Question about microlending

I’m wondering what the scoop is on microlending.

  1. Is Kiva legit?
  2. are there better versions?
  3. on average, how much profit do you make?
  4. what’s the risk factor?
  5. etc.

Kiva seems to be very legit. They work with reputable local charities to lend to people with a little something on the ball. I have lent to them several times and have always been paid back.

There is the risk that you will not be paid back. It is a loan and your recipient could default. But with a little poking around you should be able to find theie default rate is below 2%.

Guidestar has some informartion you may find helpful.

You can look at past balance sheets at networkforgood.com

FWIW my kids donate and love to check on their people and see their account refill as it is paid back. They have the option to get the money out when it is paid back or relend it - and they always relend!

**1. Is Kiva legit?**Yes, absolutely. It got endorsed by Bill Clinton and Ophrah, among others.

**2. are there better versions?**Depends. KLiva is great if you want to pick your own poor Thirld World person to lend to, don’t mind getting no interest, and have only a small amount of money (say under 500 USD) to lend. Otherwise, you could just put your money into an account and the bank loan it out for you. Plenty of banks offer some form of investment in micro-loans. Kiva gives you the warm fuzzies, and your gifts are taxdeductible, but you get no interest. The bank will give you a -low- interest, which might even be higher with tax benefits.

3. on average, how much profit do you make? With Kiva, none. You don’t get interest and they ask voluntary donations to cover their costs.

  1. what’s the risk factor? Occasionally a borrower or partner defaults and then you are out a maximun of 25 bucks (that’s the maximum you can lend to one borrower).

  2. etc. Go for it! I hope you will be as enthusiastic as I am, with my 46 loans out (I invested about 800 USD and have reinvestid it all a couple times as I got paid back). A Kiva Gift certificate makes a great gift for somebody who already has everything. And you’ll be doing a very Christian thing(said the atheist :slight_smile: by not charging interest.

Another microlending site is Zopa, which does let you charge interest.

I haven’t used it but know people who have. When you lend money, you’re not just lending to one person - your loan is split up across lots of different borrowers, to spread the risk of default.

I’m sure this is a slip, but you’d be out a minimum of 25 bucks, because that’s the minimum amount you can lend to one borrower. I’ve never lent more than about $75, but I’ve seen loans where someone has obviously lent several hundred (eg it’s just me and a few other lenders covering a $1000 loan). That said, if someone defaults, they may do it after they’re partly finished repaying the loan, so you’d only be out the amount they hadn’t paid back yet.

I’ve made 22 loans since 2007, and have yet to have anyone default. Very occasionally, someone gets a bit behind on repayments, and is delinquent for a bit, but they’ve always caught up by the end of the loan term.

Something that gave me pause recently: I was in Cambodia in May, and was idly flipping through one of the two major English-language dailies. There was an article about microlending, and about how several for-profit microlending outfits got at least a large part of their funding from Kiva donations. While I think it’s very important that credit be available to even the poorest, I wasn’t intending my donations to go to someone else’s profits (let them get commercial funding the usual way), and I’ve tried to make sure since then that any new loans are happening via not-for-profit middlemen.

Gila, that is strange. In my understanding 25 USD is the standard loan; A loan is funded out of dozens of 25 USD parts, all supplied by a different lender. So 25 USD is the minimum AND the maximum risk. I have not seen yet the option to lend more to one borrower.

Gila, how can you make sure the lender partner is not too much of loanshark? What criteria could I look for?

In all my 55 loans, I had one default, and as that was a guy in Kenia after the disasters there, I understood completely.

Since you’re asking about profit, I’ll pitch LendingClub to you. I’ve made about 6% a year for the past 2 years.

Nitpick, but - this isn’t entirely so. Kiva’s a great resource, but you aren’t actually lending to a specific person in most cases - you’re lending to one of Kiva’s local partners, which uses that pool of money to fund microloans for a bunch of clients, including the one you “picked”. That’s not a reason not to do Kiva loans - I think it’s a fine service. But the fiction that you’re sponsoring a specific person is a bit silly, and I wish it weren’t necessary to get people engaged.

