October 18, 2007

Kiva.Org

After reading Jagular's posts about Kiva, I finally decided to jump in.

Call me cynical, but before signing up, I googled Kiva on as many negative search terms as I could...Kiva screwed...Kiva ripped off...Kiva criticism...Kiva stole...Kiva sucks.

Nothing negative. Nada. Nein.

So I started. I was first going to throw in a $100 and wait to see how it turned out...then I found a couple more...

From reading others experiences with the organization, I feel wonderful about it.

I am going to have to stay away for a while though...perhaps log in only on payday...

18 comments:

Sauntering Soul said...

Wow Fianna! I've never heard of Kiva. I am definitely going to consider this too. I would love to know I was making such a difference in someone's life.

I have to confess I'd never checked out Jagular's site....I love it!

Jagular said...

I was very skeptical at first, too. I read everything I could find about them for several weeks before I joined. Since joining, I have had one instance where the borrower was trying to "game the system". But Kiva uses a quite lengthy screening process and was able to raise a red flag on that person, and my money was returned to me immediately. I personally don't even mind if there is an occasional scammer who slips through the cracks and gets my money, because it would be rare enough that there would be many other people who were helped along the way.

Anyhow, way to go! My idea is that if I donate every payday, in a year or so, when everyone's accounts come due, I can roll the money over and have a sort of perpetual "giving tree" to help more people with the same money over and over.

Anonymous said...

I just bought a Kiva gift certificate after just seeing the name in Fortune and reading about it. The only mild criticism I have is that they're currently (if I'm reading correctly) capping donations to each organization at $25. In a way I do see their point (if too many donations are made, donation opportunities dry up and so does Kiva's momentum), but I think the donation limit should be higher. They say its temporary and I hope so.

All in all though, it seems like a great idea. The fact that you can keep donating and that is so concrete (you pick exactly who gets what) makes me think gift certificates to Kiva will be very popular.

8-Dave said...

Funny you should mention it - you're top in Google for the search term 'kiva criticism'. :-)

I started lending through Kiva. The plan was to lend $100 a month, and treat it (almost) as a savings account. I checked the stats, and they have a return rate of something like 99.98% (ie. Only .02% of borrowers default on the loan). So I was only really risking losing the occasional $25, which was worth it for the cause, and having somewhere to stash money that wasn't a bank.

I was really enthusiastic, and started lending lots of money. I racked my brain for a flaw in the Kiva system (after all, I was planning on investing a LOT over a longer period of time), and finally did find one... What happens if, for whatever reason, Kiva folds? They're the ones acting as an intermediary between me and the affiliates. Well, I couldn't find out, so emailed them. I got a very blunt reply (fair enough, they're doubtless overworked) saying it was covered in the T&Cs. I'm not up my my legal lingo, but all I could garner from the T&Cs was that they'd do their best to get me my money back, but my tough luck if they don't.

I'm just not willing to risk thousands of dollars on that thin a guarantee (not that you could even call it a guarantee), so I stopped lending. :-(

Hayekian said...

HAha, I found this while searching for Kiva criticism as well!

sidelines said...

hayekian: "HAha, I found this while searching for Kiva criticism as well!"

So did I just now - and this was my very first attempt at trying to see if anyone had had any negative experience with Kiva.

Glad I found this. I'll keep looking a little more, but will most likely be donating (or lending, I should say) soon!

Liz said...

I also had that impulse and ended up here searching on Kiva criticism, to see if anyone was talking about a negative side or bad experiences.

So far, I haven't found much. I really like the idea and figure I'll participate for a while and see how it goes.

jordan.applewhite said...

Here's what I wrote to Kiva:
I have participated in one kiva loan so far, but I can't give more without disclosure of your Field Partners' interest rates. When I click the FAQ entry for "Why are your field Partners' interest rates so high?" it redirects me to your main page. When I read your pages on applying to be a field partner, I do not see any requirements about ensuring that the interest rates are not absusive. Am I missing the page with this information?

Lacking transparency in this regard, I'm suspicious that Kiva is preying on good-natured lenders to subsidize costs for foreign banks that may be damaging their communities. Please assuage my fears by making this information a focal point of your organization, and not a peripheral issue.


Here is a link to the criticism section from the Wikipedia entry on microfinance:
http://en.wikipedia.org/wiki/Microcredit#Criticism

jordan.applewhite said...

