Kiva.org — Lending $25 to Celina in Kenya Just Got Easier
Posted by Cap in How To's and Guides , Reviews on April 2, 2007 |
Lending money to strangers online could be pretty silly or pretty awesome depending on which website you’re on.
I first read about Kiva.org from Ramit’s Friday Entrepreneurs back in August of 2006.
First impression? Pretty neat. Bookmarked it, fell asleep, and soon forgot about it.
Yesterday, with an In-N-Out burger in one hand and a greasy mouse in another, I trolled Bloglines and came across another pf blogger’s post on Prosper.com — which I promptly typed into Wikipedia’s search box to see how Prosper has changed since launch. (Anyone else type things into the Firefox search box while they read articles or watch TV?)
While reading about Propser’s shady handling of its online forum, I noticed the “See also” link to Kiva in the Wikipedia entry.
“Hmm, I wonder how’s Kiva coming along?” I thought to myself as I click on the link and flicked the onions out of my burger.
Minutes later, before I even finished my juicy burger and strawberry shake, I found myself lending money to strangers online — all it took was only a few minutes.
Microcredit what?
Kiva.org is a non-profit organization that partners with microfinance networks across the globe to provide microcredit to low-income entrepreneurs. In gist, microcredit is the lending of very small amount of loans. It’s like letting your friend Bob borrow $50. Except Bob isn’t going to use the $50 to buy a PS3 game — he’ll be using the $50 to further his business and create more wealth.
Easier than Buying that Beanie Baby Off eBay
Lending money to various entrepreneurs across the globe is incredibly easy. You browse through the list of lenders by clicking the “Lender” tab, pick the listing you want to lend to, select your amount, click “Loan Now” put in your PayPal info and you’re done.
Borrower Listing Page |
Lender’s Profile Page |
After you’ve extended the loan, you will receive email updates in regards to the status of the loan and the progress of the business in which you’ve extended the loan to.
The flow of money is fairly simple. You extend the loan via a credit card transaction; Kiva collects the fund (100% of which goes to borrower, since Paypal is waiving transaction fee); the funds are transfered to the field partners which administers and collects the loan repayment; you receive your repayment into your account and you can withdraw the amount or lend to another borrower.
Not Really a Handout
Loans extended on Kiva won’t generate interest for the lenders (although the microfinancing field partners of Kiva do charge interest to borrowers), thus if you lend money on Kiva — you will only get your principal amount back. There is of course the risk of the loan defaulting, in which case you may lose your money.
With those in mind, why should anyone lend money?
Kiva’s pitch: By choosing a business on Kiva.org, you can “sponsor a business” and help the world’s working poor make great strides towards economic independence. Hence, “loans that change lives.”
My opinion? Sounds good to me. On one hand, you’re helping someone. On another hand, you’re not exactly giving a handout — these are loans that should be repaid, after all. Plus, more often than not, these loans are a means for them to produce more wealth and value — not to pay off debt incurred from excessive shopping.
Thus far, Kiva has had a pretty amazing repayment rate of 100%, an on-time payment rate of +99%, and the microfinance institution that Kiva partners with are required to meet Kiva’s due diligence standard.
Microfinancing isn’t without problems, borrowers can easily use their funds on transactions other than the ones stated, and microfinance institutions can’t always find the perfect borrowers. Still, as a website that utilizes the Internet to increase the reach of funding for microfinancing institutions across the globe, Kiva is doing a pretty spiffy job.
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10 Responses to “Kiva.org — Lending $25 to Celina in Kenya Just Got Easier”
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April 2nd, 2007 at 7:03 pm
I love Kiva, I feel like I am giving money and know that it is going to a good cause. One thing of note, a lot of them update their journels in their own language- you may want to have someone translate it and then post the tranlation in the comments for other english-only readers. That’s what I did at least.
April 2nd, 2007 at 8:44 pm
I did this months ago and I actually got paid back. It’s a great feeling to see that the money you donate can keep on working to help others.
April 2nd, 2007 at 9:42 pm
It sounds like a great idea, but what troubles me is this parenthetical note:
“although the microfinancing field partners of Kiva do charge interest to borrowers”
So basically, although we are doing a good thing, the partners are making profits off of our money? Why would we allow our money to be used to capitalize a company so others can make profits? I mean, I know there is ostensibly a good thing going on here, but it still seems like someone’s capitalizing off of the good thing and our money.
I don’t know how I feel about that.
April 2nd, 2007 at 9:59 pm
My understand Leo is that the interest is anywhere from 2-5% depending on the group. Also the money they get is used for overhead as they are onsite to provide and take in this money and pay their ‘bank’ workers.
I feel it is justifiable.
April 3rd, 2007 at 8:42 am
I prefer Kiva over prosper at least your not loaning money to people that need fake boobs or a new wardrobe. With Kiva, you are actually making a difference. It’s more like charity.
April 3rd, 2007 at 9:27 am
I hadn’t heard of this before but it sounds interesting. I’ll have to check it out.
April 4th, 2007 at 7:40 am
wow thanks for the post, sounds really intriguing
April 4th, 2007 at 11:38 am
hey, you ate In-N-Out are you going to give any freebies? ;-)
April 4th, 2007 at 1:30 pm
According to the NPR story, the MFI (microfinance institutions) charge 16% for interest.. but i’m sure there may be lower rates too.
I do get what you’re saying Leo, since other people are using our money to fund people, and we bear the risk while they take the money. But as Dawn said, there are cost associated with extending these loans for those having actual workers, heading out to the fields, filtering borrowers, administer and manage these loans.
You should also look at it from this other perspective, since for many of these people, receiving small loans of these size is significantly difficult (at least at a reasonable rate). They are low income borrowers w/o credit or collateral. To get a loan of these size from say.. the local money lender, it would probably cost them 300% in terms of interest.
Here’s another spin on it, 16% is by no means prime rate, but the current U.S. standard rate is around 13.4%, and these are people with some form of credit. If you have bad credit in the U.S., rates above 20% are the norm. So, 16% for them is a reasonable rate, when looked in that light.
But yeah, I understand what you mean regardless. It’s like bearing a risk to help certain people, and having the middleman profit from you helping. Some of these partners are non-profit too though, I believe.
Misti: Yeah totally forgot too. Didn’t buy the burger myself so didn’t think of that. Hmm. Next time :)
April 5th, 2007 at 10:45 am
It would be nice if we could have a “forgiveness option” meaning that after the loan is paid off, you could have the option of giving the money back to the person you loaned it to. That way, the person who got the loan would feel like they were working toward something and they may or may not get the money and you could still give charity.
That might be a weird idea but I get some sick pleasure of having people paying stuff off and then being like: “By the way, you can keep the money”