I searched for "kiva" on here and found no hits. That seems unlikely - sorry if I missed a duplicates.
Kiva is a non-profit. They take your donations and distribute them to microfinance lenders all over the world. Those lenders disburse the money to entrepreneurs in third world countries, who pay back the loans in installments. You choose the specific entrepreneur to fund, and as they pay off the loan, the money you donated is returned to you. A lot of good, lasting change is generated by giving these people access to capital.
The problem is that the loans are NOT given out interest free. You give your donation free of charge, and Kiva gives it to the loan companies free of charge, but the loan companies charge the borrowers very high interest rates. The average rate is 23% - in the US, that would be "Payday Loan" territory.
This is not made very clear on the Kiva website. In fact, the Kiva website says that you are making a direct, "one-on-one" connection with the borrower, and call it a "person-to-person" loan. You have to dig quite a bit to find out that your money is being passed from Kiva to a for-profit company, and even more to find out that they are earning an average of 23% interest on your donation.
Yes, there are good reasons for that high interest rate. These loans are small, so the initial cost to set them up is an unusually large part of the total costs, making the interest rate seem higher. These borrowers are also supposed to be high-risk, but the average default rate for all Kiva loans is only 2.85%.
The microfinance loan companies partnered with Kiva have loaned an average of $55 million dollars, at an average of 23% interest, with an average default rate of 2.85%. That's an average PROFIT of almost $11 million dollars.
Microfinance lending is a GOOD thing, and a worthy cause for your donations. I even applaud these companies, because they are helping people and have found a way to make money while doing good work.
But they are NOT charities. I don't see why a company that has made $11 million dollars -- off of poor people! -- needs more free money from me. Would you donate food to Feed the Children, if they were selling it to starving kids at a 23% markup? With a 23% ROI, these companies can afford to put everything on Visa and still make a profit!
I don't think the Kiva website makes this clear enough, and I don't think these companies deserve free use of your money. If you want to donate to microfinance, go to one of the groups that don't do it for profit, like the Rotary micro******* program. http://www.rotarianmicrocredit.org/
All my figures are from the Kiva website - use the "Kiva average" numbers from any "Microfund Partner" page. Note that the main Kiva pages do NOT mention any of these figures! http://www.kiva.org/about/aboutPartner?id=22
Since kiva.org is a scam, you, and every other micro-lender, should invest in microplace.com.
Sure, microplace.com is run by eBay, a company known for permitting scams to occur on their auction site, but its model appears more transparent than kiva.org.
It's not a scam. Your analysis is incorrect & incomplete.
23% interest paid on 50 million is $11 million. Yes. But, it is NOT $11 million in PROFIT.
As you clearly acknowledge, the bank has to have physical offices, and pay loan officers locally to meet with & work with local applicants. They turn down applicants who are too risky. So, for every loan they do, they have many real costs, which are NOT free.
So, take away, say $9 million for the valid operational costs the bank must make, and you get maybe $2 million (4%) PROFIT. If that.
That's why most banks only take loans for higher amounts, and salivate over the largest loans (homes in the US). It's because the valid overhead on each loan is mostly fixed & high. The larger the loan, the easier it is to absorb those costs in a modest change in interest rates.
The correct term before taking out all those expenses would be "gross profit." So I'm not wrong...
According to the latest figures on the kiva.org website, the average gross profit is up to $17 million now. And I can't imagine that it takes anywhere near $9 million to run a company in one of these developing nations. What's the average local salary? How much is rent? You're talking a drop in the bucket compared to the millions they are bringing in.
Regardless of how MUCH money they are making: Why do these companies deserve free money, if they are making a profit on the donated funds?
Well, you're welcome to get in on this "scam" if you truly think you could make a convenient profit from it. It's quite an open system. And, they often "run out" of people to loan money to. So, by all means, jump in & expand it if you want.
Just setup your bank in a 3rd world. Navigate complex paradoxical bureaucracies of local government entities which essentially require bribes to get anything done (to clear one side of a paradoxical requirement).
Try to make $50 million USD in loans, $500 at a time. That's 100,000 loans to process, and send out monthly bills, handle calls, & chase down payments. And, if you grant 100,000 loans, that means you probably rejected another 200,000 to get to the 100k that were viable. If you spent, on average, 20 hours per successful loan, at a paltry $2/hour, that's already $4 million in costs.
Setup a system of auditing, to follow local laws, and if nothing else, make sure you're not getting cheated grossly by customers or employees.
How much labor would that cost? Can you really get by with the lowest wages within that country? You'd need specialists making at least ~$2,000/year as you need basic literacy, math, and communication skills.
Those are all good points - I feel like you'd rather start an argument than read what I actually wrote...?
I say about that microlending is a GOOD thing - I even put it in caps!
And while some folks, or companies, might do it for free, for-profit companies will probably get a lot more feet on the ground. I'm okay with that! For-profit microfinance; enable change while making money!
I just think it's scammy that Kiva uses such cute language to make it seem like this is a nonprofit, direct-to-the-needy donation, when actually you're just shoring up for-profit companies. It seems really dishonest of them - NONE of the Kiva donators I've spoken to had any idea the loans weren't going out at zero interest.
And I believe that most of the Kiva partner companies borrow much more than they receive from Kiva. The "free money" from Kiva is just a nice bonus; they don't need it to survive or grow. So why do they deserve it at all, then?
