Kiva Customers Don’t Receive the Loans you Give

If I wanted to get your attention, that’s the headline I’d write.  Strictly speaking, it’s true.  And when you only have a minute to grab someone’s attention, isn’t it your job to grab their attention?

That in essence is what’s at the core of the conversation that’s swelled up over the last two weeks about Kiva.  David Roodman’s “Kiva Is Not Quite What It Seems” post kicked things off; Tim Ogden took things further in his post on the Philanthropy Action blog, and Sean Stannard-Stockton provided the definitive summary of the conversation, with his take on it, on the Tactical Philanthropy blog in a post titled “Is Kiva Misleading the Publc?

Here’s the low-down: you can log on to Kiva, find a microfinance client in the developing world who needs a loan, and fund that person.  The catch is that that person has already received their loan.   In fact all the clients on the Kiva website have already received their loans.  The microfinance organizations that gets money from Kiva does receive those funds, but the funds don’t go to that individual client.   The GiveWell blog provides the picture that’s worth a thousand words by showing what the Kiva donor is told (graphically) and what the microfinance organization is told.

The thing is, what Kiva’s doing is nothing new.  Heifer International raises tens of millions of dollars a year by sending out millions of catalogs that are every bit as sophisticated as the LL Bean or J Crew catalogs, only instead of buying rugby shirts you buy a chicken or a cow for a family in the developing world.  But you’re not really buying that chicken or that cow.  On the bottom of every page for every cow or chicken or trio of rabbits you “give” to someone, there’s a small-print disclaimer:

Gifts made through this catalog represent a gift to the entire mission. To help the most number of families move toward self-reliance, Heifer does not use its limited resources to track gift animals from donation to distribution. We use your gifts where they can do the most good by pooling them with the gifts of others to help transform entire communities. And, because you are helping Heifer fight hunger and poverty, your gift is tax deductible.

So the gift of a cow isn’t buying a cow, just like the Kiva loan isn’t going to that actual Kiva borrower.

Before we get on our philanthropic high horse, let’s be clear about what is and isn’t true here.  To keep it as simple as possible, imagine you run a nonprofit that provides food aid to people struck by natural disaster.  The simplest story goes:

  1. People are suffering as a result of this natural disaster
  2. One can buy food for one person who is hungry for one week for $10
  3. We’re in the business of buying this food
  4. So give us $10 and we’ll buy the food.

And when you’re writing a catchy headline to get a high open rate for your emails, you’ll lead with “A $10 gift will buy someone food for a week.”  This is, strictly speaking, true.

So the question here isn’t really about truth, it’s about how big a sin of omission each nonprofit can and should commit as they play this game.  Is it the responsibility of the nonprofit sector and donors alike to break down the myth that each gift does or doesn’t buy a specific thing?  And will those who take the high road ever win out in the marketplace of ideas?  It’s an empirical fact that people give more to help one person than to help many (check out this excerpt from Made to Stick for the startling experimental data), and this is wired deep into our brains, it’s not something that was created by the nonprofit sector.

Which is why I think Nathanial Whitttemore has it right when he says that this “problem” is here to stay, namely that nonprofits will, by and large, tell almost-truths to their donors – focusing on a specific connection between their dollars and a given outcome – and that a major shift for the majority of the giving population won’t happen any time soon (if ever), even though as professionals our aspiration might be to change the narrative to investing in nonprofit organizations, as Sean suggests.  It’s a good aspiration, and we should keep at it, but it will never be the bread and butter for most nonprofits or for most donors.

It is true that philanthropists who makes major giving decisions and give considerable time and energy to these decisions have the opportunity to break this cycle; and the supporting infrastructure of philanthropic advising has an opportunity to push this conversation forward, aided by nonprofits who are willing and able to tell a different story.  But let’s not pretend that we will someday divide the world into two, with the masses being duped into emotional decisions that get them to dig into their wallets while major donors dig in deep analytically and primarily make educated, highly rational, institutional-building investments.  If it doesn’t happen in the stock market, why will it happen here?

All givers are essentially the same, essentially human, making rational and emotional decision based on the information they have and the amount of time they have to give to their giving decisions.  The emotional connection is the starting (and often ending) point for everyone, and what matters is the ability of every individual donor (whether they give $20 or $20 million) to insert themselves into the narrative of a particular nonprofit organization, the problem they’re addressing, and the role that the philanthropist and their gift have in addressing that problem.

