Become a Microfinancier

viscousmemories · #1 06-11-2007, 04:42 PM

I just learned about this really cool organization* called Kiva, 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 · #2 06-11-2007, 05:33 PM

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

Stormlight · #3 06-11-2007, 05:36 PM

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

Gogo Samuelu

viscousmemories · #4 06-12-2007, 02:13 PM

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 · #5 06-12-2007, 02:41 PM

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 · #6 06-12-2007, 03:51 PM

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 · #7 06-12-2007, 04:03 PM

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

Stormlight · #8 06-12-2007, 04:17 PM

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
Wikipedia article on microfinance

Dingfod · #9 06-12-2007, 04:19 PM

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

Stormlight · #10 06-12-2007, 04:23 PM

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 · #11 06-12-2007, 06:27 PM

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 · #12 06-12-2007, 07:15 PM

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 · #13 06-12-2007, 09:53 PM

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 · #14 06-13-2007, 06:44 AM

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

Shake · #15 06-21-2007, 06:25 PM

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 · #16 06-21-2007, 06:35 PM

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

Stormlight · #17 06-22-2007, 07:01 AM

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 · #18 06-25-2007, 01:33 AM

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 · #19 06-27-2007, 03:52 AM

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 · #20 06-27-2007, 08:17 AM

Quote:

Originally Posted by 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.

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 · #21 06-27-2007, 08:41 AM

*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? · #22 06-27-2007, 10:55 AM

There was a scandal here about Foster Parents Plan:

Quote:

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)

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 · #23 06-27-2007, 12:20 PM

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 · #24 06-27-2007, 11:42 PM

Quote:

Originally Posted by fragment

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 · #25 06-28-2007, 12:24 AM

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.