Seems like it should either be a "for profit" model that borrows capital at market rates, or a "non profit" model that depends on donations from nice people. Kiva blends the two, and tries pretty hard to hide it.
(Not really important, but my friend who just got out of the Peace Corps really does want me to start a Kiva-partner microfinance company with him, because he DOES think he can make a lot of money that way. So maybe your idea is a good one! :) )
Those are all good points - I feel like you'd rather start an argument than read what I actually wrote...?
I say about that microlending is a GOOD thing - I even put it in caps!
And while some folks, or companies, might do it for free, for-profit companies will probably get a lot more feet on the ground. I'm okay with that! For-profit microfinance; enable change while making money!
I just think it's scammy that Kiva uses such cute language to make it seem like this is a nonprofit, direct-to-the-needy donation, when actually you're just shoring up for-profit companies. It seems really dishonest of them - NONE of the Kiva donators I've spoken to had any idea the loans weren't going out at zero interest.
And I believe that most of the Kiva partner companies borrow much more than they receive from Kiva. The "free money" from Kiva is just a nice bonus; they don't need it to survive or grow. So why do they deserve it at all, then?
Seems like it should either be a "for profit" model that borrows capital at market rates, or a "non profit" model that depends on donations from nice people. Kiva blends the two, and tries pretty hard to hide it.
(Not really important, but my friend who just got out of the Peace Corps really does want me to start a Kiva-partner microfinance company with him, because he DOES think he can make a lot of money that way. So maybe your idea is a good one! :) )
And you're NOT trying to start an argument? You're asking why those companies deserve the money they're making. Maybe I just missed something, but before this post I never read one thing about anyone saying they DO deserve it. So who exactly is asserting that those companies deserve anything?
They do what they're doing and people support that. You've already agreed multiple times that it's a good thing all around, so... where's the beef? Are they making an end run around nonprofit laws somewhere?
I think the OP was asking specifically about Kiva's transparency -- and more broadly, Kiva's role in the micro-finance process.
When people talk about lending through Kiva, warm and fuzzy is generally the order of the day. And the OP has not spoken with anyone who lends through Kiva and is aware that the ultimate recipients of the money are being charged interest.
I had a similar experience recently with a friend who was speaking highly of Kiva -- I asked a few questions and the conversation trailed off with him saying something like "I'm not entirely sure how the microfinance partners make any money". He had opened the conversation, of course, with "Kiva doesn't charge interest on its loans".
So there's clearly a miscommunication at some level. I just did a little experiment and clicked around on Kiva's site for several minutes and could not find any indication, anywhere, that interest was being charged to the ultimate recipients of funds. Not even an indication of a document on the site that might address the question.
One can find this information if one digs deep enough, as the OP mentioned, but I think it's reasonable to expect it to be more prominent on a site that uses the word "transparent" so often on its more immediately-visible pages.
So that leaves me wondering, "Why isn't Kiva more up-front about this?" And also, with the OP, "What does Kiva actually bring to the table here?"
If the answer is something like, "The microfinance partners are able to charge, on average, 5-10% less interest than if they had to use more conventional financing sources" -- then great! But let's hear it, loud and clear, from Kiva, if that's the case.
Last edited by bslorence : 07-27-2009 at 11:24 AM.
Kiva isn't a scam; you just don't understand how they operate that's all.
Quote:
Originally Posted by Portland
Those are all good points - I feel like you'd rather start an argument than read what I actually wrote...?
I say about that microlending is a GOOD thing - I even put it in caps!
And while some folks, or companies, might do it for free, for-profit companies will probably get a lot more feet on the ground. I'm okay with that! For-profit microfinance; enable change while making money!
I just think it's scammy that Kiva uses such cute language to make it seem like this is a nonprofit, direct-to-the-needy donation, when actually you're just shoring up for-profit companies. It seems really dishonest of them - NONE of the Kiva donators I've spoken to had any idea the loans weren't going out at zero interest.
I had a bit of problems about this myself. Kiva isn't a scam; it's just that people aren't looking thoroughly into what they're getting into. But the info is there. Once I get familiar with how field partners are operating, it was fine. This isn't some secret.
And I believe that most of the Kiva partner companies borrow much more than they receive from Kiva. The "free money" from Kiva is just a nice bonus; they don't need it to survive or grow. So why do they deserve it at all, then?
? What free money are you referring too? There's plenty of lenders, if you don't like one you find another with lower interest rates. That's how I do it. But it's still better than the rates local loan sharks are charging.
SEDA, a field partners, interest rate is 22% while local loan sharks' are 40%. It's high but these are mostly developing nations; it's not accurate to compare it to rates a lender in a developed nation are expected to charge.
Seems like it should either be a "for profit" model that borrows capital at market rates, or a "non profit" model that depends on donations from nice people. Kiva blends the two, and tries pretty hard to hide it.
If it's for profit at market rates, it would beat the whole purpose of micro-lending. You're adding interest rates from principal lenders now in addition to that of field partners. For alot of them, they might as well borrow from local loan sharks.
And as for non-profit, they are non-profit and they aren't hiding anything. If you'd look at the field partners and look through their website you'd find your answers. A pure non-profit that depends on donation to pay workers slows operation down. People can't just keep giving away money.