The “your money buys this” message isn’t going anywhere soon. If anything, what Kiva and Charity:Water and DonorsChoose have shown is that there’s a way to take this approach and adapt it to 21st century tools – so that you can see an online photo of the microloan recipient or the well that was dug or the classroom that was helped — if not directly by your money, at least by that same amount of money as the amount you gave.  It’s interesting that making this association more visible and tangible is calling into question the veracity of these claims (no one’s writing about Heifer, right?), when in fact all Kiva et al are doing is strengthening a tried-and-true narrative.  The mechanics of gift -> organization -> recipient haven’t changed one bit.

If you think about it, it’s nearly impossible to change these mechanics and run an efficient, global nonprofit.  So why are we all acting so surprised?

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39 Responses to Kiva Customers Don’t Receive the Loans you Give

  1. jdub says:

    I’m a fan of kiva, but I’ve got to say, I think they go beyond sin of omission. You find a group you want to fund. Kiva tells you with a little red graph that the group needs say $700 and they have $620 in loans so far. You put in $20 and the graph says they have $640. Someone can put in $60 and close the gap. The graph will fill up and turn green. Kiva says the group won’t be funded until the total amount is raised. Once it is, you can check in your Kiva account how the group is doing. You get an email each time the group pays back some money. Your Kiva account shows the percentage paid back with a graph below the picture of ‘your’ group. It’s hard not to think that your money is very specifically going to that particular group and being paid back by that particular group. This all seems a bit more proactive than an omission. None of this changes any of the rest of the points in your post. I understand if it is not possible to actually send ‘your’ money to a particular group or person. It does seem however that kiva is moving into shaky territory in the specificity of their website. I mean, at what point do they cross the line into false advertising?

  2. Conor Neill says:

    As a Kiva lender ( http://www.kiva.org/lender/conorneill ) I was shocked when I saw this headline come up in my blogroll (I follow your blog). I read this post with a simple question – is my money getting to the end “customer” or not? My sense is that you are saying that the physical $50 that I give to Kiva doesn’t get FedEx-ed direct to Uganda and given to a specific end customer. I am glad to see that this is not an exposé of Kiva corruption. Your shocking headline worked, but as the shepherd boy learnt in the fable, you only get to cry “Wolf” twice.

  3. Sasha says:

    Hi Conor,

    Thanks for your comment, and I should clarify two points:

    1. I intentionally made the headline shocking not to get people to read, but to show by example that if you only have one second to get someone’s attention, you will take some shortcuts with “the whole story.” Hope I didn’t go over the line for you here.
    2. To clarify, the surprising revelation about Kiva isn’t that they don’t FedEx the funds to Uganda, it’s that the person listed on the Kiva website has, by definition according to how Kiva operates, already been funded. I think jdub (comment above) clarifies why he as another Kiva lender finds this to be more than a sin of omission given the mechanics and graphics on the Kiva website.

    Thanks for reading.

  4. Tim Ogden says:

    Sasha,
    I agree with everything you’ve said here–and in fact I said the same things in my post “Even More Questions About Kiva,” noting that this is standard operating procedure in disaster relief, child sponsorship and alternative gifts. In that post there’s a link to an article I wrote almost two years ago about Heifer and raising the same issues.

    In both cases, I was not surprised. And in both cases I think the fault primarily lies with the donor who tell non-profits they have to provide the illusion of person-to-person connection even when it is either a) impossible, or b) is to the detriment of the recipient. The way that both Heifer and Kiva actually operate is the way they should operate.

    Where we get into trouble is the donor’s demand for illusion–and even more so, the donor’s anger when the illusion they demanded that the non-profit provide is exposed.

    As I commented on Sean’s blog, the real solution to this problem is a change in donor behavior. As you say, I don’t see that as very likely.

    So what to do in the meantime? I think it’s incumbent on the non-profits to make it easier to pierce the illusion. Kiva’s challenge is that the whole interface is built on the illusion. It’s not clear that they can do anything other than perpetuate it.

