
The Kiva Fairytale - jkurnia
http://www.nextbillion.net/blogpost.aspx?blogid=3726
======
curiouscats
I agree Kiva should have more results data. The article is fairly lame though.

In one quote is says "With interest rates often exceeding 100 percent," which
I am pretty sure is completely false. I have made hundreds of loans and I
worry about rates above 40%. I seek lower rates (often between 20-30%) and
find them often. The article says Kiva doesn't discuss the rate - but it is
shown on every lending page, as a lender you can select based on loan rate (I
know, I do).

The article also doesn't provide data either on the failure of Kiva to help.
Granted I think Kiva should provide more data on the impact of loans and
whether it is helping or not - I like to believe it is but <a
href="[http://investing.curiouscatblog.net/2009/10/16/micro-
credit-...](http://investing.curiouscatblog.net/2009/10/16/micro-credit-
research/">I) do question how useful Kiva really is</a>.

I don't know about expenses for Kiva (though sites like Charity navigator rate
it highly). But as a lender on Kiva it really doesn't matter. Kiva expenses
are paid by donation. To lend using Kiva you can make donations but you don't
have to. High expenses matter it seems to me if you are choosing who to donate
to.

Kiva does take advantage of human psychology in a smart way it seems to me,
connecting lenders to people that need loans. It is a bit of a fiction as the
article points out but it is also real - your re-payments are based on that
loan. I see the benefits of that human connection as worthwhile (people like
that human connection - showing their photos adds to that) though agree if you
want to find fault it is something you can question.

I like another site that provides charity to local groups directly
[http://www.globalgiving.org/](http://www.globalgiving.org/) I do figure there
is more chance of fraud given the nature of having lots of little
organizations that it is hard to monitor. But I like getting directly to small
groups that are making an effort and being able to target what you like.

Some sites that have published research on micro lending

    
    
      http://microfinanceresearch.org/
    
      http://www.microfinancegateway.org/p/site/m/
    
      http://www.cgap.org/

~~~
ploxiln
The article claims that when you look for specific loans, you're being fooled:
the loans have already been made, and the interest rates listed are
inaccurate. Quote:

Kiva’s initial attraction was that it was a peer-to-peer lender, but it is not
in fact a peer-to-peer at all. The loans featured on the website were made
months before, and Kiva users are essentially buying them from the banks. But
the deception does not end here. Kiva cleverly chooses to reveal out-of date
portfolio yields instead of actual interest rates on loans, conveniently and
consistently under-estimating the real cost to the poor.

~~~
curiouscats
Kiva publicly states, and has for years, the loans are made prior to
individual funding via Kiva. While I do believe the majority of users don't
know this, I think Kiva does a decent job of disclosing it, saying they are
being deceptive, I believe is inaccurate.

It is true the yields are quoted as portfolio yields (average for the lender
overall). This seems adequate to me. If the yields are not representative (out
of date, etc.) that is bad and Kiva should fix. I didn't notice evidence that
this was a widespread problem. Kiva also lumps in all costs to the lender so
it isn't like many financial institutions in the USA trying to fake low
interest rates with lots of hidden fees etc. (though regulation has made it
more difficult for financial institution to make loan rates deceitful - not
that they don't try but it is much harder than 15 years ago).

It is peer-to-peer at the essence I think, though it is often not directly
that way and I don't think Kiva hides how it works at all. Though I do agree
it is easy for someone to not make one or two extra clicks to read a bit about
Kiva before making a loan but I think Kiva's balance is fine. Kiva also has a
new thing called Kiva Zip that is more "pure" peer-to-peer for people that
want that.

I have given to another organization that just made grants (instead of loans)
for over 10 years now. Trickleup.org It doesn't have the neat peer-tp-peer
psychology going for it. And it is straight charity, not a loan. I have also
wished trickleup.org did (or arranged for professors to do) studies on the
impact. They have done a bit more in the last few years on the research piece.

I would like more study of Kiva. I want to understand if it is helping and
what factors matter. I steer toward lower loan rates but does that really make
sense (I figure too high a rate increases risk for the person). I try to lend
to purchases of equipment that will increase productivity (though I can't
always find those loans) - is that really effective? I also like loans to buy
things to rent out devices to increase productivity (some people buy washing
machines and lend them out...).

I am very lucky. I like to help give others a chance to gain economic success
in the very limited ways I can afford to. I hope Kiva helps, but I do question
if it does. And I question if they are focused on growth so much (as most USA
based organizations are) that they grow beyond what is helpful. It is possible
there is a core that is now say 20% of the Kiva's loans that are hugely
beneficial. 50% that are sometimes great, sometimes bad... the value is
questionable overall... And say 30% that are likely to just make things worse.
But those figures could be anything (from what I know - I don't have any
data).

