Over at Credit Slips, Alan White has a great post about what he loves about the microlending non-profit, Kiva. He then discusses microlending more generally. Kiva is "a
non-profit organization with a mission to connect people through
lending to alleviate poverty." "Leveraging the internet and a worldwide
network of microfinance institutions," Kiva says, it "lets individuals
lend as
little as $25 to help create opportunity around the world." Kiva says
that since it was founded in 2005:
- 853,436 people have made micro-loans through Kiva
- $380,763,100 has been lent
- with an astounding 98.98% repayment rate
Go here for more on how the loan system works, and go here or click on the embedded video below to see an animated short on the Kiva lending model.
Kiva is undoubtedly the leader of Micro loan platforms through worldwide. However, Kiva had recently launched micro-lending in India which was very different than what they offer for other countries. Unfortunately, it offered a very poor consumer lending experience. Here are a few of the issues:
1. All loans are for 3 years (minimum) — even though loan term is only typically for 6-12 months
2. Loan capital is auto re-loaned to whomever the MFI wants to lend to during remainder of the period
3. No details provided on loan repayments until the end of 3 years
lender takes currency downside risk (but not upside!)
So, we hope that Kiva quickly fixes their product as there is huge demand for micro-lending in India.
Kiva is a great tool to help. I think I’ve now made over 360+ loans through them to help people around the world. And while I’m a huge supporter of them, the one point that was missed in the piece was the interest rates the local microlenders charge the people that get the loan.
Risk creates high interest rates but those that are participating as Kiva lenders should at least be aware that the rates charged the end user can be very steep. For those of us that help to fund Kiva loans, I don’t think any of us expect to receive any interest, and that’s totally fine with me.
The interest rates can get very steep and the irony is that while we speak out about high interest rate lending in the U.S. sometimes the microlenders overseas are the only source of funds for those that need access to capital to assist their small business.
If anyone wants to join the personal finance team I created at Kiva to help others, visit http://www.kiva.org/invitedto/personal_finance_bloggers/by/steve9997 Our little team has made 273 loans to help people.
I don’t share any of this information to discourage people from participating, just to fully inform you.