Here's how they responded:
Thanks so much for your email. I've included the text from the FAQ entry you referenced for your information as it includes a lot of information regarding our Field Partners' interest rates. I'd also like to direct you to our Field Partner pages, which can be found here: http://www.kiva.org/about/partners/. If you click on any of our Field Partners on this page, you will be able to see more information about each partner's policies. For example, one section details the interest rate that the partner charges versus the average money lender interest rate.

The average interest rate that a Kiva field partner charges is about 21%, and Kiva.org only partners with microfinance institutions that have a social mission of lending to the poor. To obtain more information about how Kiva.org evaluates and selects its field partners, please see our Risk and Due Diligence center: www.kiva.org/about/risk/overview .

The nature of microcredit " small loans " is such that interest rates need to be high to return the cost of the loan. To quote (CGAP) (Consultative Group to Assist the Poor):

"There are three kinds of costs the MFI has to cover when it makes microloans. The first two, the cost of the money that it lends and the cost of loan defaults, are proportional to the amount lent. For instance, if the cost paid by the MFI for the money it lends is 10%, and it experiences defaults of 1% of the amount lent, then these two costs will total $11 for a loan of $100, and $55 for a loan of $500. An interest rate of 11% of the loan amount thus covers both these costs for either loan.
The third type of cost, transaction costs, is not proportional to the amount lent. The transaction cost of the $500 loan is not much different from the transaction cost of the $100 loan. Both loans require roughly the same amount of staff time for meeting with the borrower to appraise the loan, processing the loan disbursement and repayments, and follow-up monitoring. Suppose that the transaction cost is $25 per loan and that the loans are for one year. To break even on the $500 loan, the MFI would need to collect interest of $50 + 5 + $25 = $80, which represents an annual interest rate of 16%. To break even on the $100 loan, the MFI would need to collect interest of $10 + 1 + $25 = $36, which is an interest rate of 36%. At first glance, a rate this high looks abusive to many people, especially when the clients are poor. But in fact, this interest rate simply reflects the basic reality that when loan sizes get very small, transaction costs loom larger because these costs can't be cut below certain minimums." (CGAP)

Butch said...

I also googled "Kiva criticism" and found this blog. I notice the last post which deals with the high interest rates charged by Kiva "field partners". This has been a concern of mine as well. I read Kiva's response to the poster's question about it, but maybe someone can explain this to me, because the Kiva response did not make sense to me. If the field partner institutions must charge relatively high interest rates for "risky" microlending, I could understand the risk/cost/benefit equation they describe if they money being lent were theirs. However, Kiva donors put up the money for loans with the expectation only of being repaid the principal - without any guarantee, and without receiving any interest. Are the costs of doing business and handling these microloan transactions so high that high interest should be charged by the field partner "go-between"?? I stopped giving to Save the Children after many years of sponsoring a child because I found out they had rather high administrative overhead. Of course, they do a lot of advertising and direct mailing. I still don't understand the reasons for allowing Kiva field partners to charge high rates, when the money that is being lent is not the moneylenders, and they don't have to guarantee either a return on interest or even a return on principal. Please enlighten me, someone.

vRad said...

The higher interest rates make complete sense. To ensure that the loans are going to people who are indeed going to use it productively, and will be able to return the money (and hence maintain that 99. something return rate) a lot of legwork needs to be done. At the very least, someone needs to meet with the borrower and ensure that they are not scamming.

The expenses involved with this are a fixed cost (say $30). If the loan was large (say $1000), this cost could be covered by charging an interest of 5%p.a. However, if the loan is smaller, the only way the cost can be covered is by charging a higher interest rate (i.e. 30%).

While similar to charities' overheads, what makes this better is that if you donate $100 to a charity with 20% overhead, $20 goes for the administration costs, and $80 goes to the recipient, who uses it to buy food or something of the sort. On the other hand, in most micro-loans, with a say 30% interest rate, you donate $100, which the recipient uses to buy a sewing machine, which net them approx. $150 in a year, of which they return $100 to you, $30 to the intermediary, and keep $20 plus the sewing machine to continue earning money in the future. By focussing on women, in most cases this is additional revenue streams for families.

Of course, if the recipient cannot make enough money to cover those costs, this model will fail, but it seems from the return rates that in most cases they are in-fact capable of meeting those costs.

Anonymous said...