Quote:
(Not really important, but my friend who just got out of the Peace Corps really does want me to start a Kiva-partner microfinance company with him, because he DOES think he can make a lot of money that way. So maybe your idea is a good one! :) )
Regardless of how MUCH money they are making: Why do these companies deserve free money, if they are making a profit on the donated funds?
It's not free money. I lend out money to Kiva expecting them to pay me back. I do it not expecting interest from it, fully understanding that their workers and field partners are people who need to be paid to eat. Micro-lending is about helping people help themselves through hard work. That the organization is making net profit does not mean it's a for-profit organization. Unless you have proof that they are pocketing this money for the top executives, then they're not a for-profit organization. Secondly, they get plenty of sponsors and corporate partners, where's proof that their net profit isn't because of well management of their resources from donations by coporations and members?
Quote:
If the answer is something like, "The microfinance partners are able to charge, on average, 5-10% less interest than if they had to use more conventional financing sources" -- then great! But let's hear it, loud and clear, from Kiva, if that's the case.
That's exactly why micro-lenders like Kiva are there to provide. Here's some interesting stats on Kiva's field partner around the world.
I agree with Portland, it does not make a lot of sense that Kiva takes donated money to make a profit.
The concept seems twisted no matter how you want to look at it.
However, the very fact that would support this view of the issue remains unclear to me: do they really profit??
It would seem that they do not, but again, making sure of this is something that would require digging a bit deeper into Kivas operation and that is not possible simply by looking at their website.
I think the average, reasonable person would not describe Kiva as being anything close to a scam. That's probably why you had difficulty in finding Kiva listed as a scam operation. Kiva is a non-profit organization meaning that they are unable to generate enormous profits as you seem to think they are. Just because you think that Kiva type organization should offer interest free loans does not think every agrees with you. If you happen to read Kiva's question page, you'll not that microloans are expensive since each loan is very small but the paperwork is the same as for large loans. Lastly, Kiva itself does not get the interest, it's "field partners" (the agencies that manage and administer the loans locally) get the interest but Kiva requires the interest rate to be "reasonable".
So any profits that Kiva generates actually goes to the local agencies that administer the loans for Kiva.
I brought this topic up on the Kiva website a long time ago and it shocked me how people refuse to see this as anything other than 100% altruistic.
What Kiva found was a way to have other people bankroll their profit based business. It's simply a no risk business for Kiva. Use other people's money for lending purposes and then give nothing back to the people that gave you said monies. That's corrupt.
I would be fine with it if it was a not-for-profit business, but it isn't that way. I read about how much philanthropy was involved. I fail to see it. The only thing I saw was the waiving of fees to transfer the money. NICE. I bet the people waiving the fees are making money somehow on this deal.
I am surprised by the vehemence people have about this. It's nice to lend poor people money, but making millions of dollars of profit from them is criminal in my mind. I have seen interest rates on that site that blew my mind. 60% and more.
Then people tell me I don't understand. That it is more complicated than that. Bull#$#. I understand fine. I keep hearing about how expensive it is to run a business like that. WHAT? Isn't that the reason so much business is done in third world countries? Because it is so cheap? Just because micro lenders can take advantage of desperate people doesn't mean it's right, or kind.
I feel like the veil has been lifted from Kiva for me. I gave out almost 500 dollars before I realized how it was actually being run. So if I find a better solution, I will be happy to lend more money, but not to just make someone else rich off of MY hard earned money.
Firstly, gumby, "altruistic" means exactly the opposite of what you think it does.
Secondly, Portland, I felt the mechanism by which Kiva works was completely clear. Having actually read the website, I understand how it works. I don't think it's complicated; or perhaps I should say that FOR AN EXTREMELY COMPLICATED MULTILAYER PROCESS, the website is neither presented in a confusing way, nor obfuscated. It was CLEAR to me that a middle-man (not Kiva) would be making a profit.
The complete and utter foolishness of this post the the implication that the dozens or hundreds of different financing companies that are listed are making millions. Yes, TOGETHER they are making money. Maybe even SUBSTANTIAL money. However they are making LESS money than if they had lent their own money at local rates. The fact is that Kiva lenders are accepting loan risk to reduce the rate of interest for microfinancing to allow people who otherwise would have to RELY on charity to borrow money with pride and repay it 99.7% of the time.
What the hell is the scam in that? Or were you foolishly thinking that Kiva worked in DOZENS of countries with ONE lending corporation with ONE office?
Clicking through to pick ANY lender shows you all sorts of information, including the interest rate they charge, the interest rate for Kiva lenders site-wide, and the median microfinancing interest rate.
I see total loans, national information and statistics, default and delinquency rates, even how much is lost during currency conversion, stats on loans to women entrepreneurs.
At the top is "INTEREST & FEES ARE CHARGED?: YES (LEARN MORE)"
Each individual lender page has much of this information, including the fact that interest is charged, see Ramon Benitez for example (and please don't assume I am endorsing this entrepreneur, I have not read his details he's just an example at random): http://www.kiva.org/app.php?page=bus..._tpos=1&_tpg=1
I knew very well that this site is using my money this way. I knew that I'm not making a donation. That's the POINT. I'm lending money, and absorbing that risk as a bank or lender would! How am I deceived?
My goodness, in a world where Goldman Sachs isn't burned at the stake, how in the world dare you label Kiva a scam!
Edit: Please note that grumbly SAW THE INTEREST RATES. And thus WAS NOT DECEIVED. AAAAUGH. My brain.
