[Web Informant] 9 November 2009: Digging deeper in microfinance with Kiva.org

[David Strom]

Web Informant 9 November 2009: Digging deeper in microfinance with Kiva.org

I have been a long time donor to Kiva.org, a peer microfinance lending
site that has been around for several years. When I first heard about
it I thought it was an interesting idea and donated some money to fund
a few different third-world start up businesses.

Kiva works by hooking up generous folks with microfinance lenders by
promoting the individual beneficiaries on their Web site. You get the
feeling that your donation is going straight into the pockets of these
worthy folks. And you can watch your donation be repaid in painfully
small increments as the business owner (usually women) succeeds.

The only trouble is this isn't quite accurate. The charity does
support the individuals pictured on their site, but the timeline for
how the funds are actually distributed aren't correct. The
microfinance institutions fund most loans before they are posted on
Kiva's site, so in a sense you are participating in a scheme of sorts.

I got started down this path with a story in the New York Times by
Stephanie Strom (sadly, no relation) about posts by David Roodman, a
research fellow at the Center for Global Development. Roodman blew the
whistle on Kiva about a month ago on his blog, and many others in this
space have chimed in.

Since then, the folks at Kiva have done an excellent job at fixing
some of the misperceptions about their processes and releasing even
more information to understand what they are doing. I believe they are
sincere in their efforts and have acted with honor and well-meaning to
address Roodman's complaints.

But I am still somewhat confused, and the more that I have dug deeper
into microfinance charities, the less I really know.

Kiva, at your command, will take the money that is repaid and keep it
in their ecosystem, allowing you to re-lend your initial stake in $25
increments to new projects. You can also donate the funds to the
organization if you are tired of choosing worthy recipients. I have
made 8 loans in the past several years, some of them repaid in full,
some still owing money. While it is frustrating to know that the
inspirational stories aren't really where my money is going, on the
whole I am happy with the outcomes and glad that my minimal funds can
make a difference in a few people's lives.

I am also impressed with the whole Kiva quantitative ecosystem as
well. There is KivaPedia, a list of all their lenders and links to
their Web sites, and KivaData, an independent Web site by Jon Earles
which analyzes Kiva lending data. Neither of these efforts would be
possible without Kiva providing data and programming interfaces to
access it.

But the more that I thought about what Kiva was doing, the more
questions I began to ask:

How about a "Kiva Gold" membership that allowed those of us who have
been with the organization through a few loan cycles to bypass all the
poster stories and go right to a lender that is delivering quality
non-defaulting loans at lower interest rates and running with a low
overhead? Wouldn't it be better if I could direct my funds towards
this lender? My thought on this is that if I already have a
relationship with a lender thru Kiva and they have repaid my loan (or
loans), then why not support them directly? Well, you can't. Most
lenders aren't set up to take donations, especially in US currency or
from US credit cards. They also have no real way to track what you
give and what you get back. That is why Kiva is critical.

Plus, there isn’t any easy way to find them using the Kiva search
screens, or any of the data analysis sources, at least that I know of.
There are other microlending sites such as Wokai.org that show you the
interest rates of their lenders (they can do this because they have
just two lenders at the moment) and show how it compares with local
loan sharks for their potential customers. Some of the interest rates
charged by Kiva's approved lenders are close to 20% a year, which
sounds high to those of us in the first world with 5% mortgages but is
typical for this audience. Wokai.org only allows three periods to
recycle your funds before they take it from you and put into their
general operations, which I am not sure I like either.

Another choice is Microplace.org, which gives you an actual investment
return on your donation, but that isn’t important to me, plus their
finances are hidden behind eBay (their owners) so not much in the
transparency realm there either. And then there are the big
microfinance guns such as Accionusa.org or GrameenFoundation.org --
both of which have huge overheads and salaries as a percentage of
their programs, which doesn’t thrill me either.

How about better metrics and data for the whole microfinance lending
community? There are a few efforts here. For mainstream charities,
Guidestar.org allows you to view their most recent IRS 990 reports,
where you can exactly how much overhead they have and who gets paid
what. There is also a site called MFITransparency, which is beginning
to calculate lending and delinquency rates. And Mixmarket.org, which
has so much data on lenders that even my operations research trained
brain gets overwhelmed. One of the truisms of all this Web 2.0 mashup
stuff is that the more data you make accessible, the more people want
to analyze things.

I have come full circle on Kiva as a result of all this Internet
research — meaning that I still like their model, their low overheads,
and their high(er) transparency. If Kiva could add a way to search
their lenders by interest rate or just bypass the individual stories,
that would help.

(If you are interested in going to the links mentioned here, browse on
over to strominator.com.)