Become a Microfinancier

[viscousmemories]

I just learned about this really cool organization* called Kiva (http://www.kiva.org), through which ordinary people (like you) can give micro-loans to start-up businesses in third world countries. A damn fine idea, in my opinion.


*Okay I followed a link in Stormlight's signature, but that won't stop me taking the credit for this discovery!

[Stormlight]

:chuckle:

Yeah, you discovered a cool site there, vm! Thanks for sharing.

[Stormlight]

Also, how can you refuse helping a guy like Gogo making and selling ice cream in Samoa?

Gogo Samuelu (http://www.kiva.org/app.php?page=businesses&action=about&id=8888)

[viscousmemories]

A couple things I've discovered:

PayPal offers free processing for this organization - so all the money one loans goes directly to the entrepreneur.

Before you loan, find and click on the link "More about this field partner >>" then scroll down and check the average interest rate they charge the entrepreneur. I've only looked at a few, but noticed a range between 10% and 27%. Even though Kiva refuses to partner with groups that charge "exorbitant" interest, I'll still feel better giving loans to people who won't have to pay as much as 27%.

[Stormlight]

You have to take into account the inflation rates in these countries. 27% is rather low, too low actually as some have criticized: local banks have no chance to compete with that and ultimately disappear.

[viscousmemories]

Ah, that's interesting. So by helping out a clothing maker I could be bankrupting a banker? Any idea where I can find more info about various country's inflation rates and the impact these loans are having there?

[Dingfod]

As if local banks would be loaning money to these people.

[Stormlight]

The thing is that Kiva.org itself gives 0% interest loans to their field partners who follow up on the loans. It's expensive to closely follow a lot of very small loans, visit the clients and so on.

A normal microfinance fund (an investment fund who tries to make money for it's investors) has to charge 30%-35% on average to remain profitable for its investors.

These funds are not too happy about the competition, obviously as they can't compete.

World Inflation rates for 2002 (http://www.bartleby.com/151/fields/69.html)
Wikipedia article on microfinance (http://en.wikipedia.org/wiki/Microfinance)

[Dingfod]

30-35%? That sounds like those payday loans they make in storefront shops around here.

[Stormlight]

In a way it does. But the circumstances are not the same. Micro loans in third world countries are an expensive business: default insurance, cars, personal and what-not.

[ChuckF]

Two things: as Stormy mentioned, it's much more expensive to operate in developing countries than here, particularly in the microcredit sector. Default risks, political corruption, equity-destroying inflation, and high administrative costs are all factors. For example, consider that many microcredit firms cater to agricultural or rural communities; most very poor regions in developing economies have only rudimentary infrastructure. So it's no small matter to send someone to evaluate a business proposal. The roads may be in bad shape, increasing transit costs and time. Microcredit institutions must meet these costs while simultaneously accumulating capital for further loans.

This is also true for larger, traditional credit institutions operating in the developing world. Lending in a volatile economy is risky business, even without making loans to the poor.

I can't remember what the second thing is right now.

[Stormlight]

The second thing (:chuckle:): If you're a farmer in those countries who wants to take up a small loan, who would you rather go to. Caisse d'Epargne du Togo who, quite obviously has a larger administrative overhead, who needs to make a profit and thus has higher rates or Kiva.org who only charges you half of what the bank charges? In other words, those small banks are pushed out of business.

However ... from my point of view, the more likely scenario is: either you can get a loan from Kiva.org (or another microfinance group) or you don't get a loan at all because you can't afford it.

And that's why I give money to Kiva. It can indeed make a real long-term difference; it can help get kids through school and ultimately improve the quality of life.

[Dingfod]

My point is, I think the banks weren't making these loans at all, regardless of interest rates; too much overhead, too much risk, too much of a bother.

[Stormlight]

To be honest I have absolutely no idea if they do or not. :chin:

[Shake]

Just because I didn't see anything about it at Kiva, do you as a lender, get any sort of interest paid back? I mean, I read that your loan gets repaid, but that's about all they said. I'm assuming you may have already made a loan, Stormlight. Just wondering. Thanks.

[viscousmemories]

Nope, lenders don't receive any interest and because it's a loan the money you contribute is not tax-deductible.

[Stormlight]

That's correct. You get your money back if the lender doesn't default but that's it. The idea is not for the lenders to make money but to help those in need.

