rate of bidding will normalize and even attract more lenders
    Way to go......
    Ojtos
     
  4. Landei

    Landei Silver Member

    Thank you! I think this is a step in the right direction, keeping Zidisha attractive to both lenders and borrowers.
     
  5. Wiredfox

    Wiredfox Gold Member

    This will be dependent on the willingness of lenders to offer at 0% in sufficient numbers to cover the whole of a loan. This is one very good reason why this change does seem to represent a disempowerment for borrowers.

    While I support the removal of the 5% cap, I regret the reversal of rate setting capacity from borrower to lender. I know one can't have everything one wants in life and am content to see how this goes, but I do think you have immediately spotted a potential injustice in this new announcement, Evelyn.
     
    Evelyn likes this.
  6. Wiredfox

    Wiredfox Gold Member

    If the 'net effect', howsoever determined, is negative, will you revert to borrower-set rates with a higher cap?
     
  7. Shehi

    Shehi Gold Member Volunteer Mentor

    Also awaiting the response.
     
    Evelyn likes this.
  8. Evelyn

    Evelyn Forum Member

    @Samuel Shehi @Wiredfox @Julia Kurnia @jonas

    Regarding the above discussion of "What about Muslim borrowers who offer 0 percent interest?"

    Under the system of borrowers setting the interest rate it was less obvious when someone offered 0 % why they might chose to be doing so. A lender may or may not know that religious beliefs were the reason behind the choice. It could be that the borrower was just were more careful with money and thought the 5 % Zidisha fee was enough.

    Now, part of the answer could be simple programming. During the (non-public) application process, a borrower could be asked "Are you a Muslim borrower who would only accept 0 % interest from lenders?" If the box next to it is checked, then the pull down menu that lenders pick from is set at 0 %.

    That is assuming that the website setup for the lenders to pick the interest rate is still the pull-down style.

    For lenders who have a question about it, on the borrower's page next to the interest pull-down, there could be a blue pop'up answer that says, "Some borrowers will not accept anything other than a 0 % funded loan for religious reasons."

    This, in my opinion, would be more subtle.
     
    Shehi likes this.
  9. eric

    eric Gold Member Volunteer Mentor

    Julia that was a positive move,i hope it will bring some impact on fundraising loans.
     
  10. Evelyn

    Evelyn Forum Member

    That seems to be correct, the borrower can no longer set what maximum rate they are comfortable with. The lenders can go all the way up to 15 % with their bids.
     
  11. Charlie

    Charlie Forum Member

    Kiva addresses this topic in several ways. For example:
    I'm sure Zidisha could incorporate many of these features as well.

    Because Islamic loans do no prohibit paying fees for service, the question then becomes, does the "Service Fee" Zidisha charges that happens to be determined as 5% of the requested loan amount, comply with Islamic lending principles for Murabaha loans?
     
    Last edited: May 9, 2014
  12. K M

    K M Gold Member

    This should mark an improvement for most lenders, and, ofcourse, if more lenders are happy (and lending) should also be an improvement for most borrowers. I was really pleasantly suprised when I logged into Zidisha this morning :)

    However, allowing borrowers to determine their maximum desirable interest rate within the 15% permitted, would be best. (For whatever reason. It's really none of Zidisha's business if the reason is religious or only financial.)

    {Mr. Josphat Kamau (https://www.zidisha.org/microfinance/loan/unleasher/7282.html) seems to be able to offer 10% to lenders on his loan. This is either a mistake, or evidence that borrowers are still able to select a lower maximum interest rate if they wish.}
     
    Last edited: May 9, 2014
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  13. Evelyn

    Evelyn Forum Member

    1. Kiva is a large organization. Zidisha is a much smaller and more interactive community where lenders and borrowers get to know each other on a more personal basis. No one should have to identify themselves as a particular religion. That was why I was suggesting a more subtle approach.

    2. There are already many Muslim borrowers on Zidisha. Those particular borrowers have already made the decision as to whether the 5 % fee for Zidisha fits their religious beliefs or not.
     
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  14. Charlie

    Charlie Forum Member

    Hi Evelyn. At what I consider to be a very fundamental level, size doesn't mater. Principles, ideas and actions do. The degree of interactions among Kiva and Zidisha participants are by choice as well. My understanding has been that the vast majority of Zidisha participants, in fact, do not interact, regardless of the platform's intent.