  5. saundra says:

    Having a few seconds to grab attention in a headline is one thing, failing to explain to the donor how the program actually works, misrepresenting the work, or purposefully leaving out critical information is another. I have no problem with saying this is equivalent to what your money could buy if they include the full cost of the program. So if $20 can really buy a flock of chicks – including all the administrative costs necessary to provide all the support to actually get that flock of chicks there, and if they’re clear that it includes that that’s one thing. But if they are giving just the cost of the chicks with none of the administrative costs, then they are misrepresenting actual costs and creating the impression with donors that aid should actually be that cheap. This harms the entire industry because it puts pressures on all aid agencies to either critically cut administrations costs and skip on things such as needs assessments, coordination, project evaluations, and professional staff, or to misrepresent their cost to compete for donors. If critical administration costs are cut it risks providing poor aid, if costs are misrepresented it risks further diminishing the public’s trust in aid agencies. And misrepresenting aid agency work is against professional standards set by the Better Business Bureau and InterAction which were created because of previous misrepresentations by the aid world.

  6. Rick says:

    The post-9/11 vilification of the Red Cross brought all this to light. Kiva should have heeded those lessons. They wouldn’t be in the headlines this way now.

  7. Sasha says:

    Saundra, you make a great point and I didn’t get into the overhead question in this post as I think it’s important but I couldn’t figure out how to tackle that in the context of this conversation. I do think the idea that nonproifts are just flow-throughs for funds to recipients is a big problem and misconception of what it takes to do this work, and it’s a major problem and one I think we CAN conquer (unlike the hope that donors will some day not ask for that personal connection…where I’m more skeptical). Thanks for bringing this to light here.

  8. c says:

    Erm. I might be being slightly slow on this one. But it seems to me that the *cashflow* entries are less important than the *accounting* entries around these donations. So long as these all tie in together (KIVA’s income from donor X, KIVA’s expenditures to MFI Y, MFI’s disbursements to beneficiary Z), the question of where your “$50 note” went is pretty meaningless. Your money went to that beneficiary in a very true and accountable sense.

    In a rapid onset emergency, an NGO may spend its own money (ie, cash reserves) from minute 1, and might sign a grant with ECHO at the end of week 1 (with allowable expenditure from minute 1), but then not receive the electronic funds transfer until the end of month 1. It would be ridiculous though to say that the ECHO money when received is going ‘somewhere else’, even if it goes straight into cash reserves to replenish the funds already drawn down.

    So perhaps KIVA should be perhaps clearer about the retrospective nature of the donation though, but immediacy is a powerful motivator to give.

    For me the more important issue here is that the P2P model being promoted by Kiva (and others), provides an illusion that there are no costs, no expertise, no value added by the intermediaries, ie, KIVA and the 100+ MFIs that identify and monitor recipients, beyond funneling cash from one place to another. That’s absurd.

  9. Bill says:

    “Shocked” isn’t a strong enough word to show my disdain for these recent attacks on Kiva.

    Are you all renters? Have you never applied for a mortgage? And if you have do you really think it was your mortgage broker that loaned you the money to buy your home. I’m sure he/she told you that they “found” your money from ABC Lending, right? Or, maybe, you went directly to ABC lending and they made the note out to you and the check for your new home said ABC Lending right on the top? You borrowed the money from them, right?

    Well, just like Kiva; yes and no. Did you make a fuss of it then? Remember the movie, “It’s a Wonderful Life”? Remember George Bailey and the Bailey Savings and Loan in Bedford Falls? Even then, when someone borrowed money from the S & L, it was really the depositors money, wasn’t it? What happened when the Bailey Savings and Loan didn’t have enough deposits to make the next loan?

    As time went by, we figured out how to manage that. We went to FANNIE MAE and FREDDIE MAC and then to Wall Street. The Bailey Savings and Loan sold the last loan to these suppliers of money so they would still have enough to lend to the next borrower. And so on and so on and so on. Then one day, it was discovered that The Bailey Savings and Loan figured out that they could lend money to anyone (with a job, with no job, with a down payment, without a down payment, with good credit or not), make a piece of the action and get the money back for the next guy to make even more money. A lot of us knew that those anyones were never going to be able to pay back those loans, but what did The Bailey Savings and Loan care? The loans were no longer their responsibility. Let Fannie Mae or Wall Street worry about that. Oh yeah, Fannie Mae and Wall Street, by the way, found ways to “package” all these loans and sell them off (making a nice piece of change along the way) to just about anyone. Retirement funds…even a little town in Sweden that thought that their extra funds could make a nice return because these “packages” were rated very high by the all knowing rating companies on Wall Street.

    Well, several TRILLION dollars later, we know the rest of that story.

