Have you used Kiva.org, Microplace.com or any other microlending institutions? Any positive or negative experiences?
Does this seem like a decent way to improve overall yield, assuming I'm willing to take the risk?
I'm not a financial guy. That being said, I think you can make a couple of common sense points here:
The reason this site exists is because in some of these countries there just isn't an established way to create credit history. Partly because the infrastructure is risky to build. It may also be due to the corruption within a country. The really cool part about Kiva and these other lending tools might be that they can be an end run around those governments and are a 21st century approach to building the infrastructure for credit worthiness.
That being said, you probably already realize, in this situation - you're the bank - and you really ought to be acting somewhat like a bank:
I'm also curious whether or not the good loans and opportunities are snatched up so quickly that all you are left with is the really high risk stuff. Anyway that's my non-expert 0.02.
Kiva.org is a nonprofit organization and does not pay you (the lender) any interest. From their website:
Kiva does not guarantee repayment nor do we offer a financial return on your loan.
Therefore Kiva will not improve your yield, as there is no money to make. It is intended you people who want to make "charitable" loans.
That said, I think Kiva is an awesome organization.
A fair number of micro-finance organisations have been listing recently and appear to be offering good yields. So you could simply buy their stock rather than investing directly.
SKS is an Indian micro-financier that went public just a few weeks ago.
The interest rates charged can be extremely high to match the low yield per lender. As has been mentioned, Kiva doesn't return interest to the lender. However, Kiva doesn't lend directly either. They on-lend to local microfinanciers who will lend at whatever interest rate the local market will bear.
The range of interest rates applied to micro-credit loans can be chilling. 45% to 85% in Africa, 30% in India and a jaw-dropping 155% in Mexico.
However, these high rates of return have attracted an absolute stampede of investors. In Mexico more than 300 micro-credit banks compete for business. Chuck Waterfield, the founder of MicroFinance Transparency, is concerned that there is an unsupportable bubble.
Lenders are starting to take out more loans than they can afford and banks are doing little to curb that appetite for debt. Sound familiar?
So, you may not want to lend directly, but definitely consider looking at listed microfinanciers in places like Brazil and India. As usual, though, study the company carefully.
Even for those sites that do offer yields (i.e. not Kiva), there are much better ways to make money. If you're not interested in it from a humanitarian standpoint then I would suggest you stay away from microlending. Otherwise: Kiva is awesome. I've lent through it for a couple years now and never lost any money, and they're helping a lot of people.
I'm not sure there is good data on Kiva, etc, but P2P microlending site Prosper has released their data. The default rates are evidently fairly high. For borrowers in the 'developed' world (the target audience of Prosper), other sources of credit are available (e.g. banks); one has to suspect, then, that borrowers on Prosper are considered too risky for bank loans.
High risk foreign debt is great until the bottom falls out of the market when the government default on debt or revalues currency.
If you do this, you should be able to sustain near total losses of principal and interest.