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I just wanted to say that I think this might well be the best possible solution to the problem. When I first visited Zidisha's site (a couple of weeks ago) I s
by mcherm 13y ago
I just wanted to say that I think this might well be the best possible solution to the problem.
When I first visited Zidisha's site (a couple of weeks ago) I spent some time reading through the fine print and discovered the same thing that ModernMicrocredit did: that the way you presented things was highly misleading about actual prices paid by borrowers. (The fine print, of course, was accurate, or I assume it was.) But your choices were made in order to convey things more clearly (to a different audience).
Presenting rates two different ways: using your existing system system based on flate rates AND ALSO an "APR" (calculated according to Western banking practices and including both interest and fees) might meet the needs of both audiences, so long as you can present it in a way that is not confusing. Similarly, show "Average Lender Interest" but also nearby show "Average Borrower Interest".
By the way, at the time I did NOT invest through Zidisha (although I made a note to come back later and reconsider). I am interested in microfinance, and the way you were running it seemed quite appealing; the main reason I did not immediately participate was this issue of misleading presentation of the loan costs to the borrower.
- jkurnia 13y agoHi mcherm, Thanks for sharing this. What if we were to continue to calculate interest and fees using our current flat method for the time being, but display the equivalent APR to lenders and borrowers? As a prospective lender, would this have addressed your concerns about transparency?
- pbreit 13y agoIsn't this pretty much how all loans are presented in the USA?
- mcherm 13y agoYes, as a prospective lender I would be satisfied if I saw the interest and fees as a flat interest rate (and clearly labeled as such), but ALSO displayed the rate that the borrower was paying in terms that were familiar to me, such as an APR. I work in the US mortgage industry where advertising of "APR" rates is mandated so consumers can easily compare different offers. Mortgages are still permitted to have all kinds of odd financial arrangements: fees and fee-like structures (points), negative fees (cash-back refinancing, negative points), different payment schedules (interest accrued in advance or in arrears, monthly or biweekly payment schedules), and much stranger things (balloon mortgages, even reverse mortgages), and also many things vary from loan to loan (for instance: some costs vary according to which county you live in). All of that complexity gets baked into the APR. Fees are amortized over the life of the loan (or sometimes a shorter period). Various kinds of rates get boiled down into an annualized APR. This is far from perfect: no single number can make all that complexity truly comparable, but it roughly does it's job. Each individual loan has an APR calculated once its rates and fees have been set, and marketing messages must quote APR using a sort of "typical loan" for that lender. I think you could develop a definition for "APR" that handled the flat payment method but made it comparable for someone like me.