Edit 2: How can the AVERAGE of 133 lending corporations be $55 million when they've only lent $95 million in total as of October?
You know what? If people are too stupid to read the site, then screw them. It took me ten minutes to understand the process, and I'm not an economist. I'm not a banker. I'm not a mathmatician. I can't amortize a loan. I'm just not an idiot.
What do you want, a big red box that says "OMG SOME ONE WILL MAKE MONEY OFF OF THIS D: D: D:"
Edit 3: Ok, this is rambly and ranty and all over the place. I'm sorry.
I agree with Portland, it does not make a lot of sense that Kiva takes donated money to make a profit.
It would seem that they do not, but again, making sure of this is something that would require digging a bit deeper into Kivas operation and that is not possible simply by looking at their website.
1) It is not donated. It is LENT.
2) It is NOT hidden. It is EASY to find. Try CLICKING SOMETHING.
I don't think you are reading Kiva or this thread correctly. No one has suggested that Kiva is "100% altruistic" -- instead, they have noted that Kiva has a model for providing funds to micro-lenders which involves both risk and profit. If this kind of behavior is a scam, or corrupt, then all for-profit businesses are scams.
If you don't like Kiva's model, by all means don't give them any of your money, but don't ask us to confuse the fact that you don't like Kiva's model with the idea that it is therefore bad.
I don't think you are reading Kiva or this thread correctly. No one has suggested that Kiva is "100% altruistic" -- instead, they have noted that Kiva has a model for providing funds to micro-lenders which involves both risk and profit. If this kind of behavior is a scam, or corrupt, then all for-profit businesses are scams.
If you were replying to me: That is exactly what the original poster seems to be saying. That Kiva is a scam, and they hide this information.
Once again here is my issue. If you are going to make profits from a business, then front the money for the business. Don't go online and ask hard working people to bankroll your seed money so YOU can make a profit. That is a zero risk business on Kiva's part. That's corrupt. They reap the rewards, but take none of the risk. If someone defaults on the loan, Kiva doesn't lose, it's the people like you and I that don't get their money back.
Imagine I open a coffee shop and ask people to buy the building and the coffee and the all the other things that go into the business, and then after the business is successful, I only pay you back the exact amount you lent. Now I have an active profit making business that YOU paid for, but if I messed up and lost the coffee shop, I wouldn't be out one red cent. That is not how business works. But Kiva is playing on heart strings to make it seem like something it is not.
I want to say again that I love helping people, I do it all the time. I just don't like this notion that Kiva is out to save the world. It's just another profit business disguised as philanthropy.
If you are going to make profits from a business, then front the money for the business. Don't go online and ask hard working people to bankroll your seed money so YOU can make a profit.
Kiva is a non-profit. Kiva makes no money. Neither do the donators. This essentially makes everything you say after this a flying bag of crap...
Quote:
Originally Posted by gumby
That is a zero risk business on Kiva's part. That's corrupt. They reap the rewards, but take none of the risk. If someone defaults on the loan, Kiva doesn't lose, it's the people like you and I that don't get their money back.
Actually, when they default on a loan, everyone loses.
1) The lender loses their money
2) Kiva loses credibility which harms their efforts to do good
3) The Kiva partner organisation loses the time and money that have invested in that borrower, and their default rate goes up on Kiva making it less likely that Kiva users will donate to entrepreneurs through their organisation.
4) The entrepreneurs, unless they are unethical, have failed to turn a profit, and will have an even harder time finding funds in the future.
Quote:
Originally Posted by gumby
Imagine I open a coffee shop and ask people to buy the building and the coffee and the all the other things that go into the business, and then after the business is successful, I only pay you back the exact amount you lent. Now I have an active profit making business that YOU paid for, but if I messed up and lost the coffee shop, I wouldn't be out one red cent. That is not how business works. But Kiva is playing on heart strings to make it seem like something it is not.
All bullcrap because that isn't at all how it works. Perhaps you should look into the big words in this expression (pulled from Wikipedia) "It is a 501(c)(3)non-profit organization." and you might be able to understand why your entire post is garbage.
Quote:
Originally Posted by gumby
It's just another profit business disguised as philanthropy.
Wrong, again. Read the damned site. Seriously, until you go read the site and understand how it works, stop shitting up this thread.
This whole thread is a joke and I had to sign up for an account just to respond to it. Some of you folks just don't understand micro-finance. First, all donations to Kiva are optional. You can lend money and not give Kiva one dime if you want. Next, this is thier jobs and just because they are a "non-profit" doesn't mean they shouldn't get paid. The CEO of the Red Cross makes upwards of 3/4 of a mil a year. I hpoe the people at Kiva are making good money.
Also, Kiva is very transparent on their site about this stuff, listing the portfolio yield of every partner. What you are missing is the profitability % which is what matters. The whole microfinance concept falls apart if its not profitable for all parties, not just the borrower. This is the key concept you are failing to grasp. Microfinance is not charity, that's the whole point. Its not a hand out nor is it done by volunteers.
And comparing portfolio yields in general is a wasted exercise because they can vary wildly from country to country. For example, among ALL microfinance lenders in Cambodia, the national interest rate average is around 38%. In Bosnia, its around 28%. Its not like Kiva finds the one institution charging high rates. So any other microfinance entity that loans money in Cambodia is going to be the same thing.