From:
http://blog.hoosucks.com/

This rant began this morning when I read an article about micro-loans, more specifically Kiva loans, that average Americans can give loans to poor third-world individuals so they can end their poverty. If their so fucking poor, who is going to be their customer? Other micro-loan recipients?

Micro-loans are usurious and simply another method to rip people off, only they get to use your money instead of risking theirs. Kiva charges up to 50% annual interest, and some microloans go up to 300% interest. How the hell is that helping somene who is supposedly so poor that they have no prospects without the loan?

Are they supposed to sell crack to repay the loan?

I couldn't pay 300% interest on a loan of $25 if I had to borrow the initial $25. I'd already owe $75 in interest alone. If I am so damn broke that $25 will change my life for the better, then wouldn't the loss of $75 be proportionately destructive?

If you ask me it's just a marketing ploy. Kiva, for example, let's you loan money to someone using your credit card. Kiva keeps 100% of the interest on the loan. You get the emotional satisfaction of saving the world from poverty $25 at a time.

It's a beautiful scheme, even poor people can participate. It is credit card based, so you don't have to have a goddamned dime to end poverty. You can live in poverty and end poverty simultaneously. You may not get paid back, and you won't get any interest income, but you can rest assured that some photograph on the internet will sit there until people stop loaning it money.

Why do they call it feel good giving? I didn't know a loan was "giving", that's why it's called a loan and not a gift. I'd feel pretty stupid if someone talked me into risking my money so they can charge 50% interest on it. There is absolutely not one benefit from that transaction.

"Oh, but you'll be helping someone." How do you know that? Aren't Nigerian phone scams one of the most popular scams in the world today? Who's to say half of those "poor people" aren't Nigerian scammers? Anyone who goes through that much trouble to "help" poor people isn't the least fucking bit interested in helping anyone but themselves. And scammers will load that site up just as quickly as they can.

Why does Kiva even charge interest if they just want to help? Donate the website to the poor people and eliminate the middle man if you really wanted to help. Charge 7% instead of 50% interest rates. There are lot's of things Kiva could do if it's intentions were honorable.

Anonymous said...

I went on the Kiva site this morning and....NO loans...they had run out so to speak... is this a criticism or an amazing success?? I tell you it is something I didnt think could happen...

JT said...

Like others, I got here by searching for Kiva criticism. So far the worst I have seen is the above rant from Anonymous on August 2, and frankly that uneducated mess makes me feel even more confident about donating to Kiva. Hope you're still having a good experience with them!

almosteconomist said...

(Yep, got here via google)

There's a bunch of people with credible criticism of microfinance in general.

A research fellow at a think tank in DC, David Roodman has an excellent blog on his upcoming book on microfinance.

Here's an interesting post discussing whether microfinance (which kiva is a variety of) reduces poverty or not:

http://blogs.cgdev.org/open_book/2009/06/roodman-morduch-2009.php

They conclude that the evidence of microfinance reducing poverty is shaky at best.

Kiva is probably one of the best mf orgs, but one can ask whether the cause as a whole is actually doing good for the people that get the loans or actually hurting them in the long run.

Anthony Robert said...

Well having once owned/operated a used car lot and trying too help alot of poor AMERICANS establish credit too better themselves and get away from penny annie lenders who charge obscene amounts of interest, like the 35-50% Kiva's lenders charge according too Wiki.

I discovered the true scammery of money lending. Poor people ending up repaying $20,000+ for cars they bought for $8,000 when the whole loan was said and done. All this LEGAL under our system of finance.

I saw why they rob the poor like this. It's so the bankers can support their extravagant lifestyle whilst doing no actual labor of their own, spending all day doing lunch.

There's no way in hell I'm letting some money lender dirt bag use my principle too charge 35-50% interest too some poor dirty farmer who struggles everyday too survive whilst the bankers "do lunch".

You folks are being used by the bankers. You're helping the bankers take advantage of these poor ppl.

You ppl are funding the company store AND getting shafted to boot.

The bankers who invented this laugh themselves too sleep on you ppl.

May you one day open your eyes and see through the darkness.

Anthony Robert said...

Excuse me I didn't mean to call them dirty farmers, I meant dirt farm.

Dirt Farmer-d. person who spends their days in honest labors to try and eck an existance out of the dirt.

Banker- d. greed dirty bastard who makes his living through lies and trickery off the backs of the honest labor of others.

Rob said...

Well I signed up today and used paypal, I just hope that paypal lets kiva use their services without the usual high charges ?

 
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