    Will this happen to Kiva? Who knows. There is corruption everywhere (except maybe in the hearts of Kiva lenders who aren’t making a piece of the action). And to my understanding, Kiva does take actions to prevent this. To make sure that the lenders in countries all around the world are being fair and honest. Kiva has sent “Fellows” to each of these lenders to help and check up on the borrowers. I have rarely been more impressed with a group of people in my life. You dissidents should take a look at their qualifications to volunteer their lives to help Kiva and it’s lenders.

    So, to all you renters, go get a mortgage and see where that money comes from. No, we are not lending money directly to the people in the pictures, but those people would not have a chance to borrow for their small businesses at a fair rate, if Kiva hadn’t been there to help the people in other pictures.

    Bill

  10. Bill,

    The central issue (at least for me) isn’t that there’s a pool of money, like mortgages. The issue is that Kiva implies that if a loan isn’t fully funded by the “deadline,” then it won’t happen. (See the list of projects sorted by “expiring soon” here: http://tinyurl.com/yz6r3nq ) If the loans have already been made, then this statement from their website is false:

    “The individuals featured on our website are real people who need a loan and are waiting for socially-minded individuals like you to lend them money.”

  11. jdub says:

    I’ve read the Kiva CEO’s response to this issue and some of the comments above. I have no issue with how microfinance and Kiva operate, and how they should operate, and what is the most efficient way to operate. So why not be upfront about it? If it is better and more efficient to work the way they do, shouldn’t they sell it that way?

    I was looking for the fine print on kiva and they REALLY make it sound like you are funding the actual people:

    They even give you risk and due diligence page:

    http://www.kiva.org/about/risk/overview

    and their how it works page says partners give “the loan funds to the selected entrepreneur.”

    http://www.kiva.org/about/how

    Their fine print is in the “tell me more” link, but even there they say only that there is a chance the funds will be given to the entrepreneurs before the funding from Kiva, and only up to 30 days before. It still says your money is going to a particular group. Only the timing is the issue.

    This seems to be an active falsehood, not a subtle omission, no? All of this would be avoided if the Kiva materials – at least the ones you find when you do a little digging- explained the actual procedure.

    My answer to the ‘donors want to be misled’ line of reasoning is: you should factor in the inevitable backlash when calculating the cost/benefit analysis of being truthful. Users/customers tend to get pretty upset when they perceive they’ve been lied to.

  12. Openworld says:

    Why can’t Kiva, Heifer and others offer the following choice to their microfunders?

    1) Apply the microfunder’s new contribution to a beneficiary that Kiva/Heifer has already pre-qualified and already helped through a bridging loan of funds/livestock, etc. Choosing this option lets Kiva/Heifer to recover its bridge support from that individual’s account, and let Kiva/Heifer move on to prequalify and give interim support to others.

    2) If the microfunder prefers, he/she instead could earmark a contribution to go towards a group of new candidates (chosing individuals online) seeking initial Kiva/Heifer bridging support. This option would give contributors a first-stage role in helping their chosen recipients.

    Best,
    Mark Frazier
    @openworld (twitter)

  13. Pingback: Kiva Customers Don't Receive the Loans you Give « Sasha Dichter's Blog (via postie) | Kantaas.Com

  14. saundra says:

    Sasha,

    I am also concerned about the misrepresentation of how the money is distributed. I perhaps didn’t clarify well enough. When I said – I have no problems with saying this is equivalent to what your money could buy – I should have put more emphasis on the word “equivalent”. Thus saying your money would be enough to do this I’m fine with, but saying your money actually did this when it didn’t is a misrepresentation. If the aid world misrepresents their work to the donors then donors will lose even more faith in the aid world and tie aid agencies hands even more by earmarking aid or only donating to projects where they can be there in person to see their funds being used.
    If the personal connection is critical to attracting donors then aid agencies need to determine how to make that connection while still correctly representing their processes and the work they do.

  15. Sasha says:

    Thanks for all these great comments.

    Saundra, I think the gray area here and what’s inspired so much conversation is whether Kiva is saying “your money actually did this” or not. My sense from Matt Flannery’s post on the topic is that he feels like they could do a better job in transparency here. The additional question I’m interested in raising is whether Kiva is doing anything substantially different than the many many nonprofits who say “your donation buys this” when what they really mean is either “your donation can buy this” or “your donation buys something like this?”

