While we have started lending to social enterprises in the “missing middle”, we are by no means the first to provide capital to this group. Today, the largest group of capital providers to these social enterprises are money lenders. Their typical interest rates range from as “low” as 15% to 50% or above. Despite these absurdly high rates (especially to one from countries where the cost of capital is much lower), some of these money lenders call themselves social enterprises – and surprisingly, when you break down their numbers, it is not hard to see why.
In this article, we will breakdown the average cost structure and the 15-50% interest rate of such money lenders and examine it further:
While these are just rough estimates for such money lenders, the numbers are not far from the truth, and in some cases, might be much higher depending on location, sector, and risk profile of the social enterprises.
As you can see, this results in a range between 15-32% in interest rates, even for the money lenders with the best of hearts.
At Givfunds, we believe that there must be a fundamental shift in the business model for these money lenders to provide a lower cost of capital for such impact businesses. Our cost structure is simple and is as such:
Together, this allows us to charge interest rates at 0-4%, with an average of 2% interest, far below market rates.
Photo credits: Photo by Josh Appel on Unsplash
Links:
(links about microfinance due to lack of data/information in SE lending,
see Pioneer Gap article for more information)