But the key is profitability. I took one institution at random from Kiva as an example. WAGES (Women and Associations for Gain both Economic and Social) in Togo. In 21 months as a Kiva partner, they have loaned $1,288,575 with a profitability of 3%. Oh my GOD!! They made a profit of 38K over a 21 month period, those capatalist swine!
Let me be more blunt, for creating independence and self-sustainability, businesses work, charities do not (gross generalization). Kiva uses much of its money to expand its operations into numerous other countries and institutions, as anyone who has been around Kiva can attest to. That means more people getting loans. Kiva's high profile means more people lend through Kiva. With the lending partners in each country making a profit, that means they can expand their operations and benefit more people. When people make money, the system works.
And for the record, have any idea what the "portfolio yield" is on your credit cards? 14% interest, + $100 annual fee + 5% the banks charges the merchant on all purchases...easily over 20%...and those cards lend to millions of people.
Bottom line is this: don't like Kiva? Don't lend money through them. But a scam? You're an idiot.
I want to make one more point about "Not for Profit" businesses. I have personally seen this several times. A group gives themselves HUGE annual pay amounts puts it in the books as Administrative costs, and Viola! at the end of the year after payroll and expenses they make almost NO money, but you never get to see what these businesses are paying their administrators. All the while declaring it "Not For Profit" and reaping the rewards.. It's all perception, not reality.
I think there are good helpful people in the world and a lot of this nonsense makes it so difficult to know what's going on. Next time you think money lenders are so honest look at our banking system. Q.E.D.
I want to make one more point about "Not for Profit" businesses. I have personally seen this several times. A group gives themselves HUGE annual pay amounts puts it in the books as Administrative costs, and Viola! at the end of the year after payroll and expenses they make almost NO money, but you never get to see what these businesses are paying their administrators. All the while declaring it "Not For Profit" and reaping the rewards.. It's all perception, not reality.
I think there are good helpful people in the world and a lot of this nonsense makes it so difficult to know what's going on. Next time you think money lenders are so honest look at our banking system. Q.E.D.
non profit and not for profit are legal terms having to do with the IRS...they can't be read litterally as a definition.
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That's fair. I apologize, I shouldn't have called you an idiot.
Quote:
Originally Posted by gumby
A group gives themselves HUGE annual pay amounts puts it in the books as Administrative costs, and Viola! at the end of the year after payroll and expenses they make almost NO money
There are very few non-profits that don't operate that way if any unless they are retired persons or independently wealthy. Check the bankroll of the Catholic church sometime.
As explained, nonprofit is a tax status, not a method of operating a business. United Way, Red Cross, Big Brothers and Sisters, you name it. People make a decent living running those charities. Some make millions.
But I keep being called idiot. Just because you are dogmatic doesn't mean you are right.
That's likely because you are maligning an organisation out to do good in the world because you simply don't understand how it functions. That or you have the naive expectation that all good deeds be untouched by ulterior motives along the entire chain of effect, which is unreasonable. I don't believe healthcare should be a for-profit industry and yet I still believe doctors should be paid well.
I think the sense KIVA works in one word - SENSELESS
Perhaps it is just me, but this makes no sense.
The grounds that the terms of the loans are not clearly disclosed has been proven numerous times throughout this thread to be baseless. Clearly, Kiva charges an administrative fee which is optional and the lenders on the ground charge interest. What is wrong with helping business owners in third world countries and the lending institutions both make money. Should you only feel good about giving money if no one makes money on it, or does helping others make money somehow not count as charity?
And, if this model runs counter to your idea of charity, it is so clearly stated on the site that you could certainly make the informed decision not to donate.
Maybe I am mistaken, but to be a scam, shouldn't there be some intent to deceive?
I searched for "kiva" on here and found no hits. That seems unlikely - sorry if I missed a duplicates.
Kiva is a non-profit. They take your donations and distribute them to microfinance lenders all over the world. Those lenders disburse the money to entrepreneurs in third world countries, who pay back the loans in installments. You choose the specific entrepreneur to fund, and as they pay off the loan, the money you donated is returned to you. A lot of good, lasting change is generated by giving these people access to capital.
The problem is that the loans are NOT given out interest free. You give your donation free of charge, and Kiva gives it to the loan companies free of charge, but the loan companies charge the borrowers very high interest rates. The average rate is 23% - in the US, that would be "Payday Loan" territory.
This is not made very clear on the Kiva website. In fact, the Kiva website says that you are making a direct, "one-on-one" connection with the borrower, and call it a "person-to-person" loan. You have to dig quite a bit to find out that your money is being passed from Kiva to a for-profit company, and even more to find out that they are earning an average of 23% interest on your donation.
Yes, there are good reasons for that high interest rate. These loans are small, so the initial cost to set them up is an unusually large part of the total costs, making the interest rate seem higher. These borrowers are also supposed to be high-risk, but the average default rate for all Kiva loans is only 2.85%.
The microfinance loan companies partnered with Kiva have loaned an average of $55 million dollars, at an average of 23% interest, with an average default rate of 2.85%. That's an average PROFIT of almost $11 million dollars.
Microfinance lending is a GOOD thing, and a worthy cause for your donations. I even applaud these companies, because they are helping people and have found a way to make money while doing good work.
