Kiva celebrates five years of making microcredit loans

Kiva is now celebrating its five year anniversary. The new generation of charity website launched as a way to get more people involved in microcredit. Anyone can contribute as little as 25 dollars to help make more micro-loans to people in the under-developed world.

Kiva now makes over a million dollars of loans every five days. Since its launch, 500,000 different borrowers have received over 123 million dollars.

From the San Francisco Chronicle, writer Robert Selna tells us where Kiva stands after five years in operation.

Micro-asset financing is a relatively recent innovation in micro-finance - which is best known for small loans issued to people trying to escape poverty by starting a business - and is an example of how the field has explored different loan models.

Kiva, celebrating its fifth anniversary on Wednesday, took that experimentation to a new level in 2005 when it coupled the Internet and large numbers of individual lenders with needy borrowers.

Using a Web portal, Kiva facilitates loans from individuals who can log onto its site and read borrowers' stories. Kiva partners with lending organizations in developing countries, which take the no-interest loans from Kiva and distribute them locally.

Kiva lenders are paid back if the borrower succeeds, but do not earn interest. Interest charged by the local lender typically goes toward operating costs and salaries.

In recent years, with the help of Kiva, micro-finance as an anti-poverty tool has quickly grown in popularity. But it also has developed critics. Some note that at least half the field is now occupied by private banks, which in the best case are seeking profits along with positive social impacts, and in the worst, are simply looking to make a buck off the poor - even from minute loans.

Others have complained that Kiva overstated the connection between its online lenders and needy borrowers.

Kiva and others in the micro-finance field agree that there have been bumps along the road. But they point to the growing number of websites modeled on Kiva as well as new programs - such as the asset financing helping Ndung'u in Kenya - as proof that the industry is evolving and is likely to continue influencing economic development worldwide.

Ananya Roy, a professor at UC Berkeley, has written a book about micro-finance and has focused in part on Bangladesh. She said many lending organizations in that country are not encumbered by relying on government funding and therefore are free to experiment - applying new and old finance techniques in an effort to alleviate poverty.

We just love Kiva and we do help to make some loans through it. Some of the money raised via the ads on our site goes into our Kiva account. This would be a good time to plug our group on Kiva, that we invite fans of the blog a apart of, go to this page to join

More on the debate on microcredit profits

The microcredit revolution has brought with it many banks looking only to make profits. Some microcredit institutions charge interest rates of 80 percent or more, and some of those may even be a partners of Kiva or ebay's Microplace.

Muhammad Yunus recommends that microcredit banks only charge interest rates 10 to 15 percent higher than the cost of raising the money. But some microcredit banks that working for social good say that is even too low. Sometimes the costs of making many small loans to many people demand that you charge higher interest.

A very good article explores this debate in today's New York Times. For our snippet we have this introduction to the article written by Neil MacFarquhar.

“We created microcredit to fight the loan sharks; we didn’t create microcredit to encourage new loan sharks,” Mr. Yunus recently said at a gathering of financial officials at the United Nations. “Microcredit should be seen as an opportunity to help people get out of poverty in a business way, but not as an opportunity to make money out of poor people.”

The fracas over preserving the field’s saintly aura centers on the question of how much interest and profit is acceptable, and what constitutes exploitation. The noisy interest rate fight has even attracted Congressional scrutiny, with the House Financial Services Committee holding hearings this year focused in part on whether some microcredit institutions are scamming the poor.

Rates vary widely across the globe, but the ones that draw the most concern tend to occur in countries like Nigeria and Mexico, where the demand for small loans from a large population cannot be met by existing lenders.

Unlike virtually every Web page trumpeting the accomplishments of microcredit institutions around the world, the page for Te Creemos, a Mexican lender, lacks even one testimonial from a thriving customer — no beaming woman earning her first income by growing a soap business out of her kitchen, for example. Te Creemos has some of the highest interest rates and fees in the world of microfinance, analysts say, a whopping 125 percent average annual rate.

The average in Mexico itself is around 70 percent, compared with a global average of about 37 percent in interest and fees, analysts say. Mexican microfinance institutions charge such high rates simply because they can get away with it, said Emmanuelle Javoy, the managing director of Planet Rating, an independent Paris-based firm that evaluates microlenders.

“They could do better; they could do a lot better,” she said. “If the ones that are very big and have the margins don’t set the pace, then the rest of the market follows.”

Manuel Ramírez, director of risk and internal control at Te Creemos, reached by telephone in Mexico City, initially said there had been some unspecified “misunderstanding” about the numbers and asked for more time to clarify, but then stopped responding.

Unwitting individuals, who can make loans of $20 or more through Web sites like Kiva or Microplace, may also end up participating in practices some consider exploitative. These Web sites admit that they cannot guarantee every interest rate they quote. Indeed, the real rate can prove to be markedly higher.

The Kiva Lending Team for Poverty News Blog

Hey Everyone. We have started a "team" on Kiva.org. Kiva is the microcredit website where you can donate at little as $25 to go toward a loan to a small businessperson in the developing world. Kiva has helped to raise millions of dollars for microcredit and has helped the banks that help the poor people receive more finds.

Our blog is meant to shed light on a very dark problem. For those of you how have read the blog and are motivated to lend a helping hand, this is a great way to do it. You can even do it while still in your pajamas. Even for those who have already made loans on Kiva we would love to have you.

Visit the team page at http://www.kiva.org/team/poverty_news_blog_team

We are taking the rest of the week off, see you in 2010!

A comment on Kiva

Columnist Chris Noseworthy of the Western Star from Newfoundland, Canada used his latest column to talk about Kiva.org. For his wife's birthday this year, he chose to give gift certificates to the microcredit website.

This year I actually had a good idea. I got her gift certificates, among a couple of other lame things I won't mention. The gift certificates are ones she needs to spend on somebody else. How is that better than a breadbox?

Well, the gift certificates are from Kiva.org and translates into micro-loans to someone in the developing world. You may have seen Kiva featured on Oprah a couple of years ago. It's a charitable organization that has field partners in various countries who work with entrepreneurs in order to get loans.

The money comes from generous people around the world who fund these projects in $25 increments. Each entrepreneur's loan will be supplied by a variety of different people.

It is still a novel approach to sharing the riches of the Western world. To my mind it cuts through partisan boundaries as well.

Anything that helps the poor, works with lefties and the loan has to seem better than a "handout" to the right-wing contingent.

According to their site, the mandate is "Kiva's mission is to connect people through lending for the sake of alleviating poverty. Kiva is the world's first person-to-person micro-lending website, empowering individuals to lend directly to unique entrepreneurs around the globe."

You might wonder how these people can afford to repay the loans but they do. Kiva is upfront about the fact that there is no guaranteed return on your investments.

According to Kiva, "Of the $31,143,760 of loans with completed loan terms, the default rate is 1.8%. However, past repayment performance does not guarantee future results. When you lend money, you may lose all or some of your principal. You should be aware of the different types of risk and find the right loan option for you, with respect to repayment risk and social return."

Less than two per cent is pretty good. You can visit the site to find out more of the details on the risk associated with lending through Kiva.