At the end of the day it's a donation as most people tend to re-lend the money they get back.

[Corona688]

Freaking awesome. It's always bothered me how anonymous most charity is. "put money in the box and it'll help...um...someone. somewhere. maybye. trust us. honest." Here it's "click the box to help Melva Almeida improve her life".

[viscousmemories]

I agree. In fact I'm pretty surprised this hasn't generated a lot more discussion and/or debate here. It seems like the kind of thing people would get excited about, whether for or against it.

[Corona688]

I agree. In fact I'm pretty surprised this hasn't generated a lot more discussion and/or debate here. It seems like the kind of thing people would get excited about, whether for or against it. By local standards this thread has a lot of replies. It's got nothing on 'countdown from a million' maybye, but I mean real threads.

[fragment]

*shrugs* It's a good idea - microfinance is cool, and if the personal touch encourages people to provide funds that's a good thing, and I'm not sure there's much more to say. Personally I prefer to donate anonymously and let an organisation I trust make informed decisions about the best use of those funds, but each to their own, and a broad spectrum of organisation types is going to both solicit a greater total of contributions and provide a more diverse range of assistance.

I would like to point out that Corona's implication that less personalised charity is less reliable at getting assistance where it's needed just doesn't follow. Without researching the reputation of a particular organisation, "click the box to help Melva Almeida improve her life" can just as reasonably be appended with "maybye. trust us. honest" as the anonymous version. Didn't one of those sponsor-a-child organisations get busted for sending faked letters to donors some time back?

Not saying that Kiva does any such thing, just saying that effectiveness of donations doesn't have a necessary relationship to personalisation.

[Watser?]

There was a scandal here about Foster Parents Plan: In 2001 a Dutch government commission concluded that Foster Parents spent only 50% of its money to aid projects and the rest to organisational costs. After publication of this report FPP lost 11,000 donors. However later surveys have found that over 80% of Plan's funds go to the communities, and the remaining to essential running costs – this sum is comparable to most organisations of its size.(Wikipedia (http://en.wikipedia.org/wiki/Plan_(aid_organisation)))

I had already checked out Kiva from the link in Stormlight's sig before this thread was started. I think now might be a good time (financially) for me to contribute. I like that they are loans, so people can keep their dignity while still getting help that may change their lives for the better.

[fragment]

Yeah "organisational costs" seem to be quite a large sink for some supposedly "charitable" organisations.

When I sort my finish sorting out my finances (hopefully soon!) I plan to allocate some portion of my income to charitable causes, and Kiva is on my list of possibilities. I suspect my list is going to end up longer than my means, though!

[Corona688]

I would like to point out that Corona's implication that less personalised charity is less reliable at getting assistance where it's needed just doesn't follow. Why not? Transparency is no guarantee of honesty, granted. Neither does anonymity guarantee corruption, granted. Anonymity just makes it so much easier...

Kiva impressed me by asking for a percent donation for organizational costs, instead of automatically gouging one.

[fragment]

I don't see that's it's significantly harder for a fraudster to make up a bunch of names than it is to just name none at all. With charities, I suspect the problems are less often out-and-out fraud than having an organisational morass that sucks up funds, and when some portion eventually trickles through it's used for programs that don't effectively bring permanent improvements to peoples' lives. I don't see that anonymity has a direct bearing on that set of problems, either.

Bottom line is, with any charitable organisation, don't rely on what the organisation says it does, check out independent sources as to their reputation and effectiveness.

[viscousmemories]

Speaking of independent sources, I just found out there was a Frontline show about Kiva. Looks pretty interesting.

FRONTLINE/WORLD . Uganda - A Little Goes a Long Way . Story Synopsis and Video . PBS (http://www.pbs.org/frontlineworld/stories/uganda601/video_index.html)

[Corona688]

I don't see that's it's significantly harder for a fraudster to make up a bunch of names than it is to just name none at all. No more effort to deal with your donators individually, write fake letters, craft fake situations etc. than to just let people give you money?

[fragment]

I said significantly more, not no more. A simple fraud would only require a handful of fake situations/letters, they could be re-used as often as required. Even with Kiva, which has hundreds of journals on their website, I don't see anything about personal communications receivers give directly to donors. Though the effort to make a fraudulent version of a scheme like that would be greater, it's far from insurmountable, so I don't think the personalisation in itself is sufficient as a guarantee of effective use of funds - and nor is lack of personalisation in itself reason to be suspicious.