    Openworld, my understanding is that microfinance organizations wouldn’t be able to provide the quality and speed of service their customers have come to expect if they pre-qualified people and then waited for funding, and I actually think one of the many important things microfinance is doing is treating poor people as customers who deserve a certain level of service and respect.

    jdub, I have to agree that when looking at those links, there’s less clarity and transparency that I expected. Thanks for pointing those out. I would guess that this whole conversation will lead to some changes in the explanations on Kiva.org about the mechanics of the process. Same goes for Mike’s comment.

    Bill, thanks for the shout-out to the Kiva Fellows. They’re an amazing group. I think that’s what makes this all so challenging — because Kiva is obviously bringing so much good to the world.

    c, I think the gap that has people upset is “what does the average person think happens when they go to the Kiva website vs. what actually happens.” Though I agree that the overhead issue is very important as well – perhaps more important in fact.

    Thanks to all for your very thoughtful comments and for moving the conversation forward with such clarity.

  16. Zipff says:

    Seems like if you could build a complex system to make it look like you are funding individual people, its not impossible to actually do that.

    The problem here is the perception is way out of whack with the reality and intentionally so.

  17. Tony Pipa says:

    When I worked at Habitat for Humanity, we circulated fund raising flyers all the same saying that “$10 buys a box of nails; $100 buys a window; etc.” However, we were NOT saying that your $10 buys a box for the Jones family, who are building a house on 9th Street, nor giving the impression that if it wasn’t funded in the next 10 days, the house would never get built.

    It was apparent to the donor that the sum REPRESENTED a particular item, but wouldn’t necessarily pay for that item. And the donor understood that s/he was making an unrestricted gift, not one restricted to a box of nails.

    There’s no “problem” of using tangible items to represent contributions when the donor understands it’s exactly that- a representation. Donors intuitively understand that there’s a difference between restricted and unrestricted contributions. When you’re leading them to believe they’re making a restricted contribution in a manner that you’re not restricting it, there’s a problem – and it’s your problem, not theirs.

    Heifer’s catalog is fairly clear in this regard, but perhaps could be clearer. If you didn’t read beyond the topline, you might think you’re funding a goat, when in fact your gift won’t be restricted to a goat. But it’s much clearer than Kiva in that it’s apparent that I’m not funding that particular goat or the family of the boy standing next to it in the picture (since every donor would also be funding the same family, especially in the hard copy catalog).

    Kiva’s presentation (until the recent modifications due to the controversy) gave the strong impression that the donor (or lender, though my understanding most of the contributors never ask for their money back) is making a contribution restricted a particular entrepreneur and business, and that there was time pressure to make it happen. The interactive nature of the web gives an even stronger impression that all this is happening in real time and dependent upon your immediate action.

    Having a few seconds to make an impression is no excuse to be misleading at best and deceptive at worst.

    BTW, equating Kiva and DonorsChoose is incorrect. DonorsChoose dollars DO go specifically to the project you chose when you made your contribution. They are very clear that they don’t send the materials for the project until they receive the funds. And indeed the project doesn’t happen unless it gets funded.

  18. alisoncarlman says:

    I’m a recently-returned Kiva Fellow who worked with a very small MFI in Kenya. My MFI did wait to fund entrepreneurs until it had all the money from Kiva, so there is a bit of irony in this whole debate for me. That tidbit aside…

    Sasha, I have a problem with comparing Kiva too closely with Heifer or other similar organizations. With Heifer, you “buy a cow” but you might not actually be buying a cow… perhaps you’re actually paying for some other service to the community. They are explicit about that. With Kiva, when you “buy a loan” –you are actually “buying” or funding a loan for exactly that amount from the MFI who has lent the money to the individual. With your loan, you’re not paying admin fees to run an MFI, you’re not giving to a community development fund, and you’re not paying Kiva’s admin costs.

    As “Saundra” and “c” pointed out, there ARE other costs associated both with buying a cow and with buying a loan. But in the case of Kiva, the borrower actually covers those costs (through their interest payments) – and in that case, Kiva is not misrepresenting the “cost of aid.” Kiva is clear about this – lenders aren’t providing aid, they are LENDING interest-free capital that borrowers pay back with interest to an MFI. I think that is an important distinction. I agree that more could be done to emphasize the role of the MFI and its associated costs. . . but MFIs are Kiva partners for a reason, because they equally benefit from this interest-free capital. And they do get quite a bit of play on the Kiva site for people who are interested in looking into the MFI.

