Having followed the recent debate over Kiva’s transparency and the P2P model, the main critique that stuck with me was that there should be more transparency on Kiva’s partner MFIs. This resonated with me because I believe that Kiva has, on the whole, picked out partner MFIs that do amazing work and have really compelling stories to tell about their organization. So in that spirit, I’ve decided to share more details here about some of the products and services that my host MFI, Hagdan sa Pag-uswag Foundation, Inc. offers. In addition to lending, Hagdan also offers a mandatory savings program, insurance programs, and leadership/business trainings. Hagdan also runs community development programs out of a different part of the organization.

Before I dive into those services though, I want to devote this post to HSPFI’s interest repayment policy. Over the last six weeks I’ve realized that my understanding of the details is sadly lacking. So one weekend when I was in the office, I grabbed Sir Melchie Badion, HSPFI Internal Auditor, and asked him for a detailed rundown. Knowing that interest payments cover much of an MFI’s operational costs, I wanted to make sure I had everything straight in my head from start to end.

A few minutes into our conversation I quickly realized was that loan term is very important to keep in mind when thinking about interest. Before I started on my fellowship, I’d look at a Kiva partner MFI page and assume that all clients are paying a uniform 32% interest rate on their loans, without taking into account that the interest rate on Kiva is expressed in one-year increments. Hagdan charges 3% interest a month, and has two loan terms – 5 months and 10 months. So a client who took out a 5-month loan will be paying 15% interest on the loan, whereas a client who took out a 10-month loan will be paying 30% interest on the loan.

It should be obvious by now that I’m a terrible finance person. But Melchie was patient. We then got to talking about early repayments. I had noticed that quite a few Hagdan clients had paid off their loans early. Melchie explained that HSPFI allows clients to repay their loans anytime in full after three months of payment. If you’re a first cycle client (with your first HSPFI loan), after your payments for the first three months are complete you can opt pay off the rest of your loan, plus the full interest amount owed. However, if you’re a second cycle client or above, after the first three months of principal plus interest payments you can then opt to pay off the rest of your loan, interest free. So technically you can get a HSPFI loan with only 9% interest if you’re a) not a new client b) have a good repayment history and c) have enough money to pay off the rest of your loan after three months. This completely blew my mind in a really awesome way when I first heard about it.

Melchie added as a caveat though that the project officer (or loan officer) can deny early repayment if the client doesn’t pass the business assessment. For example, if a client took a loan from another MFI and wants to pay off their HSPFI loan with this other loan, the project officer may deny their request so as to discourage poor borrowing practices that could rack up more debt.

This is definitely quite an amazing way to give back to the clients though, I thought. I also wondered if this policy would give some HSPFI borrowers additional incentive to focus on their businesses so they can take advantage of the “interest discount.” In any case, this seems to be a win-win policy for both the borrowers and HSPFI. Melchie explained that most other MFIs will allow clients to pay off their loans early, but the interest on the rest of the loan is never waived. This policy gives Hagdan a competitive edge over other MFIs that are operating in the same space.

Wrapping up the conversation, my mind floated back to a great CGAP Microfinance Blog post, in which author Richard Rosenberg wrote,

I think there is strong evidence that poor people find microcredit very valuable in helping to deal with their circumstances. When you offer microcredit in a new setting, you almost never have to advertise: customers come out of the woodwork in droves. Most of them come back for additional loans. Most important, they usually repay those loans at extremely high rates year after year, when the main motive to repay is not collateral or group pressure, but rather their desire to keep future access to a service they find very helpful. They are voting with their feet.

I think most people’s concern over high microcredit interest rates comes from the fact that we’re worried about the poor getting exploited by profit-greedy MFIs. That poor people in rural areas are driven to a particular MFI despite high interest rates because there is no one else to borrow from. The reality as I’m finding in Cagayan de Oro is that the microfinance arena here is crowded with players. There are a LOT of MFIs competing here who want to retain and grow their client base at the same time. Even in rural villages that takes three hours to reach by motorcycle over rugged terrain, I’ve spoken to HSPFI clients who openly acknowledged that they have multiple loans from different MFIs. But with choice comes savvy. When I ask HSPFI clients what they like about Hagdan, many of them were able to clearly articulate the Hagdan products and services that they like, in comparison to products and services from other MFIs that they’ve borrowed from.

Also, with choice comes the need to stay competitive. MFIs here need competitive interest rates and a variety of attractive programs to attract clients and encourage them to “vote with their feet.” So an innovative interest repayment policy isn’t the only service that Hagdan offers to its clients. Stay tuned for more on HSPFI’s savings and insurance programs!

Eva Wu is a proud member of KF9, and hopes that she did this topic justice without boring everyone to tears! She’s working to spread the love for her host MFI, Hagdan sa Pag-uswag Foundation, Inc. through the Kiva Fellows Blog and the HSPFI lending team. Support HSPFI by lending today!

Kiva is all about communications and connections between individuals, so as part of my fellowship I’ll be interviewing different borrowers and sharing their stories with Kiva lenders through blogs, journal entries, profiles, etc. on Kiva.org. I’ll also be assisting both Kiva and Hagdan sa Pag-uswag Foundation, Inc. or HSPFI (Kiva’s field partner organization in the Philippines) with other work as needed. I’ll be the first Kiva Fellow to work with HSPFI, so it’s definitely an exciting prospect!

This blog posting was actually a long time in coming. I was accepted to the fellowship program around the middle of August, but I kept putting it off because there was just so much going on. In the whirlwind of preparing for my fellowship in the Philippines, I had also decided to move to Australia in January 2010. There are a multitude of reasons involved in the planned move to Australia, just as there were in accepting the Kiva Fellowship. For people who know me, yes, my Australian boyfriend played a big part in this decision But there was so much else to consider, and these weren’t decisions that I could make lightly.

Without a firm decision in mind, I would’ve had way too many opportunities to balk – when giving notice to my managers, landlord, even friends and family. I’ve met such wonderful people over the last three years in D.C., and really enjoyed living here. I don’t think there’s any other city in the world that would’ve given me such a chance to discover a love of public policy/government consulting, mostly because of a job that, through its up and downs, gave me amazing opportunities to learn and try so many different things. So in some ways I feel rather spoiled to be doing all this, especially during the recession (mind to self: there are so many people out there scrambling for jobs! And you’re willing to give up a perfectly fine one?! Are you crazy??)

However, something happened after I got my Kiva Fellow acceptance. I had been scrambling from one imagined scenario to another, unsure of my plans and what’s going to happen in the future. With the acceptance in hand, suddenly all the pieces started falling into place and everything seemed so right. I felt like everything conspired to get me to this place, and once I got “here,” it was good. I’m not at all religious, but I feel like I’ve been walking in a state of grace. Some doors close, and others open. I feel very grateful and excited about the opportunities ahead.

Anyways, before I get overly sentimental or utterly distracted by all the crazy moving logistics, I’ll be in San Francisco for training at Kiva headquarters from September 21 – 25, and then working in the Philippines from October 5 – December 18! I’ll be “officially” blogging on the Kiva Fellows Blog, but I’m planning to keep an ongoing record of my adventures here as well So definitely check back often and share your thoughts! I’ll be looking forward to keeping in touch with everyone, wherever you are!