Thursday, December 18, 2008

Truly Priceless Holiday Gift

December 18, 2008, 9:20 a.m.

Kiva -- "Best Buy" in Gifts
(Brought to you by FromDC2Iowa.blogspot.com)

Consumer Reports product ratings pick "best buys."

This time of year, even though times are tough, Americans are still looking for advice on which charitable contributions are a "best buy."

How about a "contribution" that is in fact a loan, with a history of virtually 100% repayment by the borrowers, that comes back to you and can be loaned out again over and over. Now if that's not a "best buy" what is?

Some relatively well-off families realize that they all have enough "stuff," and that rather than buy more things that aren't really wanted, won't be used -- or will soon break if they are -- they'd rather give gifts in each others' names to worthy charities. (Actually, some families that don't yet have enough stuff do the same.)

If that idea appeals to you, too, here's a suggestion I think you'll find appealing.

Because it's a "loan" rather than a "gift," and because the third-world entrepreneurs you'll be loaning to -- unlike the banking beneficiaries of Bernanke's $7.7 trillion largess with taxpayers' money (see yesterday's, Nicholas Johnson, "Forget Madoff, Focus on Bernanke," December 17, 2008) -- have a virtually 100% record of paying back all loans, you can "give" your money over and over again.

Kiva, the organization that administers this program, is growing in popularity. Loan applications that used to take days for Kiva supporters to fund now are on and off the Web site in hours -- sometimes minutes. At one point this past year they actually ran out of unfunded applications! This past week alone they've loaned out well over $1 million, to some 3500 new entrepreneurs, from some near-8000 new "members."

Look over the Kiva Web site and you'll see why.

I wrote about Kiva last year about this time, and thought it might be a nice blog entry to re-run every December. Here it is:

December 26, 2007, 10:15 a.m.

The Charitable Gift That Literally Keeps on Giving . . .
and Costs You Nothing

How can you give away your money and still have it? Sound too good to be true?

Well, it is true. Read on.

While we're enjoying (or suffering from) the excesses of the holiday season, a good many Americans' thoughts turn to what we should be doing for others.

Add it all up and divide by 300 million Americans and it turns out we're averaging nearly $1000 in charitable contributions from every woman, man and child. Last year we gave a total of $295 billion, 83% of which came from individuals. We averaged contributions of 2.2% of our disposable income (65% of all households earning under $100,000 a year were contributors). (Of that total nearly half went to religious organizations and educational institutions.) Add to these numbers the value of the donated time of that half of our population that does volunteer work of some kind each year, and we can feel fairly good about what we're doing for others. Jeffrey Thomas, "Charitable Donations by Americans Reach Record High; Individual giving accounts for 83 percent of $295 billion total in 2006," USINFO.state.gov, June 26, 2007.

And yet, despite our best efforts, there are still over one billion people "living" (if it can be called that) on less than one dollar a day; every day 24,000 children die of hunger; 10 million under the age of five die every year of the diseases resulting from a lack of clean water. UN Secretary-General Kofi Annan, "A World Mired in Despair of Poverty 'Will Not be a World at Peace,'" October 17, 2003; Jan Eliasson and Susan Blumenthal, "Dying for A Drink of Clean Water," Washington Post, September 20, 2005, p. A23.

Nor are these the only fellow humans in need of economic assistance of some kind.

Clearly, our government should do more of our share to help the rest of the world. But the fact remains that, even with increased government aid and individuals' philanthropy, we can't do this job ourselves.

So what to do?

You've heard of Lao Tzu's Chinese proverb, "Give a man a fish and you feed him for a day. Teach him how to fish and you feed him for a lifetime." The only trouble with this solution is that the man, or woman, may not be able to afford a fishing pole -- or whatever else they may need to not only feed themselves, but start a modest fishing business.

Enter Kiva.

It has been said that information, or an idea, is an example of a kind of property that you can give to many others and still retain it yourself.

