Kiva: Can Micro-Finance Make a Macro-Difference?

A few months ago, I was tuned into Kiva by a fellow hoser. Kiva, the world’s first person-to-person micro-lending website, empowers individuals to lend directly to unique entrepreneurs in the developing world with the goal of alleviating poverty.

When you make a loan on Kiva, a (U.S. 501(c)3) non-profit orgainization, you are helping a real person make great strides towards economic independence and improve life for themselves, their family, and their community. In addition, through its data-rich, transparent lending platform, you not only get e-mail updates that inform you of the loan’s status and allow you to track repayments, but you get to see how money flows throughout the entire loan life-cycle and what effect it has on people and institutions lending it, borrowing it, and managing it along the way.

To keep overhead low, and insure that the full amount of your loan goes to the individual in need, Kiva partners with existing micro-finance institutions around the world that are experts in identifying qualified entrepreneurs and in helping them succeed in their business. To date they have made loans totaling $41,246,560 through 104 partner organizations at a total default rate of only 1.52%. If we restrict our analysis to the 82 partner organizations that are currently active or in a pilot stage, the rate drops to 0.56%. Furthermore, 74 of these organizations, which account for 93.67% of the loans, have a default rate of 0%. All I can is if the North American banks were this good at lending, maybe we wouldn’t be in the mess we’re currently in!

Needless to say, I decided to try it out. I’m all for sustainability initiatives, and it’s much more sustainable then simply giving to certain charities. (Even though, as evidenced by my recent sustainability challenge, I’m a big fan of certain charitable organizations, and, in particular, those that are researching sustainable causes and helping children who are unable to help themselves, there are certain charities that I have an absolute disdain for. Specifically, those that simply extend charity to those that, with the right help and support, would be perfectly capable of helping themselves. As the proverb goes, give a man a fish and he will eat for a day but teach him how to fish and he will eat for a lifetime.)

To date, the doctor has made six $25 Kiva loans:

As far as I can tell, it looks like it works great. Now it’s true, as the site clearly disclaims in the footer of every page, that lending to the working poor through Kiva involves risk of principal loss, but so does investing in the stock market, or, even worse, gambling at the local casino — but at least when you loan through Kiva, you’re making a difference, and, as I noted above, your chances of getting your money back, to re-lend to someone else in need, is much greater.

Thus, I would encourage everyone to take part of their discretionary funds and try lending through Kiva. Considering that you can start for $25, or the cost of one good bottle of wine (at the liquor store and not your local 300% mark-up restaurant), it’s an endeavor that the vast majority of us should be able to afford. And if even half of the 1.2B people in the developed world made even one loan a year, think of the sustainable difference it could make. That’s something worth aiming for. And if you do lend, tell them jeff <at> hosernews <dot> ca sent you (because I believe in giving credit where credit is due).

And yes, there is a supply chain lesson here for all of us. If a good supplier is in trouble in these hard financial times, key customers can band together to keep it financially solvent until times improve through faster payments, guaranteed orders, and low-interest loans. And, in addition to the good feeling these customers will get from knowing they did right, they will have also secured long-term capacity at a strategic supplier. Let’s face it — most business people want to do the right thing when given the choice. This means that if you stick by good supplier when it’s having a bad day, it’ll stick by you through thick and thin.