January 19, 2009 at 3:49 pm | Posted in Economoney, Online services | 5 Comments

Kiva is an online tool for making microloans to entrepreneurs in second and third world countries. Funds are raised from a group of small lenders and compiled and sent to the field partner, who in turn gets the money to the Entrepreneur.

I started using Kiva from a gift. I’ve gone on to reloan the funds several times after they’ve been repaid. Currently, the number of lenders is exceeding demand. Loans are being funded within minutes of landing on the site. Indeed, I had to try 3 times over several hours to find a loan that was not funded and had moments to decide between a family grocery store in Peru and young mother in Ghana.

The microloan implementation we know today originated with Mohammed Younus, who won the Nobel Peace prize for his inception of the Grameen Bank in his native Bangladesh. As some have observed, they don’t make a macro difference on poverty but they certainly can help improve the lot of some. And they’re certainly better than institutional handouts.

They’re now showing up in first world countries as well.

When I first started using Kiva,  the loan information did not state the interest rates but did talk about payments. Now they don’t mention that either and the diversity of field partners has expanded. The email updates do mention recent payments but if you add them up, they equal the loan, not the total cost to the borrower. The field partners do charge interest. I had to fish around a little to find out the rate. You have to click on the field partners logo to see their details. Down near the bottom is the interest rates, as compared to other lenders.

The rates are a pretty sobering size. If you consider our local interest rates, it gives you an idea of the challenge these entrepreneurs face. For example, one loan I have that’s half repaid has a rate of 24%. The Kiva average is 22.95%. This is not the field partners sharking – the average interest rate in the loaning country is 120%. The average in Kiva’s operating countries is over 85%.

Thus, that is the profit margin you need to make just to pay for the loan let alone take a salary and grow the business. This means local cost of goods are dramatically inflated by the simple cost of funding inventory. Given that money is supposed to be a medium of exchange, its a curious testament to  humanity that we charge so much for it’s availability.  More so, given the near perfect repayment rates most lenders have. Ironically, better than the ‘low risk’ North American market.

People that complain about missing macro solutions to poverty don’t need to look far.



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