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My Intro to Micro-Financing Aug 30th 2008

Last week I finally bit the bullet and did something I’ve been meaning to do for quite sometime: join Kiva. For those unaware, Kiva is an organization whose goal is to see worldwide poverty eliminated. They go about things differently though than your typical aid organization: they provide local people with small micro-loans (generally only a few hundred US dollars or less) that empower them to start, expand and develop their businesses, with an end goal of financial independence.

How It Works:

Kiva directly partners with various micro-financing across the developing world who then provide the Kiva community with loan opportunities. These various institutions upload pictures of the people, their history and a detailed plan on what the money is to be used for. When I first heard about it, I was intrigued but at the same time skeptical because it sounds like a system just ready for scams of all sorts. But Kiva does their homework. Not only do they do detailed checks on all of the micro-finance institutions they partner with but they also keep detailed records of all loan history. That way, you can see payback rates, default rates and more for every institution (and even those receiving loans if they’ve had them in the past). Everything is designed to be completely transparent so that you know exactly where your money is going and what type of risk is involved. Oh and Kiva keeps none of your monies themselves. They rely completely on the donations of the community to function. One hundred percent of what you lend goes straight to the field, so to speak.

Why do it?

A lot of organization operate under the “handout” system (I’ll call it) where the provide goods and service without price to those in the developing world. And in a lot of cases, these organizations are great, needed and much appreciated. But one thing that was expressed to us repeatedly by the missionaries in Cape Town this summer was the importance of letting the people take ownership in what they are doing. There, the m’s told us that rather than pass out Bibles for free, we should charge some nominal sum (and I do mean nominal…practically nothing) because if the people purchased their Bible they were immediately vested in it whereas if they were given it, many times they would turn around and sell it (and head for a beer at the nearest Chabean). The same principle is at work in the ideology of Kiva: empower and enable the people to work for change in their lives — vest them in it in fact — and you’ll begin to see real change.

And so — I’m directing a portion of my charitable givings (even though this really isn’t a charity) to Kiva. It’s encouraging to know that my monies last month went to helping Abena Banwah, widow and mother of three, expand her food business in Ghana. And, once she repays (8 months from now), I’ll be able to relend that money! If you want to join with me, let me know! We can start a group and impact people’s lives together! (note: I’ll be focusing on African countries and any business that isn’t a bar. If that sounds intriguing, let me know!)

Some Stats for the Curious

• Total value of all loans made through Kiva: $40,462,385

• Number of Kiva Lenders: 331,071

• Number of loans that have been funded through Kiva: 57,186

• Percentage of Kiva loans which have been made to women entrepreneurs: 77.45%

• Number of Kiva Field Partners (microfinance institutions Kiva partners with): 88

• Number of countries Kiva Field Partners are located in: 42

• Current repayment rate (all partners): 98.47%

• Current default rate (all partners): 1.53%

• Average size of loan for funding: $473.41

• Average total amount loaned per Kiva Lender (includes reloaned funds): $123.61

• Average number of loans per Kiva Lender: 3.24

It’s fascinating (but not super surprising) that the majority of the loans go to women. Also, a 98.47% repayment rate is not to shabby at all and makes it totally worth the risk (in my eyes).

tags: charity, economics, kiva, microfinancing

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