    The discussion about Islamic loans began because Borrowers were losing the option to set loans at 0% when Lenders set the rate. If Borrowers can set their own rates down to 0%, it's a non-issue. If Lenders always set the rate above 0%, it excludes a class of Borrowers based on religious practices, which is an issue. To me, the solution to all of this is let Borrowers set the maximum interest rate they are willing to pay. Whether that also becomes the minimum rate is another question.
     
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  15. Denise

    Denise Gold Member

    I read the information on Islamic lending. I can understand that an Islamic lender may not charge interest. But where is it written that an Islamic borrower cannot borrow from, say, an atheist who charges interest?
     
  16. Kismet

    Kismet Forum Member

    I'm curious to see how this turns out. I'm happy that I'll be able (for a while at least) to start lending at slightly higher interest rates, but (for me anyway) it's going to be way more labour intensive than it used to be. While I want to lend at around 9-11%, I only want to lend to borrowers who are comfortable with this rate. As borrowers are no longer allowed to let lenders know what rate will work for them, I had to do a bit of digging. So far as I can tell, the most recent 27 loans (at the time that I'm writing this) have been uploaded since the change to 15%. Using interest paid to borrowers on previous loans as a guide, I found only two of these borrowers who had previously accepted loans at or above the rate that I want to lend at. Well, okay, I thought. I can comfortably lend to those two anyway. Oddly, neither had a cap of 15%. Curious.

    Daniel Kibe - https://www.zidisha.org/microfinance/loan/KibeMungai/7316.html has a cap of 10%, but Esther Otwalo - https://www.zidisha.org/microfinance/loan/otwalo/7332.html has a cap of only 5%, even though hers is one of the most recently uploaded loans. Sigh. I'm sure there's a perfectly logical explanation, I just don't know what it is. Perhaps there were random 10% cap loans thrown in among the 5% loans (Mr. Josphat Kamau's loan (mentioned by K M) is bracketed by 5% cap loans when you sort chronologically...) and maybe Ms. Otwalo's loan was partially processed before the changes? It just seems curious that the only two borrowers I found who were previously okay with higher interest rates are currently capped below 15%.

    Anyway, I'll keep trying. I did lend a bit to Mr. Kibe, but I won't often have enough spare time to get a feel for a borrower's comfort level by sorting back through their previous loans...and this process will completely eliminate new lenders for me as I have no way of even guessing what they can manage. Perhaps borrowers could put a comment on their loan page letting lenders know what interest rate they're actually comfortable with...? It does no one any good if borrowers have to decline loans because of prohibitive interest rates, especially when that could largely be avoided by a radical new concept called "communication". Really, I'd like to start lending again...but I'm just not comfortable doing it blind.
     
  17. Kismet

    Kismet Forum Member

    I noticed today that the interest cap on Esther Otwalo's loan is now up to 9% .... still curious, I guess a few small hiccups are to be expected any time big changes are implemented. :)
     
  18. Mike

    Mike Forum Member

    With all due respect to everyone here, I would disagree about this proposed change of the format. I don't see a need to fix what isn't broken. Personally, I bid on nearly every loan that posts on Zidisha. Because I am taking such an overall loss here, I do bid at the higher interest rates (although I have always generally capped at 15%) whenever they're offered. I'm happy to be outbid, because that means the borrower got a better deal, there's plenty of funding on Zidisha, and I can lend those funds to another borrower immediately. It's a win-win-win for everyone. I don't think this is broken and the suggested "fix" I think would be harmful overall.

    Sometimes change for the sake of change may feel refreshing at first, but eventually it winds up being counterproductive. There is an inherent value to predictability and consistency, and I think Zidisha could use some of that right now. Julia just restored that in large part by permitting the 15% interest rates as we had suggested. I suggest that everything be left alone to give the community time to recover from this and re-adjust. There are a lot of un-funded loans posted right now. We all need to get back in the game and get the funding rolling again before any more changes.

    Regards,

    Mike
     
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  19. ommthree

    ommthree Forum Member

    Mike,

    I was convinced by your argument and was keen to get back into the lending game anyway (even though I've been really unlucky, or unskilful, and currently have a 60% delinquency rate), so I started going through the loans on the database. Then I realised the problem. Instead of being able to pick out the loans with interest rates that suit me, I now have to plough through every single loan on the database. Then presumably 90% of my bids will be rejected (after the funds have been tied up for 15 days or so) because the borrower thinks the rate is too high. I strongly believe that we need to get the borrower-defined cap back ASAP.
     
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  20. Wiredfox

    Wiredfox Gold Member

    Very much agree. Can't see any reason why previous system with rate cap at 10-15% could not have been implemented. From perspective of expediency and ethics, seems the best solution!
     
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