An Update on the Kiva Micro-Finance Experiment

Last September, I introduced you to Kiva, the world’s first person-to-person micro-lending initiative in a post where I posed the question Can Micro-Finance Make a Macro-Difference? after being referred to the site by a fellow hoser.

In an attempt to answer that question, I decided to conduct an experiment. Since last July, I have been making two loans a month under the hypothesis that if it works, after a year I will have enough capital in the Kiva system to help a new person every month as previous micro-loans get re-payed. To date, the doctor has made fourteen $25 Kiva micro-loans (which get bundled with other micro-loans to fund loans to individuals and groups through Kiva’s micro-finance partners):

Individual Institution Total Loan Loan Funded Disbursed Repayment Term Repaid to Date*
Gulchehra Rahimova LLC MLO Humo and Partners 1,175 June 28, 2008 July 12, 2008 12 months 33%
Din Ly CREDIT (World Relief) 250 June 28, 2008 July 12, 2008 18 months 22%
Araba Awotwe Christian Rural Aid Network (CRAN) 350 August 14, 2008 August 28, 2008 7 months 43%
Serigne Cisse UIMCEC (Christian Children’s Fund) 975 August 15, 2008 August 29, 2008 12 months 25%
Mavluda Tosheva LLC MLO Humo and Partners 450 September 1, 2008 September 15, 2008 12 months 17%
Mario Aguilar Fundacion Paraguaya 475 September 1, 2008 September 15, 2008 11 months 18%
Irene Microfinanzas PRISMA 1,200 October 11, 2008 October 25, 2008 6 months 17%
Sokhna Sene UIMCEC (Christian Children’s Fund) 300 November 1, 2008 November 15, 2008 12 months 0%
Essoneya Tchindo WAGES 300 November 1, 2008 November 15, 2008 12 months 0%
Guillermo Microfinanzas PRISMA 325 November 1, 2008 November 15, 2008 10 months 0%
Olinda Microfinanzas PRISMA 325 November 27, 2008 October 31, 2008 6 months 0%
Sron Chea Group AMK 200 November 27, 2008 October 28, 2008 4 months 0%
Kayi Lawson Microfund Togo 1,175 January 2, 2009 November 17, 2008 18 months 0%
Abdulhokim Azimov LLC MLO Humo and Partners 600 January 3, 2009 January 17, 2009 10 months 0%
Averages   508     11 months  

The interim verdict? All loans over 3 months old have had partial repayments, and the partial repayments appear to be more-or-less on track with respect to the requested repayment term. With an average requested repayment term of 11 months, repayments starting an average of 3 months after disbursement for most loans, and the very low default rates common to most of Kiva’s partners (the global average default rate is less than 3%), this indicates that one should expect, on average, 5% of all loans three months or older to be repaid on a monthly basis. This indicates that once I reach a point where I have over $500 worth of loans that have been distributed for more than three months, I should expect it to be the case that the monthly repayments are sufficient to cover the minimum micro-loan of $25 to a new individual or group. As I am loaning at a rate of $50 a month, this indicates that I should be able to start making new loans from partial repayments in month 14, which is close to my original expectation of being able to make new loans from repayments on previous investments after 12 months.

Conclusion? Still too early for the final word, but it still appears to work great. The site continues to disclaim (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 and mortgage funds, but if you had invested in Kiva last year, unlike a lot of people, you’d still have your principal this year and the satisfaction of knowing you made someone’s life better.

Thus, I would still encourage you, if you’re still lucky enough to have any discretionary funds, to take part of them and try lending through the Kiva platform. 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, remember to tell them that jeff <at> hosernews <dot> ca sent you (because one should give credit where credit is due). (And if you’re a Nova Scotian, you can even consider joining his team.)

And remember, 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 can also secure long-term capacity at a strategic supplier. Let’s face it — most business people want to do the right thing when given the choice, and many will be quite happy to sign a long term contract or guarantee if you bail them out. This means that if you stick by a good supplier when it’s having a bad day, it’ll stick by you through thick and thin.

*As of January 14, 2009