Now this was actually fun, you guys should try it:
- Go to www.kiva.org.
- Pick a business or family that’s looking for a small loan in a high-poverty and/or underbanked area.
- Make a contribution of $25 or more.
What’s fun is that this is loan, not a donation, so the money comes back again. If you keep adding to your account, you can keep making larger and larger loans, and your money is going to promote struggling economies, and help reduce poverty. Plus check out the second-place team–the screen shot’s below the fold.
I heard it was a scam…. http://francoistremblay.wordpress.com/2009/11/21/kiva-is-a-fraud-a-criminal-enterprise-and-perhaps-more/
Hmm, this guy makes some serious charges, but I’m not sure they really stick. I’ll have to do some more investigating, but just looking at his blog I notice some people raising reasonable counter-arguments, and his responses seem to border on the irrational. His main complaint is that the interest rates are too high, but that might be due to a number of reasons. I don’t know what the load default rates are in poorer parts of the world, but it seems at least plausible that some of the cost of banking might be due to a high number of defaults.
Those interest rates look high … to us. Perhaps in the country where the loan is made, they are reasonable because the banks won’t loan and the loan sharks are charging 90%
I would insist on something like, you know, real data before I pushed the “It’s a Scam” button.
That’s very true, and I don’t think Tremblay has really given us enough data to make a conclusive determination. It’s worth looking into though, so I’m glad skeptical brought it up.
THAT’s your reference when you “have heard” something unsavoury about a charity? A pissed off “anarchist” blogger’s article ranting about coverups and criminal motives isn’t going to convince me kiva is a criminal enterprise.
Check out Charity navigator: http://www.charitynavigator.org/index.cfm?bay=search.summary&orgid=12978
Another good source is Givewell, but it hasn’t reviewed kiva.
I’m also concerned about the effectiveness of microfinance of alleviating poverty: http://www.sociology.org/content/2008/_westover_finance.pdf
The blog states straight out that he’s anti-capitalist. Clearly he’s going to have issues with interest-bearing loans, regardless of the rate. Regardless, charging an unreasonably high rate on a loan (IF the rates they charge are, in fact, unreasonable) isn’t the same thing as scamming.
I’m not sure how the bit about interest rates works, because this is what Kiva claims on its website:
The author claims:
Leaving aside the question of what the field partners actually charge:
The statement that Kiva does not charge interest to Field Partners is in direct contradiction to the statement that the Field Partners “split the … profits with Kiva”. It’s not just a difference in opinion on what is a fair interest rate; one of them is lying.
For what it’s worth, Charity Navigator give Kiva four stars (out of four). It appears to be one of the highest-rated charities (by that site at least).
I read an explanation for the high interest rates somewhere but I can’t remember where, and I can’t vouch for the accuracy, but it sounds reasonable at least. Basically, interest rates have to cover two sources of loss even before profits come in, so for Kiva to get the money back, they have to charge interest to cover those areas of loss. The first is other people defaulting, and I’m not sure how much that costs Kiva, but the people who do well have to cover for the people who don’t. This scales with the size of the loan. The second is the overhead for making the loan–the cost of finding people, background checks, actually getting them the cash, etc. This doesn’t scale by size of the loan much if at all–whether you loan someone $50 or $5000, if it cost $50 to investigate them, you’ll need to get that $50 back if you want to break even. Therefore, interest rates for small loans have to be higher than for larger loans to cover these costs.
Whether or not Kiva’s rates are reasonable even under paradigm, however, is another question, but it is a question as to why the interest rates might seem way high to people used to taking out big loans through conventional routes. There is also the question over whether lower interest rates are a big enough benefit that the investors should expect to take a hit to help people.