Microlending with kiva.org

Has anyone here used www.kiva.org to lend money to individuals overseas? (They offer people the opportunity to lend small amounts of money, now $25 at a time, to contribute towards an amount, typically between $300 and $1500, requested by someone in the Third World. Recipients generally use these interest-free loans to invest in their businesses, improve production, and become more prosperous and self-sufficient. They say their repayment rate is 96%. Here [URL=http://www.youtube.com/watch?v=MXk4GUGXNTQ&mode=related&search= is a Frontline piece about one loan recipient in Uganda.

I think the concept is interesting, and they tout their “data-rich, transparent lending platform,” but I’m still not clear on how they identify people who need help or ensure that the money is used in the way the person promises to do so. I’m curious if anyone has more detailed information, or any firsthand experience lending through the organization.

This will fare better in In My Humble Opinion. I’ll move it for you.

Gfactor, General Questions Moderator

Darn. I was sure this counted as “factual,” but thanks.

My brother, father and I have a joint Family account and we’ve lended several hundred dollars. Kiva.org does not do the lending itself, but partners with microlending corporations that operate in the Third World. You see his picture, like his story and donate $25. When he gets up to his requested amount, he gets the loan.

So young Ugandan entrepreneur needs a new motorcycle to carry his wares to the bizaare for sale two towns over. He goes to the local lender and requests $750. They take his picture, write a little story about the guy and post it on Kiva.org.

The thing to remember about this organization is that it isn’t exactly a ‘donation’. When the person you’ve loaned money to repays the loan, you ‘get your money back’. Technically it goes back to your Kiva account where you can re-donate to someone else or withdraw your funds. There is no ‘return’ on the investment, but you are likely to get your money back at some point (see the 96% repayment rate).

An article on the father of microlending
There is a children’s picture book out there somewhere that for the life of me I cannot recall the author or title, but it wonderfully describes what microlending can help. it is something like Bangles for sale or bracelets for sale.

Found it: A basket of bangles by Ginger Howard.

You know, I heard about this online microlending a while ago and forgot to look into it. It could be interesting to create a few online “banks” made up of some like-minded Dopers to fund some things.

You know, comeraderie and all that jazz.

My wife and I currently have seven Kiva loans going, to businesses ranging from an Azerbaijani general store to a Samoan banana farm. None of the loans has been completed yet, but they are all making regular payments. Some of the entrepreneurs make progress reports which give insights into the good things that the money is making possible.

I think it’s a great mix of charity and capitalism. You can connect with real people and help to create or expand self-sustaining enterprises. If the aid goes away they will still be operating and generating income in their countries.

The New York Times video linked from the Kiva homepage is worth watching, as it shows the reporter visiting one of his loan recipients and discussing some of the benefits of microlending.

Also, Kiva’s gift certificates are a good way to get people involved. They may have to wait a little while to get the money, but in the meantime they receive the satisfaction of helping someone out.

USCDiver and Number- do you feel secure about the system? The Frontline piece explained that local partners check up on the loan applicant to make sure he’s credit-worthy and stop in from time to time between the lending and repayment to make sure all is well; has there ever been any question about the reliability of those go-betweens, and whether they might cheat the loan recipients? Or do I just have a really dim view of human nature? Because I love the idea; I just wonder about that link.

This is insane! You’re lending to someone with an expected return of 96% per annum, at a much higher opportunity cost.

You would be much better investing your $25 (although make it $2500) making around 15% on it, and donating that to charity. You would be better off, and so would the third world.

Alternatively, I’m sure that the micro finance guys will be offering a variety of bonds that you can invest in. Consult a financial adviser.

Sorry, by expected return of 96% I of course mean -4%.

Discount that against what you could be getting and it will be closer to -20-25%.

They do have information on all of their field partners, including statistics on loan repayments. I don’t personally have the resources to investigate them all, but given the coverage they’ve been getting from outfits like Time, Newsweek, NPR, and PBS, I feel reasonably secure that they’re on the level.

I don’t think that making money is the point of charity, usually.

