Friday, December 25, 2009

Kiva 2009: Don't Give Money, Loan It

December 25, 2009, 6:10 a.m.

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

This is the season of giving. This year it's also the season of recession. We've given the Salvation Army bell ringers 7% less than last year, the organization reports. Other charities are suffering similar declines.

We want to do more, but it's not irrational to save more for ourselves at such a time: "charity begins at home" -- our home. That's the dilemma.

Is there any way we could give away our money but still somehow, magically keep it? "Impossible!" you say? It's not impossible. It's Kiva.

Here's a winter holiday blog entry originally published two years ago, slightly updated at the end with new numbers:

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 [that in 2007] 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,", 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 our 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 alone -- especially given the proportion of our government's overseas aid that ends up in the Swiss bank accounts of corrupt local officials and American contractors.

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, a learned skill, or an idea, are examples of a kind of "property" that you can give to another and still retain for yourself.

So it is with the money you give to Kiva. Kiva invests it, but you still have it. It's not a "donation" or "contribution." It's money that's not given, it's loaned (and to a recipient of your choice, not Kiva's) from a Kiva account in your name that you control.

Kiva's network enables you to become a "micro-banker" making "micro-loans" to specific individuals around the world.

And because the repayment rates are so close to 100% -- a much better payback rate than what many of our commercial banks get from their business customers (or you may have received on loans to family members and friends) -- you'll be able to loan that money over and over again.

Have you ever thought twice about giving $25 to a charitable organization, as you wonder how much of your money is going for fund raising expenses, or to well-paid American executives, rather than to supporting the poor or projects the organization represents to be its purpose? Have you ever said to yourself, "What difference will my little contribution make?"

Well, with Kiva every penny of your loan goes to the recipient of your choice. There are no fund raising expenses, no high salaries, no overhead!

(Of course, if you choose to do so you can also contribute to Kiva to support its administrative costs. But the contribution will not come out of the money you've loaned, is certainly not required, and if you do want to contribute 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, 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.
This is an approach that ought to appeal to all. Liberals should appreciate the 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. (I saw Texas Congressman Ron Paul's picture as a contributor to a Kiva loan recently.)

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 their community, circulate their profits with purchases in the local economy, and better support and educate their children. [Maria Esthela Sifuentes Hernandez, pictured above in her grocery store, was one of my borrowers in 2008. The loan was for $600, my share was $25, she repaid it in full and on time, and I loaned out the same $25 again -- this time to a woman starting a taxi business in Mongolia. I tend to favor loans to women (80% of Kiva loans go to women) because of the additional positive impact on families and the community.]

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.

There's much more to learn about Kiva than I can reproduce here. But this picture illustrates a couple extra points I'll make quickly. (1) One of the reasons the payback records are so good is the social pressure the recipients provide each other when they apply for loans as a village group. The five women in this picture are "Nassra's Umoja Group," organized by Nassra Said Abdalla in Tanzania. They are making telephone service available through the sale of phone vouchers. Obviously, I find this telecommunications entrepreneurial effort especially attractive, not the least because of the greater-than-average economic multiplier they are providing by enabling business transactions by others' use of phones. (2) It is possible to give Kiva gift certificates to your friends. One of my sons gave me one this year [2009]. And "Nassra's Umoja Group" is one that I gave to my sister; so now she's following the progress of her Tanzania "business partners."

The Kiva Web site reports this morning [Dec. 26, 2007] 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.

That was two years ago. Today? "Since it’s founding four years ago, [Kiva] has now made possible $100 million in microloans between individual lenders and entrepreneurs all around the world. The company has brought together 573,000 lenders (people like you and me putting in $25 or more towards a specific project), and 239,000 entrepreneurs." Erick Schonfeld, "Four Years After Founding, Kiva Hits $100 Million In Microloans," TechCrunch, November 1, 2009. (For links to Kiva stories in dozens of America's mainstream media, see the organization's "Press Center"; TechCrunch just happened to be at the top of the page just now.)

Because you will (virtually always, but of course not guaranteed or insured) get your loan repaid, but will receive no interest on it, the only "cost" to you of this operation 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 in a CD paying at today's rates about 2% interest. How much is that? On a $25 loan literally 50 cents for the year.

Of course, there are costs of this program -- it's just that they are not costs that you will have to pay. "Kiva" is only a small staff in San Francisco with a global computer network. It works through micro-loan organizations it calls its "field partners" in the countries involved. Those are the organizations that evaluate the potential borrowers, provide them financial and business skills, dispense and collect repayments on the loans. But these field partners' expenses, such as they are, are paid by the recipient of your loan, not you. Yes, your borrower will have to pay interest. But it will be a very small fraction of the prohibitive rates of interest charged by the 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, even essential to the continuation of many non-profits in our country. We need to continue to give as generously as our circumstances make possible.

But there is this additional option for you to "be the bank", a "microlender" to the world of worthy potential (and existing) entrepreneurs in third world countries.

Now, while you're thinking about it, check out, 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, as it's returned to you, and loaned out again and again throughout the years to come.

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1 comment:

Nick said...

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