Given what I know I think it is worth lending some money through Kiva. If I
were one of those huge foundations giving Kiva millions I would spend at least
20% on research until there was good data on how successful it is and what are
the keys for making it work.

------
skybrian
If you're interested in this sort of thing, you might want to give to
GiveDirectly instead. It gives grants instead of loans (so interest rates
aren't an issue) and is one of the very few charity organizations to do
randomized controlled trials to prove its effectiveness.

More detail than you probably want to know:
[http://www.givewell.org/international/top-charities/give-
dir...](http://www.givewell.org/international/top-charities/give-directly)

------
steve19
The article boils down to

1) Kiva spends to much money on marketing and is therefor inefficient. 2) Kiva
gets to much media attention. 3) Kiva are attracting more than their share of
micro-investors. 4) Kiva does not export Western cultural values.

Regarding number 4, I think individual investors should decided what and what
not to fund. I find cock/dog-fighting to be inhumane, but I enjoy hunting,
many people would say hunting is inhumane and immoral and a smaller group
would go as far to say "eating meat is murder". What about businesses using
malnourished horses to transport goods? Should Kiva not fund anything animal
related?

As far as only funding legal organizations. I am sure Kiva does not fund
narcotic production or gun running. But how can they possibly be sure all
businesses they fund are 100% legal, complying with all health, zoning,
retail, licensing etc. laws of the local county/state/country?

~~~
wsc981
I thought the main gist of the article was that Kiva in the end just doesn't
work. The only thing Kiva seems to achieve is to sate our conscience. This
concerns me, since I actually did lend a bit of money through Kiva thinking
this would really get results.

In the end I'm happy I didn't advertise Kiva to friends and family. I'd have
to be 100% sure about the results of any such organisation before recommending
it to other people and I guess in the case of Kiva, I never was.

~~~
mfheretic
It is interesting to see how readers come away with different gists of this
article. I do think that Kiva could be a lot better than it currently is, and
other similar companies have addressed some of the issues, only they are not
as well-known, perhaps because their PR/marketing is not as effective. See
some of the later comments in the Next Billion article when Zidisha is
mentioned, for example.

But I think you touch on a CRUCIAL point - it helps our conscience. Phil
Mader's original post, which I reference, is well worth reading:

[http://governancexborders.com/2013/12/10/kivanomics-101-or-d...](http://governancexborders.com/2013/12/10/kivanomics-101-or-
dkyc/)

It is a short piece and eye-opening. I cite a phrase from this article in my
piece:

Kiva enables us "to consume the feeling of charity without financial loss"

To say that Kiva simply "just doesn't work" is tricky, because we have to
define "work". It depends what the objective is. If the idea is to make people
feel that they have done something useful with their $25, which they get back
a few months later, it works wonderfully. If the idea is to efficiently
transfer spare capital in "rich" countries to "poor" countries (forgive the
simplification of terms), it doesn't work very well, as there are far more
efficient mechanisms. If it is to provide low-cost funding to entrepreneurs,
then it has pretty mixed results which are hard to verify as Kiva
(mysteriously) don't publish the actual interest rates. In some cases you can
find them out though.

In summary, you are very wise to suggest that an endorsement requires you to
be convinved that this is a good business. It appears Kiva did not meet your
standards, and I am inclined to agree with you.

~~~
gillier
> If the idea is to make people feel that they have done something useful with
> their $25, which they get back a few months later, it works wonderfully.

This is a poison on humanity.

~~~
mfheretic
I am not sure what to make of this comment - are you suggesting that Kiva is a
"poison on humanity" for doing this, or that I am for saying it?! Please
clarify! For further reference on this specific point you might find Dr. Phil
Mader's post, which I reference, useful:

[http://governancexborders.com/2013/12/10/kivanomics-101-or-d...](http://governancexborders.com/2013/12/10/kivanomics-101-or-
dkyc/)

The actual quote is that Kiva allows us "to consume the feeling of charity
without financial loss"

You might also appreciate the work of Domen Bajde referenced in Mader's
article.

------
unclebucknasty
Another thing that's interesting is that it's really not all about enabling
entrepreneurship. Increasingly, I have noticed loans for education [1], home-
building [2], and other needs.

I point this out not to be a jerk. Certainly, these are worthwhile causes in
themselves, but there is no lack of traditional charitable giving
opportunities elsewhere. I suspect Kiva knows this and is really selling the
more differentiated and compelling idea of helping people to stand on their
own, as the article mentions.

To be fair, most of their loans are still around enterprise, but I cannot help
but wonder if loan requests for such needs reveal that the very idea behind
Kiva is unrealistic to some extent. That is, when you have people who don't
have homes or basic subsistence wherewithal, is it realistic that they can
launch or run a successful business? Is it also realistic to expect that a
significant portion of their loans won't end up redirected to other needs?
This concern is not helped by the fact that the only updates I've ever
received are regarding loan repayment, and not how the recipient is actually
faring. It's also not encouraging when I see people requesting loans to pay
off other loans. [3]

Recent articles posted on HN have shown that just giving money to poor people
with no pretense or payback requirement is surprisingly effective. Maybe Kiva
is selling a dream that has greater marketing appeal, but less actual
effectiveness.