But they are NOT charities. I don't see why a company that has made $11 million dollars -- off of poor people! -- needs more free money from me. Would you donate food to Feed the Children, if they were selling it to starving kids at a 23% markup? With a 23% ROI, these companies can afford to put everything on Visa and still make a profit!
I don't think the Kiva website makes this clear enough, and I don't think these companies deserve free use of your money. If you want to donate to microfinance, go to one of the groups that don't do it for profit, like the Rotary micro******* program. http://www.rotarianmicrocredit.org/
All my figures are from the Kiva website - use the "Kiva average" numbers from any "Microfund Partner" page. Note that the main Kiva pages do NOT mention any of these figures! http://www.kiva.org/about/aboutPartner?id=22
Look it's capitalism and I love it. Why lend out 5 bucks to feed someone that will only flush that food down the toilet (hole in ground, bucket) later. It's the multiplier effect, Portland seems just to be trying to promote a site rather than actually bringing an argument up.
IT IS CLEARLY STATED ON KIVA.COM
Self-sustainability is critical to creating long-term solutions to poverty, and charging interest to entrepreneurs is necessary for microfinance institutions to achieve this. Our Field Partners are free to charge interest, but Kiva will not partner with an organization that charges exorbitant interest rates. We also require Field Partners to fully disclose their interest rates. You can find more information about the interest rates that Kiva's field partners charge on our Field Partner pages: http://www.kiva.org/about/partners .
Microfinance is an expensive business, which is essentially the reason small loans are not provided by large banks. Charging interest to entrepreneurs enables our Field Partners to bear these costs and achieve self-sustainability.
So yes they charge interest and yes they will make another NORMAL PROFIT (economic term) but at the same time those microlenders and lendees will be multiplying my $50 many times over by buying, hiring, and running a business etc.
The last time you went to the bank and got a loan didn't you see two boxes on the loan paperwork? One that had the interest rate that you agreed to pay and then one that had the true cost of the loan to you? That "true cost" is given as a rate, but includes all costs to you for the loan, including all fees associated with loaning you the money. Part of the reason the interest rates seem so high on small microfinance loans is because the processing fees are set amounts. If it costs $10 to process the paperwork, you are going to see a much higher "true cost" amount on a $200 loan than you would on a $2,000 loan or a $20,000 loan. People in the US are not used to seeing loans in such small amounts. If they did, they'd experience the same "sticker shock" when reviewing the "true cost." Also, these field partners have much higher expenses associated with collecting and managing these loans. In the US, a company will spend 44-cents to mail a statement (assuming they aren't being sent via e-mail). In these developing countries, the postal system, if one even exists is not reliable and certainly not one you'd send cash through. Since,few people have access to banks (even if they exist) - they can't exactly write a check on their checking account and mail it in. They can't run to the corner Walgreen's and pick up a money order. Dealings are done in cash. Since most of the borrows have limited transportation, each of these field partners has to physically go to their location to pick up their payments. Do you think Bank of America would be making $500 loans to customers over a period of 12-24 months at 5% if they had to physically drive out to their house each month to pick up the payment? No, and nobody in their right mind would expect a field partner in another country to do it either. People in the US like to complain about paying $3 for a gallon of gas. In most of these developing countries the cost is 2 to 3 times that. You drive around collecting payments from people while spending $5-$10 per gallon for gas and see how much it costs. The overhead costs are factored into the loan as these field partners can't operate at a loss and receive no donations. Kiva itself is just a pass through for the money - collecting from lenders and passing it to the field partners to manage. The only money Kiva receives is through donations from the people lending money. I do know that if money is returned to a lender's account and if it is not re-lent (is that a word??) in a certain amount of time that Kiva does take that money for it's operational expenses. However, the lender has the full ability to write it off as a donation to a non-profit. And, I'm quite sure that Kiva sends multiple notices to the lender that the money is available to be used before they absorb it into their funds.
Kiva joins up with a microlender in a particular country, and some of them are quicker at giving out funds and paying back than others, but all of them are great.So It's Apparent That Kiva is NOT a scam. Its the only charity paypal supports by waiving fees.
But the world never seems to let me down in my cynicism. Here is an example. I keep hearing about how nice and philanthropic Paypal is that they are doing Kiva transactions for free.
So in my mind, I am asking "Who is making this decision?" I have worked for several big corporations and they don't give a damn unless someone has something to benefit. So I remember the ones on the job that make the big money are on the board of directors.
So I looked up Kiva's board of directors and lo and behold there is
Brian Philips. From Paypal international business development and Shripriya Mahesh Vice president of marketing from Ebay. There were a host of other big wigs from huge multi-billion dollar corporations on the list.
But does Kiva talk about that? That their board of directors is comprised of extremely business savvy people from some of the most profitable corporations on the planet? No, they make it sound like 5 college kids working in a dimly lit room for the betterment of mankind.
You people need to get a life. The word "Scam" indicates an intent to defraud. Kiva is entirely transparent in their structure and policy. Educate yourselves on the topics of microfinance and non-profit business models.
If you don't like the way Kiva has structured their microlending model, perhaps you could offer a better solution. Until then, please stop showing your ignorance.
This Gumby fellow seems to think that Kiva actually makes a profit off the money you lend out.
Kiva does not collect interest on the money you loan out. The field partners charge interest because processing and maintaining loans does not come free.
Please display further ignorance of the subject for all to see. I hope you aren't like this in social settings.