    If there are people who don’t agree with the model, then they should give directly to MFIs. But MFIs aren’t going to be able to tell you who they lent the money to and what the impact (positive or negative) was of the loan. And, as several people have pointed out in this debate, Kiva has provided access for the average “socially minded investor” to these MFIs and their clients in an unprecedented way. One of the huge benefits of the Kiva model is that they are reaching out to the “long tail” of MFIs that can’t access commercial funding. Who was lending to these small MFIs before Kiva came along as their partner? Nobody at Kiva’s scale.

    I do agree with the criticism by Mike-Everett-Lane about the implication that if a loan isn’t funded by the deadline than it won’t happen. But there is some truth to the matter – if a loan doesn’t get funded on Kiva, then the MFI will have to find another way to raise that capital. If they can’t, it may keep that borrower or another borrower from getting a loan. In a small MFI like mine, this was absolutely the case.

    Jdub, you take issue to fact that (as you say,) “ Kiva claims that there is a chance the funds will be given to the entrepreneurs before the funding from Kiva, and only up to 30 days before… and that it says your money is going to a particular group. Only the timing is the issue.” Fungibility of money aside – (thank you, Bill) it is true that an MFI has 30 days from the disbursal date to post a loan on Kiva. And look – that MFI has that funding for a particular group because it has been provided by Kiva lenders. I don’t know why that is such a horrifying claim. The money may be sitting in the MFI’s pot, but those individuals are getting loans for the exact amount of money that was lent by Kiva lenders.

    Sorry for the long post – I do agree that there are areas of transparency that Kiva could improve upon. (I think there is much room for improvement on the borrower side, but that’s another issue.) But nevertheless, I think Kiva has done a remarkable job of moving forward with the help of web 2.0 to improve upon transparency, and most importantly, Kiva as shown that it is adaptable to feedback and that’s why I think Kiva is still an important and relevant model (subject to new and better iterations).

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  20. Kate H. says:

    Sasha, I think that the situation becomes compounded when the founder, Matt Flannery, writes a response article that you’ve mentioned that says “they could do a better job” regarding transparency but dismisses the proactive approach to mislead.

    To me, as a former fan of Kiva, it is not a transparency issue when they proactively misled users in my opinion (such as myself) with quotes throughout the website that spoke of loans going to specific lenders.. I understand the logistics of what that would actually mean and the difficulties around it, but that was part of my initial fanfare of Kiva. I thought they were doing something really special by going that route…

    In plain English, I really felt I was enabling the poor business owner that I chose, and I was sad to find out the fine print says he was just marketing material.

    I will say, something that I really value in Kiva was that they introduced me to microfinance, albeit now I might look more into a different lending platform where I won’t feel… well, I don’t want to be dramatic but the word that fits best here in my opinion really is deceived…

  21. Kate H. says:

    a little birdie has told me that Kiva may be planning to use lack of funding as an excuse to become a for profit soon to raise venture capital… sasha, do you know anything of this?

  22. Jan & John, KivaFriends says:

    We are not donors to Kiva.
    We are lenders. I get so tired when people put Kiva and Heifer (a very good charity) in the same bowl and stir them up together.
    We, as lenders, expect to earn no interest but we do expect a large part of our investment returned.
    It doesn’t matter to us whether or not the loan was disbursed prior to being posted on the Kiva site. We know our loan helps the MFI backfill their accounts to then continue with their work and lend to someone else.
    If the specific borrower or group of borrowers we choose to help with our loan decides not to pay, then we could very easily be out $25.
    This links me in a very specific way to that MFI and that borrower in that particular country.
    Kiva has grown significantly and there are certainly spots on their site that need updating, agreed, but lets not stop helping other people improve their lives just because the fine print was not part of the headlines.
    thanks, jan

  23. Dottie B says:

    When I lend to a Kiva entrepreneur, I assume the risk for that particular loan. If that entrepreneur defaults – doesn’t happen often, but it did happen to a few of my loans, such after the fighting in Kenya – I don’t get repaid. That’s a pretty specific connection!

  24. Susan says:

    I’ve read a few articles which suggest that other sources of capital may now be available to MFI’s from sources other than Kiva. If in fact the default rates are as low as represented, and if the interest rates are as high as Kiva lists them, I’d suspect that this is correct, that various venture and money funds would be interested in putting money into this channel, if only for diversification reasons.

    If this is true, then the MFI’s may be assumed to be taking funds from Kiva largely because they are free or nearly so. (I recognize that there are administrative costs involved, but Kiva charges no interest itself.)

