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.

The spiffy list of borrowers

Borrower Listing Page

The lender's profile 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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