Last edited by ooosmilesoo@gmail.com : 01-29-2010 at 11:39 AM.
Once again the people in this forum that feel the need to talk about this feel it's okay to insult the people talking about it.
If that is the road you want to travel, then I think you are a bunch of close minded ignorant assholes that can't see the nose on their face.
I hope in social settings you introduce yourselves so I can fleece you out of endless sums of money in the guise of helping people, because you are so damn stupid.
I guess it does feel good to stoop to your level. But is is short lived.
Hate to break it to you gumby, but I work for a non profit and Paypal doesn't charge us fees, either, and hasn't in the two years that we've been using them to collect donations. The only special thing I'm aware of them doing is that they are processing credit card payments under the guise of a service and not as a cash advance, which keeps the cardholder from incurring additional fees associated with the transaction.
I would like to point out something that I haven't seen anyone acknowledge yet:
In many of the countries in which Kiva does business, inflation is VERY high. We're not talking the 2-3% annual inflation seen in the US, but often 20%+ inflation rates.
For example, Aqroinvest Credit Union, one of their partners in Azerbaijan charges 19% interest+fees and makes a 7% profit on their loans.
However, Azerbaijan has a 20% annual rate of inflation. A well run small business in Azerbaijan therefore should be able to return at least 20% annually on their investments. You can get a bank CD there paying 19% APY.
I would view ANY lender offering rates at or below the rate of inflation in a country as being a POSITIVE.
So if you look at what the individual field partner is charging and what the economic situation of that country is, you can find many microlenders that are actually a VERY positive influence.
Blow your money however you want to . I just wanted to counter argument to the blind devotion to Kiva that so many people seem to have.
I have talked to several people about Kiva, and the perception is that they are a not for profit business, but that isn't true.
I'm done with this lame argument. I've said my piece, now you can continue to say I have no clue.
Well I am glad you are here to explain it to me. You should go be an economics professor.
Gumby, you are truly an idiot. You do realize that non profits don't have to loan out 100% of what they bring in, don't you? They are allowed to use some of it for overhead and expenses. 100% of what is sent to Kiva is loaned out, unless the lender VOLUNTARILY makes a donation to cover their expenses. Yes, they do charge what seems like overly high fees to the people borrowing money, but I think several people on here, including myself, have explained to you why they do so. If you can't seem to figure that out, like I said, you are truly an idiot.
For the record, I haven't "blown" any of my money on Kiva. 100% of my loans have either been repaid or are current on payments. The only thing I'm out is the mere crappy return I could get on it here in the US. I'd rather it help somebody else out than have it sit and earn less than 1% or in the case of the stock market, lose value. Think about it.
Gumby said, "I have talked to several people about Kiva, and the perception is that they are a not for profit business, but that isn't true."
Yes, my dear Gumby, it IS true. Kiva is a U.S. 501(c)3 non-profit organization. You may not like their business model, but I don't see you coming up with a better solution. So until you can, best not show your ignorance.
This is very interesting as I've been researching Kiva. Was wanting to do my "little part" in charity and liked the idea of "helping others help themselves"... But, of course, before handing out my hard earned $$ (admittedly not much to hand out, oh well) I thought it would be good to do some due diligence - and found this post!
Anyway, the discussion has definitely provided good points to ponder and some pause as to whether putting my $$ in Kiva makes sense. Here are some portions of a post I placed on another site about the Kiva concept. It provides a perspective coming from the potential recipient country itself. Keep in mind, before jumping to conclusions - it might be good to have the broader world view first. Things don't always work like they do the US. The developing world is a very different place...
The challenge really is the local market conditions. I’m originally from the Philippines and in a country like mine financing sees several challenges:
1) Inflation: A “fair” interest rate is inflation plus a small margin to cover costs. So if inflation runs 20% (which is not unheard of in a country like mine), 25% interest actually would not be unreasonable (in fact, would be pretty good). Some African countries can experience over 100% (its called hyperinflation) inflation rates. It makes lending very, very tricky.
2) Access to Credit: In the Philippines, getting a formal $500 loan would be next to impossible. There are two ways to do it. If you have some collateral, pawn shops are everywhere. They give very low values for your collateral and will charge over 100% effective interest rates. The other is what we locally call “5:6″ loaners. These are typically rich people who semi-formally loan out their money. I’m not sure what the exact rates are these days, but these loans typically will see interest charged on a weekly/monthly rate and if you run the calculation annual interest can easily get to the 100% and above rate. I have cousins that have taken advantage of these 5:6 loans and I know firsthand how tough things were for them. Violent collection methods are not unheard of. Still, interest rates don’t matter if you can’t get a loan to begin with… Making loans accessible would be so hugely helpful to uplifting the lives of people in the Philippines… I do absolutely believe that (fair) loans are better than handouts… In fact, I don’t believe in outright handouts at all.
Having said that, I certainly do think Kiva needs to be more transparent about these things and provide real evidence that their rates are at least “FAIR”. And to make doubly sure their local partners are legit.
I’m sure the vast majority of people providing funds to Kiva have never set foot in a third world country. The percentage is probably even much higher among those that outright assume they are a scam. I do wonder, how many of the posters here have firsthand experience of the access to credit and financial conditions that exist in a real third world country?