And do you have evidence that $25 given to charity well help more than $25 in microcredits? AFAIK, microcredits have a good track record of helping third-world entrepreneurs. I’m not being argumentative, but I would like to know, as this otherwise seems like something I would invest in (and I like the idea of an SDMB kiva account).

I don’t have that evidence, no. But it’s irrelevant, because you could donate that money to a microlender, who could then use it for various purposes.

O/T: In my experience, the key requirement for third world countries is a squeaky clean government, be that run by a despot or not. That is the key to development.

You have experience with development economies? What kind?

I’d dispute this; not that a corruption-free government isn’t an excellent catalyst for growth, but there can be a country whose government is eminently responsible that still suffers from disease, scarcity of resources, lack of access to ports trade routes, a culture that prevents women from working and financially contributing, a cripplingly high birth rate, etc. It takes many factors to spur keep an economy healthy.

Either way, the appeal of kiva isn’t its ability to remake struggling national economies, but its ability to help struggling individuals hamstrung by being located within poor areas. And donating money to a charity that needs to pay its workers and cover transport costs before it can distribute my money to the needy businessperson doesn’t strike me as a better approach than giving my money directly to that person, through people already on the ground in their area, in an amount they requested for a particular project they’ve already outlined. I suppose I could donate my money to a microfinance organization, but this way, my money comes back; even if I lose 4% along the way, I can put most of the money back into kiva and loan it to someone else, meaning that loan is really just a perpetual donation.

How am I better off? With your plan I’m **guaranteed ** to be $2500 poorer at the end. If I put the money in a Kiva account there’s only a 3% chance of me not getting the money back.

I don’t see how this addresses Sophistry and Illusion’s question. Regardless of your investment methods – whether you take $25 out of your wallet now or invest it and then eventually collect $25 worth of interest – at some point you are allocating an amount of money for altruistic purposes rather than financial return. Given that, what is the disadvantage of microlending compared with strings-free donation? The appeal of the former is the idea that it encourages borrowers to use sensible business practices so that they can pay the money back. With the latter there is less of an incentive to achieve financial independence, and when the aid money runs out then the recipients may end up no better off than they were to begin with.

Laying aside the issue of what constitutes “squeaky clean” in this context, influencing the behavior of foreign governments is outside the power of most individuals. Directly partnering with other individuals is a considerably less intimidating prospect, and seeing their progress is gratifying in the short term.

I set up a Kiva account for my son’s elementary school class, after we realized that the charities they were donating their fund-raising profits to used up to 70% or more for overhead.

They have loaned money to three people so far- a farmer in Azerbajian, a fisherwoman in Samoa, and cattlewoman in Kenya. All three are in the process of paying the loans back (the women are both on their second or third loans through Kiva with 100% payback rates).

When these funds become available again, they will be added to by each year’s class. Mrs. Diba’s class could be loaning out thousands of dollars in a few years.

The kids can look at the folks who are asking for loans, choose a recipient, and then keep track of their money as it works. They think they are the coolest kids on earth, and so do I. My brother and I also have accounts, although I am not actively loaning at the moment.

You can see our kids’ recipients here.

I have no personal experience with the Kiva project, but it sounds like a terrific idea. Some caveats worth knowing, however – the loans we make to Kiva are passed on 100% to the recipient without an administration fee. Kiva will hit you up for a 10% suggested, optional donation for that when you enter the loan.

The recipient pays interest to the microlending field partner. According to this page, the average interest rate for one company is 54%, the average for all companies, 18%. While this may seem high, they claim that this compares to other lenders’ average rates of 79% to 117%.

That does put a bit of a damper on the scheme, methinks. Still, there are many companies that claim a 0% default and 0% late payment record over at least a year.

Thanks for pointing this out-- it is really important. Someone with a better grasp of economics than me: Is there any reason I shouldn’t choose to lend in a country where the field partner has the lowest interest rate, ensuring that the loan is really all going to the person on the site? Does a high interest rate just indicate that the company is more profit-seeking than others, or could it mean they’re taking on business in a more high-risk region that might have people more in need of loans? Should I just not overthink this and loan to the person who seems to need it most, regardless of the stats of the go-between?