    Since the MFI’s are not non-profits, if all this is true, then the primary beneficiaries of the “donations” to Kiva are not the recipients of the loans, they are the shareholders of the MFI’s, who take virtually free money from Kiva and then lend it out at rates of 20% or 30%. (If defaults are as rare as we are told, what is the justification for these very high interest rates?)

    I’m also puzzled by treating funds submitted to Kiva as “donations” or “gifts.” According to the Kiva website these are “loans” and the lender is entitled to repayment (though without interest).

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  26. Clare says:

    Great post. I write a development blog for a younger audience and found your piece very informative. Many thanks, Clare.

  27. Chris says:

    Folks,

    On the KIVA home page – top center of page is a link, “How KIVA works”. It is disclosed that the borrowers are funded by the MFI and then post the person or family on the website after which lenders donate. It’s no secret. Also on the Home page of the website on the left is a link called “About MicroFinance” where the interest rates are explained. It costs the same to process a $100 loan as it does a $5000 loan. Point is….the facts are disclosed. Seems the real rub is whether the MFI is choosing borrowers wisely, managing funds wisely and so on. Again, the rating of the MFI is also disclosed.

  28. Susan says:

    Chris, here’s the deal.

    I’m REALLY unhappy with the high interest rates charged these struggling borrowers. 20%, 30% and up sometimes. I wouldn’t borrow money at those rates myself, and I can hardly imagine the extra burden this represents. (“Disclosure” and “explanation,” by the way, are not at all the same thing as actually documenting why the heck the costs are so high. Is someone’s pocket being lined here?)

    If Kiva (or someone) said, in effect, “look, the loan of $150 costs $45 just to administer, but we don’t want to saddle some lady with some chickens in the outback with an interest rate of 30%, so how about kicking in $190 so she can have $150, she can pay 3% on the loan, you pay administration, ok?” I’d write a check tomorrow. (IF the lender could document those high administrative costs. Not “disclose,” document.)

    But as it is, my “borrower” is paying usurious interest rates, and I’m wondering where all that money is really going, and I’m not writing any checks.

  29. Pingback: Kiva, Heifer International, the American Red Cross, and donor trust | Good Intentions Are Not Enough Kiva, Heifer International, the American Red Cross, and donor trust | An honest conversation about the impact of aid

  30. Ram says:

    I have been giving money to Kiva and am very disappointed. If Kiva can commit sin of omission, why can’t politicians do the same? I don’t think all NGOs are made equal, and would like to empower those that remove power from the power brokers inside an NGO and distributes it evenly with those who want to participate… Would I participate in Kiva knowing how it works now? Maybe… Or maybe, I would have chosen another charity in my home country that targets other suffering people, in a more traditional way. What attracted me to Kiva, is exactly what it decide not to do. There is no rational justification for this. Doing good cannot depend on misleading… Or else how are we helping the mission of truth ? To do charity for charity’s sake, there are thousands of other organizations.

    It is like saying you are going to help poor kids in Africa and give the money to needy kids in Baltimore… Is it the same thing? They are all kids needing help. But you are misrepresenting the intention of the person who makes the donation. Nothing different from a crass politician would do…

  31. Susan says:

    Some good points, Ram, especially about doing good closer to home.
    No money from me to Kiva until those usurious interest rates come down. I’ll gladly pay the “administrative charges” when someone explains what those are exactly, but I think a gift to Kiva, as things stand, goes partly (maybe) to those who need the money in the target countries, and partly (too much) to the intermediaries.
    I do notice that there have been no official answers to this objection from anyone at Kiva. 30% interest rates? Even credit cards in the US don’t charge that kind of interest. This is predatory.
    Chris? Anyone?

  32. alisoncarlman says:

    Kiva doesn’t charge interest rates. Individual microfinance institutions (MFIs) do that already operate in field locations. Kiva doesn’t CHOOSE interest rates. Each individual microfinance institution sets their own – they usually very depending on what type of products they offer. You can read about the different MFIs on the Kiva.org site if you want, and you can choose an MFI that charges lower interest rates if you want. Susan, re: “Administrative charges, ” I’m not sure what you mean. But the reason MFI interest rates are higher than banks or credit cards is because you must factor in how much it costs for an organization (maybe even a non-profit) to distribute such small loans in conditions without infrastructure. In many cases they have to hire a staff person to drive 4 hours (and pay for the vehicle and petrol) out to a rural community to deliver cash and then check in on the borrowers every week to collect payments, and perhaps provide other services = insurance, training, health services etc. Borrowers often might not have any other access to loans than this. (Unless they wanted to buy from the unregulated moneylender/bar owner in the neighborhood who can charge 100% interest and burn down their shack if you don’t pay.) The “intermediaries” are providing important services – financial access for the poor. I believe that the poor have a right to financial services (savings, insurance, loans) and that’s the whole idea behind microfinance. making that available even on a small scale.
    I’m not saying there are no problems with the system, some places do charge too high of interest rates and make profit. But many MFIs are providing services that nobody else can, and may be making no profit or losing money in the process.