[1] [http://www.kiva.org/lend/667533](http://www.kiva.org/lend/667533)

[2] [http://www.kiva.org/lend/667257](http://www.kiva.org/lend/667257)

[3] [http://www.kiva.org/lend/652349](http://www.kiva.org/lend/652349)

~~~
doktrin
> _Another thing that 's interesting is that it's really not all about
> enabling entrepreneurship. Increasingly, I have noticed loans for education
> [1], home-building [2], and other needs._

This is actually a not-uncommon catch with regards to micro-credit in general,
both in the US and abroad.

At one point I worked for a micro finance institution, having been very
impressed with the concept (applied generally) and the goals of the company.

What I realized shortly after joining was that the overwhelming majority of
loans issued were for "life expenses" \- which often translates to "buying
stuff", although this is of course not always the case.

Ultimately, then, micro-credit in this context is really just lending targeted
at an under-served demographic with not-quite-awful interest rates. Certainly
not evil by any stretch (and on the whole, a net-positive) - but not living up
to the very serene ideals of more Grameen-purist micro finance.

~~~
unclebucknasty
> _the overwhelming majority of loans issued were for "life expenses"_

> _micro-credit in this context is really just lending targeted at an under-
> served demographic_

I think we have to be careful when providing _loans_ to impoverished people as
a means of helping them with _subsistence-level_ stuff. Seems that it is very
likely to leave them worse off, especially when interest is involved. Going
forward, they now have largely the same income and expenses, yet also a debt
to service.

Reminds me of payday loan places here in the U.S. And, it seems difficult to
imagine that those who would saddle impoverished people with interest-bearing
debt so they can meet basic needs aren't knowingly preying upon their plight.

But, I have no experience working in the field. I'd be interested in hearing
success stories or other scenarios to the contrary that you may have
witnessed.

~~~
rahimnathwani
Two basic elements of underwriting for personal unsecured loans are assessing
the ability to pay and the willingness to pay.

If the borrower expects to have monthly expenses which are greater than their
monthly income, and therefore nothing left over to make regular repayments of
interest and capital as they become due, then the lender has no business
making the loan in the first place.

I'm not familiar with payday lenders in the US, but responsible ones in the UK
will steer customers to an installment-based product if it turns out they've
needed to roll the loan over to the next month, more than a couple of times.

~~~
unclebucknasty
There's already an entire industry around making loans to people who cannot
afford them. Of course, when the source of the funds is free to the banks, as
with Kiva, the economics are somewhat altered.

> _responsible ones in the UK will steer customers to an installment-based
> product if it turns out they 've needed to roll the loan over to the next
> month, more than a couple of times._

Installment-based products are still debt, right? In fact, I would imagine
that to be what's primarily sold to impoverished people who have little-to-no
assets. Still, it's no-good when we're talking about debt for subsistence. My
view is that it's better to simply give them the money. If the person could
not afford to eat without help, what will change to make it so when he now
also has an additional expense (debt)?

~~~
rahimnathwani
_Installment-based products are still debt, right?_

That's correct. However, as my original comment states, assessing ability to
pay is part of underwriting. For an installment loan, this means checking (at
least) that someone's monthly/weekly income is higher than their
monthly/weekly regular expenses.

The first loan I took was to buy a reliable car (for my journey to/from work).
I could not afford to buy that car in cash, but could afford to pay it off
within a couple of years, as my income was higher than my regular expenses,
and I could use the difference to pay for the car.

 _it 's no-good when we're talking about debt for subsistence_

I agree. It's good mainly for revenue-generating assets (e.g. expanded
inventory for your small shop) or cost-saving assets (e.g. a car which doesn't
need frequent costly repairs).

~~~
unclebucknasty
> _I agree. It 's good mainly for revenue-generating assets..._

Precisely.

------
nmridul
\- Interest rate : You should understand that these are people that no
mainstream institute would be willing to lend money to, even at high interest
rates. So Kiva's high interest rate is not really high.

\- Marketing expense : I joined Kiva because they said they will make the
first contribution on behalf of me. I chose the borrower and Kiva sent the
money. I didn't spend anything. I'm sure this would come in as marketing
expense. This was one of their largest marketing campaign.

------
jasoncavnar
Yay for pseudo-journalism! @mfheretic, fact checking your work wouldn't be
hard.

Kiva's Response:
[http://www.nextbillion.net/blogpost.aspx?blogid=3731](http://www.nextbillion.net/blogpost.aspx?blogid=3731)

