What? Kiva Is Not Really Person-to-Person Lending

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I’ve written about Kiva before – They allows individuals to make loans starting at $25 to low-income entrepreneurs in the developing world, also known as microcredit. By doing so, you can provide affordable working capital for the poor (money to buy a sewing machine, livestock, etc.), hopefully empowering them to earn their way out of poverty.

However, Kiva may not work exactly like it suggests on their website. You’ll notice that they post up pictures and stories of people needing loans, and you get to pick the exact person you want to lend to. Back in 2007, I thought I loaned $25 to Vitolina:

Vitolina owns a set of beach fales that she rents out to back-packers or picnickers passing through the village and works hard to keep the structures in good condition. Fales are simple, small open huts with thatched roofs built in the style of the traditional Samoan house. Vitolina?s fales are situated on a white sandy beach on the Samoan coast. She readily welcomes guests and provides them with a simple roof, unbeatable views, and home-cooked meals. She will use the loan to renovate the beach fales.

However, chances are that the person you clicked on already got the loan months ago. Your money is simply going to the microfinance institution (MFI) who already lent to that person, and will use that money to lend to another future person or general project. The direct “person-to-person” link does not exist like it does, for example, at LendingClub.

There is a lot of recent discussion on the web on this issue. Thanks to the commenter who made me aware of it. Check out this NY Times article and the blog post by David Roodman that started it all.

After reading the posts and several follow-ups, it does make practical sense that Kiva can’t actually match a lender to a specific borrower – it would take too long for the borrower to get the loan. However, it does show that “good stories” do matter. Remember those “Save The Children” commercials where you’d get a letter from the child you helped? Same deal. Your money goes to the general organization, not any specific child.

As a result, Kiva has changed how it explains their loans and their homepage tagline went from “Kiva lets you lend to a specific entrepreneur, empowering them to lift themselves out of poverty.” to the more generalized “Kiva connects people through lending to alleviate poverty.”

The other common variable that is somewhat hidden away to new visitors is that while you loan money at 0%, the actual MFI will likely go on to loan money to the entrepreneur at around 30% APR. The difference pays the operational expenses of the MFI and may partially subsidize defaults in order to maintain the advertised tiny 0-2% default rates.

None of this means Kiva or microcredit is bad. Sure, it’d be nice if I could lend at 0% instantly to a borrower in Cambodia who could pay 0% interest too, but right now that’s not possible. I still plan on lending at both Kiva, but will no longer get the “warm fuzzy connection” feeling from Kiva and may direct more funds towards Microplace or Grameen Foundation.

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  1. My name is Victoria and I am a current Kiva Fellow. (Disclaimer: These views are not intended to be or to seem to be an sort of official Kiva stance. They are my opinions and my opinions alone.)

    I came upon your post from iCurrent, and I wanted to correct a few of your points. First, you write, “However, chances are that the person you clicked on already got the loan months ago.” While loans can indeed be disbursed before funding on Kiva, they must be posted on Kiva within 30 days of the disbursal date, so there is a very definite time frame here and “months ago” is not the case. Also, this information has always been readily available – even before Roodman’s post – on the right side of every borrower page, where the disbursal date and the date posted on Kiva are both listed.

    I also disagree with your categorical statement that the “direct ‘person-to-person’ link does not exist.” In fact, this pre-disbursal is the only way that one could challenge the existence of the person-to-person link; lenders are connected to their chosen borrowers through both repayments and journal entries.

  2. I did know about the very high interest rate, but someone explained that away by saying it was a very low rate for that region.

    I was not aware of this little twist and it is just to much, I’m done with Kiva. It’s probably not even that big of deal, but I feel deceived and probably would not have donated if I new the truth. I liked the personal connection. <–SUCKER

    I’ve been looking at http://www.donorschoose.org hopefully it is real. I’ve been watching the schools my kids go to because I know the teachers names, but not one posting has been from their schools.

  3. @Victoria – Thanks for your comment. Arguing timeframes doesn’t really matter to me much, but I just looked last night and the first loan I saw “disbursed” September 7th. Today is November 17th, so that to me is months ago and was definitely past your 30 day window, so I’m not sure what happened there. Here’s the exact loan, which I actually put $25 into:


    Again, the link you speak of is INdirect in my opinion, not direct. Still reminds me of the “Save the Children” commercials from the 80s. It can still make me feel good, of course.

  4. Jonathan,

    Kiva recently undertook an experiment to gauge the impact of translating loans into English. Specifically they decided to leave some loans untranslated and see whether they took longer to fund. Because it was an experiment that benefited Kiva’s operations, Kiva promised its field partners that they would be allowed to re-post any loans that expired without getting fully funded as a result of not being translated. This was the case for approximately seven loans; they were reposted today and you found one of these. This is the only case in which a Kiva borrower will ever have a disbursement day more than 30 days before the date the loan is listed.

    Thanks for being so observant and for advancing this important discussion.

  5. Hejustlaughs says

    Might I recommend the Kiva Friends discussion forum ( http://www.kivafriends.org ) for those interested in more in depth discussions regarding Kiva?

  6. CreditShout says

    I love the comparison to one of those commercials you see on TV to donate to a child of your choice. In my mind Kiva is a sham because they’ve focused so much of the marketing on the fact that you choose who you want to lend to. Let’s be honest that’s really what set this service apart from others and is the sole reason for its success, meaning Kivas success has all be based on a lie.

    Sure it’s helped plenty of people, but at the cost of deceiving the lenders?

  7. Nice post.. there mere fact that Kiva is advancing loans to entrepreneurs in developing world at a very competitive rates is good enough. I think they used to match the lender and the donor when they were dealing with less than 100 entrepreneurs but after their bas grew to several countries and tens of thousand borrowers .. it is unlealistic to expect the logistics to be constant.

  8. Has anyone asked the question that if kiva members are lending the micro finance institutions at 0% and they are in turn lending at 30% APR (from this article) how much profit are these institutions generating in spite of all the defaults and risks with model?. If Kiva is indeed interested in helping under privileged people in the developing world, it should think of a way to reduce the interest burden on the loaners rather. This is not charity, this is a business that seems to be run. And indeed if Kiva wants to continue this, why not include the individual lenders in the profits. That will actually make it win-win for all and really open the floodgates for more money to this good cause.

    • Agreed! I had stopped lending thru Kiva and was focusing on MicroPlace instead, but now MicroPlace is no longer accepting new investments. Even though Kiva does help people, I don’t like the deceptive marketing and the constant push for donations in addition to the loan amount (if the actual borrowers are paying so much interest, why should I have to fund Kiva’s operating expenses as well as put my loan capital at risk?). I still want to participate in microlending, but would prefer to support alternatives to Kiva. United Prosperity (http://unitedprosperity.org/) looks interesting, so I recently made a couple loans through them to test it out.

  9. I hope paypal are letting Kiva use their service without the usual charges ?

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