But that's not the main issue. As I said, I think outright fraud is probably not especially common, and the kinds of problems that do occur in terms of donations being not used very effectively aren't problems that personalisation necessarily gives peace of mind to potential donors.

[Corona688]

Though the effort to make a fraudulent version of a scheme like that would be greater, it's far from insurmountable Again, I never said it wasn't possible to do this. Just that it's less likely than a simpler scheme. I maintain that it's still a lot harder to fake a transparent scheme -- a lot more work, a lot more information, a lot more communication, and a lot more chances to get caught out.But that's not the main issue. As I said, I think outright fraud is probably not especially common, and the kinds of problems that do occur in terms of donations being not used very effectively aren't problems that personalisation necessarily gives peace of mind to potential donors. This is true enough. Yet if that sort of inefficiency exists in Kiva, it can be found much easier.

[fragment]

I was addressing personalisation in general, as opposed to Kiva specifically. Kiva appears to have other methods, such as the separation of organisational costs donations, that help to give confidence, which is the sort of thing an anonymous organisation could do as well. Personalisation may be one way of generating some transparency and a potential audit trail, but it's not the only one. Which is just as well because some important charitable causes, such as emergency relief and medical aid in unstable areas, probably don't lend themselves to personalisation very well.

But whatever. My aim with this derail was to point out that your suggestion that anonymity vs. personalisation is in itself enough to inspire a vast gulf in terms of trust, seemed pretty unfair; and that there are other means that can, and I think should, be used to determine which charities are efficient in helping people out.

[viscousmemories]

One of the beneficiaries of my humble loan dollars has already begun repaying.

It's another FreeMarket miracle!

[Watser?]

That's cool vm :joecool2:

I have not heard a thing, maybe I should check the webpage to see how it's going

[viscousmemories]

I just found out about another microfinance campaign co-chaired by Her Majesty Queen Rania Al-Abdullah, Queen of Jordan, and Natalie Portman. It's called the Village Banking Campaign (http://www.villagebanking.org/site/c.erKPI2PCIoE/b.2604817/k.39B5/To_change_the_world_start_here.htm).

[Ensign Steve]

That's what happens when you forget to put the quotes around your "Her Majesty, Natalie Portman" google searches.

[Sauron]

I'm bumping this thread on purpose.

In my MBA course for spring qtr, we're studying international political economy of the 3rd world, roots of poverty, role of western governments and NGOs, etc. The current section is on microfinancing.

One of the things the professor pointed out is that while 35% may sound exorbitant, the local interest rates are often on the order of several *hundred* percent. For example, there are a group of lenders in the Philippines known as the 5 - 6 lenders. They lend 5 pesos in the morning, and collect 6 pesos at night. That's 20% interest - DAILY. It doesn't take long to see what kind of annualized return that would be.

There is an awful lot of overhead in these programs, because they are "high touch" - a field representative makes trips usually once a week or once every two weeks, and spends several hours in each village talking with the people (usually women) who have borrowed or are thinking of borrowing. And each field rep has a group of villages assigned to them (maybe 8 or 12). So they're on the road a lot.

The peer pressure from the other villagers plus the high-touch presence of the field rep are some of the reasons that the default rate is so low.

[viscousmemories]

So does that make Microfinance good or bad? (Without numbers, plz.) :dopey:

[Sauron]

So does that make Microfinance good or bad? (Without numbers, plz.) :dopey:

Good. Very good. The rates are a substantial improvement over anything these entrepreneurs would find in the local villages.

The rate is higher than what we would pay here, but the rate reflects the high costs in personal trips and follow-ups. But that personal follow-up is one reason (among many) why the default rate is so very low on microfinance. If you know that a bank representative is coming every week or every two weeks to check on your progress, it's harder to miss a payment because you know they will be asking you about your finances.

[viscousmemories]

I made another micro-loan today and noticed that the email confirmation said "This is your 24th Kiva loan!" That got me curious about my other stats, so I looked at them. Apparently I have only deposited about $250 in the 3.5 yrs. since I started this thread ($90 in Jun '07, $55 in Jun '08, and $111 in Jun '09), but with that $250 I have made a total of 24 loans amounting to $600, and donated just under $100 to Kiva itself. All the loans have been repaid or are repaying, and of the ones repaying only one is overdue. The recipients were from 16 different countries, and mostly in the retail, agriculture or food segments. 62.5% were female, 37.5% were male.