    Two things:
    1) if you’re really interested in MFIs and why they charge interest they do, I suggest you do a little googling into the issues of financial access and financial services for the poor. Read about the MFI disaster in Bangladesh, and then read some success stories. Do some homework to learn more about microfinance – the issue is bigger than Kiva.
    2) the original blog entry (re: “sin of omission”) is over a year old, and brings up many issues that Kiva has subsequently addressed. For example – see how Kiva now explains what they do on their front page and the “how it works” page. http://www.kiva.org/about/how . The issues have changed – they have worked toward being a lot more clear about how the process works.

  33. Susan says:

    I know why they charge so much interest, or at least I know what you say about it. How’s about some transparent accounting on the MFI’s used by Kiva? How much exactly goes where? There have been abuses, you know. Remember the story of the guy, early in the day, who just absorbed all the money for himself and his family?

    I’d be willing to pay the extra interest charges (if I got an accounting) rather than burden some third-world borrower with them.

    “In many cases they have to hire a staff person to drive 4 hours (and pay for the vehicle and petrol) out to a rural community to deliver cash and then check in on the borrowers every week to collect payments…”

    And in some cases it all went into the pocket of some middleman. May we have an audited statement?

    Come on. This isn’t really asking so much. You’re asking me to take a 30% interest rate on faith, on suppositions. That’s asking an awful lot more.

  34. Susan says:

    So it comes down to this. I donate $100, and $30 goes into the pocket of some middleman who does something with it, who knows what? and some poor woman out in the bush has to come up with $130 t0 pay back a loan of $100.
    No thanks. I’d rather loan her money at a reasonable rate, or give it to her even, than see her burdened with such unreasonable costs.

    I wouldn’t borrow money myself on such terms.

  35. Harjot says:

    Susan: what if your only other option was paying 70-150% interest to loan sharks OR no loan at all? 30% doesn’t seem so bad, does it?

    The primary reason you and I wouldn’t pay these rates is because we have other options.

  36. Susan says:

    @Harjot, I’d rather give my hypothetical “borrower” the money outright than burden her with such interest rates (and enrich locals who, while they are “better than” the local “loan sharks” (??) are still loan sharks). There are ways to give money outright, and I do that.

    Loans at 30% are dishonest, and an unreasonable burden. Poverty is thus increased.

    Kiva, if it wished, could supply a far more transparent accounting for that 30% than I’ve been able to find. Who are these MFI’s exactly? Where is this money going exactly? If I had that information, and it was, as Kiva continually asserts, completely on the up-and-up, I’d gladly pay the lion’s share of the interest charges myself, and consider it a necessary administrative expense. Then my hypothetical little lady in the brush could pay a civilized rate for a civilized loan. I think this whole scheme as it currently is has the potential (probably at least in some cases abundantly realized) of being a scam in favor of the locals “administering” these loans by which they plunder the poorer of their neighbors.

    May we have some audited financials? This is what most people in the industrialized countries demand of our financial institutions. It’s not some weird thing I dreamed up on my own. I’m just not willing to take Kiva’s bare unsupported word for it, any more than I take the Bank of America on faith.

    There are people in dire need in my own community, where I can keep an eye on the institutions involved. It’s a worthy impulse to send money overseas, but before I do that I’d like to know who exactly is getting it.

  37. Pingback: Is fundraising stuck in the world of Mad Men? | The GiveWell Blog

  38. Carlos says:

    Some people making a Kiva loan have specific criteria i.e. they want to loan only to Women.
    It seems this is virtually impossible to do at the moment.
    Would people be happy to loan to a Field Partner that guarantees that your loan will only go to Women or Schools… I’m not sure how this would be achieved? You could browse all of the loans being made, photos etc knowing your loan will help one of these people. This seems more honest and transparent. Any thoughts?

  39. Yes! Finally something about non-profit organization accounting.

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