So it is with the money you give to Kiva. They use it, but you still have it. It's money that's not given, it's loaned (and to a recipient of your choice, not theirs) from a Kiva account in your name that you control. Because the repayment rates are so nearly 100% -- much better than what many of our commercial banks get -- you'll be able to loan that money over and over again.

Concerned about your $25 contribution going to a charitable organization paying its CEO over $250,000 a year -- sometimes millions. "What difference will my little contribution make?"

Well, with Kiva every penny of your loan goes to the recipient of your choice. There is no overhead! (Of course, you can also contribute to Kiva, to support its administrative costs, but it is certainly not required, and if you do it is a separate transaction.)

As the Kiva Web site explains:

Kiva lets you connect with and loan money to unique small businesses in the developing world. By choosing a business on Kiva.org, you can "sponsor a business" and help the world's working poor make great strides towards economic independence. Throughout the course of the loan (usually 6-12 months), you can receive email journal updates from the business you've sponsored. As loans are repaid, you get your loan money back.
In this political season, this is an approach that ought to appeal to all. Liberals should appreciate this opportunity to help others. Conservatives should support the idea of loans rather than gifts, and giving to businesses rather than making "welfare payments." Libertarians ought to like the idea of keeping the government ("our tax dollars") out of it.

Want to do something really effective about "the immigration problem" from the south? Loan the little money needed by potential entrepreneurs in Mexico, Central and South America. It will help enable them to continue to live better in their home country, employ others in the community, circulate their profits with purchases in their local economy, and better support their children. Want to help build families, and provide education for children? Favor women recipients.

The minimum contribution to a loan request is $25 -- and it looks like that's what a lot of contributors choose. But it's amazing how fast, once a loan request is posted on the Kiva site, that 40 individual Kiva contributors, together, can come up with a requested $1000 loan.

The Web site reports this morning [Dec. 26] that this week alone $750,000 has been contributed for loans, 17,000 new lenders have joined Kiva, over 1000 new businesses have been started, 323 entrepreneurs finished paying back their loans, and the average loan, once posted to the Web site, was fully funded within 7.5 hours.

The only "cost" of this operation to you is the "opportunity cost" of what you would have earned on that loan if, instead of loaning it through Kiva, or spending it at Starbucks, you invested it at 5% interest. How much is that? On a $25 loan literally "a dollar and a quarter" -- $1.25.

Of course, there are costs of this program -- it's just that they're paid for by the recipient of your loan, not you. Kiva partners with microfinance institutions in the recipients' home countries -- what Kiva calls its "field partners." The field partners are funded with the interest paid by recipients to the field partner on your loan. Yes, there is interest. But it is a small fraction of the prohibitive rates of interest charged by for-profit individuals or institutions in the recipient's country.

As a lender you can read all about your recipient of choice, the record of the field partner administering your loan, often see pictures of their project, and get regular updates on the progress of their business and repayments. Not only does it not cost you anything, it also makes you much closer to the ultimate recipient than a charitable contribution to a national, state or local organization.

Charitable giving is important -- essential to the continuation of many non-profits in our country. We need to continue to give generously.

But there is this additional option: become a "bank," a "microlender" to worthy potential (and existing) entrepreneurs in third world countries.

Now, while you're thinking about it, check out http://www.kiva.org, and see what I've been talking about.

Make it a Happy New Year -- for you, and for the series of recipients who will benefit from that first Kiva loan of yours over the years to come.

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2 comments:

Susan said...
This comment has been removed by a blog administrator.
Nick said...

Notice Regarding Advertising: This blog runs an open comments section. All comments related to blog entries have (so far) remained posted, regardless of how critical. Although I would prefer that those posting comments identify themselves, anonymous comments are also accepted.

The only limitation is that advertising posing as comments will be removed. That is why some of the comments posted here, containing links to businesses, have been deleted. -- Nick