I first learned about Kiva on the Oprah show. I was swept away by the simplicity and brilliance of the idea. Bill Clinton was on the show too talking about his book ‘Giving’, which I’ll review for you guys soon. In this article, I’m going to walk you through the Kiva project and highlight some of the pros and cons to the model.
So, let’s go.
WHAT IS KIVA?
Kiva is a microfinance site which connects lenders from the West with entrepreneurs in developing countries. It’s a dating service for business ventures. Kiva members (it’s free to join, and you can do so here) lend small amounts of money to business owners in poorer countries. About 99% of the loans are repaid, and often members reinvest the sum elsewhere. Kiva means 'unity' in Swahili.
This morning, I joined up. It took about 2 minutes, although I still have to link up my Paypal account and start lending. Here I am, let’s be friends!
WHAT DO YOU DO?
You lend a minimum of $25 interest-free to an individual or group who have a business in the developing world. You can pick from a specific country or business sector if you like. 82% of the entrepreneurs are women, as culturally it’s often impossible for them to get loans locally. Unlike a bank, borrowers are not charged interest and no collateral is required.
IS IT THAT SIMPLE?
No, it’s not. Kiva was criticized last year for over-simplifying their story. They didn’t lie but there were several sins of omission. The real business model looks like this:
Kiva work with micro-lending organizations on the ground in developing countries who administer the loans. About 95% of the loans are dispersed before you lend, meaning that Kiva reimburses the micro-finance institution (MFI) after the fact. Kiva never hid this, but they didn’t highlight it either.
You are in fact, lending to a micro-finance institution who then lend to entrepreneurs. Photos and details of the business are uploaded on the website to keep lenders up to date and to entice more lending.
And, why do the entrepreneurs get the money before you’ve lent it? Because good micro-finance programs are client-driven and making donors wait for donations when they’ve cash on hand would be unnecessarily inconvenient
Are you disappointed by this?
Did the personal connection between you and your business partner in the developing world make you feel all warm and fuzzy? Maybe it did and that's OK. If you’re giving money, what do you look for? Perhaps a photograph of the person in need and a personal story? Maybe a hand-written letter? People like to see who they’re helping and how. Donors demand personal connections and the organizations that offer them raise more money. It’s as simple as that.
So, what if Kiva did what everyone assumes they do?
An entrepreneur goes to an MFI (Micro-finance institution) and asks for a loan. They take their photograph, write their profile and post it online. If they’re lucky, a wealthy westerner will stumble on it and decide to donate. Maybe they like the idea or the photo intrigues them. If nobody hits on their profile, they don’t get a loan.
So, westerners are deciding who’s worthy of money based on very little information, rather than the MFI who work on the ground. I think Kiva’s model is superior, both in terms of effectiveness and also building a fair relationship between lenders and entrepreneurs.
I do have concerns for the precedent this sets. I’ve already written about how NGOs are spending time running overseas volunteering programs, rather than focusing on working in communities. How long will it be until donors demand a phone number for the child their sponsoring so they can check in and see that their money is being well-spent? There’s a danger that NGOs will spend too much time babysitting and satisfying donors rather than working in developing communities. NGOs are now quasi-travel agencies and match-making agencies.
After a loan, lenders tend to stay tuned in to how their business partner is doing thanks to their support. Donors often donate and then forget about it. Therefore, the micro-finance model tends to educate people more than straightforward donations. Kiva’s greatest asset is the warm glow lenders get from taking part. They are drawn into the experience, expanding their horizons and continue to lend. Plus, they begin to spread the world among friends which is undoubtedly the best form of advertising.
Kiva is an expansion and improvement on the child sponsorship model, that of establishing a business partnership albeit with the help of an intermediary (the MFI).
We shouldn’t feel guilty about the satisfaction we get from giving aid. Being a donor or a lender is both a rational and an emotional response and that’s OK. But, I think we can all agree that being a lender/donor should not be about what’s best for you, but what’s best for the developing community. A large part of being a supporter of global development is educating yourself about best practice and then sharing that knowledge with others.
In 2008, a loan was made on Kiva every 31 seconds.
The total value is loans made through Kiva is $151,389,775.
They have 738,000 users across 200 countries with 470,113 having funded a loan.
If you’d like to read more about Matt Flannery’s story, I’d really recommend his interview in Clare Mulvany’s book One Wild Life. Disclaimer: I know Clare, but I wouldn’t recommend the book if I didn’t love it.
Here’s a great round up of blogs and articles written on the Kiva debate.
And I really enjoyed Kiva co-founder Matt Flanney’s article addressing some of these criticisms. Kudos to him for speaking out, rather than simply ignoring the issue.