I remember telling my parents (they are still in the Philippines) how disgusted I was at my US credit card for charging 18% interest… And they were like, “owh, the banks here (in the Philippines and please note, we are not talking loansharks – well, maybe, but banks like Citi, HSBC, etc.) charge over 22%…” and they actually asked me if I wouldn’t mind borrowing from my credit card for them!!! (I said it was not a good idea, but that’s another story)…
Will I be lending money to Kiva then??? Alas, I think some more due diligence is indeed needed…
Last edited by gcchelsea : 03-31-2010 at 12:42 PM.
All of these gigantic companies have to find ways to sustain their bulk. I represent a tiny, grassroots organization based in the States, the African artists Community Development Project, Inc., that raises money for Zambian orphans, disabled children and struggling families. I have recently begun a sponsorship program for young Zambian people and families that I know personally. If you want to underwrite a farming project for a women's group in the little village of Jack Mwanapapa, or the education of a young woman in Livingstone who wants to become a nurse, look at my blog site. Because I work out of my home, using volunteer help, my expenses are minimal. Check me out on the non profit site Guidestar. I am completely transparent- what you see is what you get. Your money goes right it's needed. But I am not a lender and so you won't get your money back. You can, however, monitor the progress of the person or group you help.
I am a new lender at Kiva. Before lending, I decided to checkout how it worked so that I could better understand what would happen with my money.
I was looking for an outlet to make a difference in someone's life, but I didn't want to just donate money. I wondered how I could help somebody while also having some level of accountability to the person receiving the funds.
There was so much talk about this and that company making a profit in this thread yet I didn't see a mention regarding the enormous return Kiva lenders get in the form of knowing they made a difference in some person's life in some developing country; because of the Kiva lender, the world is in a better place, one entrepreneur at a time.
What's more is that when the money is repaid, it can be re-invested which means that now the same entrepreneur who paid back the loan is also, indirectly, working through Kiva and investing in some other person's future if the original lender re-invests the money. It's everybody helping everybody.
In my opinion, there is a huge profit for me, as a lender through Kiva, in making the world a better place and that, my friends, is worth all the money in the world.
Though it's true you may have no control over your money one you have sent it, you can indeed get a real idea of what happens to it if you send it through a grassroots , small npn-profit or even a group who hasn't become 501c3, but who you know and/or trust. These are individuals like myself who have traveled and worked in developing countries and personally know the recipients of your donation and who monitor the sponsorship with correspondence and periodic visits. Even this will not guarantee the ultimate success of a sponsorship, but at least you know that a large percentage goes directly to the sponsor. In my case, I send 100% to them, because I raise operating and program costs by selling fair trade crafts.
Though it's true you may have no control over your money one you have sent it, you can indeed get a real idea of what happens to it if you send it through a grassroots , small npn-profit or even a group who hasn't become 501c3, but who you know and/or trust. These are individuals like myself who have traveled and worked in developing countries and personally know the recipients of your donation and who monitor the sponsorship with correspondence and periodic visits. Even this will not guarantee the ultimate success of a sponsorship, but at least you know that a large percentage goes directly to the sponsor. In my case, I send 100% to them, because I raise operating and program costs by selling fair trade crafts.
With respect, this is not the place you should be promoting your organisation/project. This message board is primarily dealing with Scams, and this thread in particular is about Kiva, and whether or not it is some sort of obfuscatory scam (It isn't.), not a place to promote other charities. (That would make for a really big thread.)
With respect, this is not the place you should be promoting your organisation/project. This message board is primarily dealing with Scams, and this thread in particular is about Kiva, and whether or not it is some sort of obfuscatory scam (It isn't.), not a place to promote other charities. (That would make for a really big thread.)
Thank you. It seemed appropriate to offer a transparent grassroots alternative if people were feeling lost in big organizations. I am learning how to get out there via the internet. Any suggestions?
I saw a Kiva ad come up on hulu so I decided to check into it.
Not quite a scam in my opinion since they seem to post accurate information on their website.
But it is also a little surprising how willing people are to lend money to them because of their pitch. Would people feel the same way if a big international bank set up a non-profit to feed interest free funds to them? Many microlenders are subsidiaries of big banks, although these don't seem to be. Some of these are pretty big lenders where you could even open a savings account and do the same thing and get interest yourself. The field partners seem to be for profit companies. They're just not huge companies yet.
Also, non-profit does not mean low budget. Pull up Kiva's Form 990 that all non-profits must file, and there were 10 people who they paid more than $100,000 in 2008. 8 employees, one outside contractor, and 2 directors. They also had over $5 million in assets at the end of the year.
Overall, there does not appear to be a scam. But just don't be surprised that the field partners do pretty well. Hattha Kaksekar Ltd. for example had about $1.9 million in profit after tax in 2008. If you can walk in their front door, they're offering 7% on a 12 month US dollar CD. 8% if Cambodian or Thai currency. Or 0% through Kiva.
"I don't think the Kiva website makes this clear enough, and I don't think these companies deserve free use of your money. If you want to donate to microfinance, go to one of the groups that don't do it for profit, like the Rotary micro******* program. http://www.rotarianmicrocredit.org/"
Portland at the top of this thread doesn't tell you that the link Rotarianmicrocredit.org ONLY WANTS A ONE TIME $100.00 to join.
Wow what a really good use of your money!
I'd rather lose $100 at kiva.org than throw it out the window just to join Rotarianmicrocredit.org!
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