Go to any Kiva borrower’s page that’s fundraising, let’s say this one (chosen because it has a lot of money left to borrow, so there ought to be a ‘lend’ option left for a while.) In the green ‘Make a Loan’ box in the upper right corner of the page, under the loan statistics, there’s a dropdown box with dollar values in multiples of $25, next to a big green ‘Lend Now’ button. $25 is the default option, but you can choose any multiple up to $500. Do you not see this dropdown box?

In terms of choosing lenders, I always click on the name of the loan partner (right below the box discussed above) for more information; in this case, clicking on ‘HOPE DRC, a partner of HOPE International’ brings me to this page. I first look at the star rating for risk. I prefer to only lend to relatively non-risky partners (four and five star ones), but YMMV. I read over the partner organization’s description of itself, and try to read between the lines as to whether it’s a not-for-profit or not. Sometimes, if I’m not sure, I Google the organization. I try to direct my lending through charities/NGOs/not-for-profits. Then I page down to ‘Borrowing Cost Comparison,’ a box more than halfway down the page. This lets me see what kinds of fees this lender charges vs. other lenders in the country vs. the average for Kiva lenders worldwide. This lender charges very high fees, which would be a strike against it in my book. (Every lender I’ve ever seen on Kiva charges fees and interest at a usurious rate, but that seems to be true of microcredit overall, and isn’t a charge against Kiva itself. The question is, is it as bad as my credit card (ie 20-30%/year), or much higher than that? Even if it’s much higher than that, is it significantly higher or lower than the average cost of credit in that country?) This lender charges an average 80% interest, as compared with the already staggering 63% average for other organizations in this country. If it were 50%, even though that’s very high, it’s significantly lower than average for that country, and I might fund an organization charging that rate. In comparison, 80% is too high for me in both relative and absolute terms.

For a while, around the third quarter of 2007, they were swamped with lenders and did set a maximum loan amount of $25. This was a temporary measure to allow people to continue lending while they caught up on finding recipients.

As far as I know, this hasn’t been re-instituted. I made a $50 loan the other day with no problems.

Thanks, GilaB. That is useful info and it isn’t on the Kiva page itself. With future loans, I will pay more attention to the lender partner-specifics.

I’m not sure if this counts as microlending, but I invested 1000 euros in the film Iron Sky, which was seeking additional money from their fan base to match a 6.5 million euro investment from the Finnish government to make a sci-fi movie about Nazis on the moon.

I have also heard good things about a number of microlending sites specifically for the development of iPhone and Droid applications, where you start to get a return in about six month. My Iron Sky investment, if it makes a profit, will take up to 10 years to pay back

Kiva is legit, but their webpage is quite misleading. You don’t CHOOSE whom you’re lending to with Kiva. The businesses and people listed on Kiva’s webpage have mostly already received their loans. See this Wikipedia section on criticisms.

Instead, Kiva gives the money it raises to what they term as field partners some of which are for profit lending businesses. (Kiva itself is non-profit). The field partners decide who gets the loans.

If you think about it, this really makes sense. After all, imagine if you had to get your home loan by having your picture displayed on a webpage and having people click your picture to get your loan together. Imagine the time it would take. Plus, what if you aren’t exactly the best looking family or people don’t like where you’re buying your house. You’re better off having a person who specializes in lending actually decide whether or not you’re qualified for the loan.

The big problem Kiva is having is that it has shown banks that lending to the very poor can be profitable, and many banks are getting into the business and charging outrageous interest rates. (Although some people have complained that Kiva’s field partners do charge quite a bit of money).

From what I’ve read, it sounds like most loans you make are making someone else interest at your expense. I may just be misunderstanding something, and I’d be glad to wrong.