Microcredit Interest Rates and Online Microlending Models

Open Access
Wang, Qishuai
Area of Honors:
Bachelor of Science
Document Type:
Thesis Supervisors:
  • James Alan Miles, Thesis Supervisor
  • Brian Spangler Davis, Honors Advisor
  • Dennis P Sheehan, Faculty Reader
  • microfinance
  • microcredit
  • microlending
  • sustainability
  • Kiva
  • Kiva Zip
  • Zidisha
This thesis introduces the origins of microfinance, explains the reasons why microfinance institutions (MFIs) charge high interest rates, and examines the determinants of microcredit interest rates. Three fundamentally different online microlending platforms – Kiva (http://kiva.org), Kiva Zip (https://zip.kiva.org), and Zidisha (https://zidisha.org) – are explored in depth and compared to each other (Appendix A-1). This thesis discusses each platform’s operating model, interest rates, repayment rates, repayment terms, risks, and financial performance. Screenshots of a lender’s loan portfolio and a borrower’s repayment schedule on each platform are provided. A case study is performed on Kiva’s Field Partners to analyze their repayment performance, loan characteristics, and borrowing cost comparison with MFIs in the Field Partners’ countries. This thesis demonstrates that the partner-facilitated microlending model, as exemplified by Kiva, is the most costly to borrowers but the least risky option for lenders; the trustee endorsement model, as exemplified by Kiva Zip, is the most affordable to borrowers but not yet sustainable; and the direct person-to-person microlending model, as exemplified by Zidisha, is beneficial to borrowers, self-sufficient, and transparent, but highly risky for lenders.