[livius drusus]

That's great! But how did you loan $600 when you've only deposited $250? :untwo:

[viscousmemories]

Re-loaning repaid loans.
:psst:

[irukandji]

i love being a microfinancier!!

my $$$ has been lent 11 times,
so an original $50, with additional
infusions for donations to kiva, has
accrued to $300 worth of loans....
i have some repayments accruing,
so will make 2 more loans in the very
near future

absolutely painless process to promote
development and financial security in
the 3rd world....

africa, balkans, central america, south america, far east....
my $$ has been there, doing that!

(also have given $100 worth of kiva cards for gifts!)

[Stormlight]

I made another micro-loan today and noticed that the email confirmation said "This is your 24th Kiva loan!" That got me curious about my other stats, so I looked at them. Apparently I have only deposited about $250 in the 3.5 yrs. since I started this thread ($90 in Jun '07, $55 in Jun '08, and $111 in Jun '09), but with that $250 I have made a total of 24 loans amounting to $600, and donated just under $100 to Kiva itself. All the loans have been repaid or are repaying, and of the ones repaying only one is overdue. The recipients were from 16 different countries, and mostly in the retail, agriculture or food segments. 62.5% were female, 37.5% were male.

I have deposited $250 as well (which is a lot less than I expected, actually). With that I made 78 loans for a total loan amount of $1.950,-:

78% to women
30 countries
mostly food and retail sector

[viscousmemories]

Wow, 78 loans? How long have you been a Kivanian? I was surprised that I've only deposited $250 too, but I think I'll be able to add some in the spring.

[Watser?]

Weirdly I have made exactly as many loans to women as men, I didn't do it on purpose.

I have lately been trying to move away from retail as I keep thinking that just adds to the number of stores competing. I try to fund more producers, like farmers or manufacturers. It's just a thing I have though.

I made 12 loans and invested a total of 300, total amount of money I have in there is less than 100 it seems, I thought there was more by now. On the other hand, all of it has been repaid, none of it was lost.

I think I might add some now.

[viscousmemories]

I hate to sit in my cozy chair in America and judge who around the world deserves the loan the most based on a little blurb on Kiva, but I admit I do deliberately show preference to single women in the food, agriculture or retail industries. However don't pigeonhole me, bro; the loan I made yesterday was to a group of men running a motorcycle transport business.

[Watser?]

I sorta pick people at random usually. But yeah, I picked some from agriculture lately. I am up to 14 now that I added some.

[Stormlight]

Wow, 78 loans? How long have you been a Kivanian? I was surprised that I've only deposited $250 too, but I think I'll be able to add some in the spring.

I started in April 2007.

[Stormlight]

On the other hand, all of it has been repaid, none of it was lost.

I have two defaulted loans:

One in Kenya due to the civil war like tensions in 2007 and one in the United States of all places.

[Watser?]

Oh yeah, wars get in the way of repayment, that makes sense. I didn't even think of that :derp:

[irukandji]

should :ff: ever start its own kiva group
somebody let me know cos i would be
ALL over that like .... something

[Doctor X]

Luxemborough might be a target for such an :ff: organized loan . . . you know to help them defend against that cat.

--J.D.

[Sauron]

I started doing Kiva about 8 months ago. I have 22 outstanding loans. Starting with $1000, $497 has already been repaid in less than a year. That has allowed me to re-loan the money. To date, I've loaned $1300 out.

Delinquency Rate 0.00%
Number of Loans Delinquent 0
Default Rate 0.00%
Currency Exchange Loss Rate 0.00%

These are statistics that Bank of America can only *wish* for.

My male/female ratio is:
Male 63.6%
Female 36.4%

I have a bias for microfinance NGOs working in the Middle East, although I'm also smart enough to diversify my investments. My top five countries are:
Lebanon 18.2%
Cambodia 18.2%
Mongolia 13.6%
Bolivia 9.1%
Peru 4.6%

This week I made my first loan to an Iraqi - I figured it was the least I could do to fix what we broke over there.