Microlending: A Different Kind of Charitable Giving

Kiva.org is a microlending organization that connects individual lenders online with individual borrowers in developing nations. With 0%-interest loans financed by a self-selecting set of contributors, Kiva helps borrowers launch small businesses without the heavy burden of start-up debt. This kind of sponsorship is a departure from the usual kind of charity; it reminds me of the old saw, "Give a man a fish, and he eats for a day. Teach a man to fish and he eats for a lifetime." Until the advent of the internet, this type of small-amount loan and individual participation would have been enormously expensive—but thanks to the communication, connection, and money-transfer capabilities of the Series of Tubes, lending isn't reserved for big corporations anymore.

This type of service has been in the news recently, as another microlending (aka "microcredit" or "microfinance") organization, the Grameen Bank, won the 2006 Nobel Peace Prize. And the new Clinton Global Initiative is also working on ways to allow individuals to participate in philanthropy at the micro level.

How it Works

Kiva works with certified field partners—generally, finance institutions or economic development organizations in developing countries. Those partners work with local entrepreneurs to write and submit loan requests to Kiva, and those requests consist of a target dollar amount (generally anywhere from $250-$2000), an estimated repayment term range, and a description of the business opportunity.

Individual donors can browse the opportunities on Kiva.org and select which to fund, by offering any amount from $25 up to the full amount of the loan (in $25 increments). Donors submit funds to Kiva from a PayPal account, and Kiva collects toward that opportunity until 100% of the target amount has been raised—so there are usually multiple contributors toward a single opportunity. Once it's all collected, Kiva transfers the money to the field partner, who disburses the 0%-interest loan to the business owner. The loan becomes "active," and a target payback period is set. The field partner works with the business owner on a repayment schedule, and collects the payments. The field partner also makes occasional reports in an online journal, so donors can learn a little about the progress of the business venture. Once 100% of the loan is repaid, then the business partner transfers the money to Kiva, who distributes the original loan amount back to the donors' PayPal accounts. They can keep it, or re-invest in a new venture.

Of course there is a risk that the loan won't be repaid, but Kiva reports a 96% payback rate. And given that loans can be as low as $25, perhaps that risk of non-repayment can be seen as one of low impact as well as one of low likelihood.

Note: Kiva works through PayPal exclusively, but you can have a credit card payment run through PayPal if you don't have money stored in a PayPal account. (You must have a PayPal account, but you don't necessarily need to have any money in it.)

How You Can Become a Lender

Visit the Kiva.org site and click "LEND" to find a list of current projects. The default sort on that list is all businesses in need, from low target dollar amount to high. But if you want to investigate specific business types—say, women-owned businesses, or food-related businesses—you can click on the "[ ] Show more options" to have additional filter controls appear. You may also want to select "Raised" or "Active" projects to see some projects in action, even though their target amounts have already been collected. Once you find a venture on the "In Need" list that you may want to fund, click the "More" button for a full description.

When you're ready to donate, select a loan amount in the pull-down list, and click the "LOAN NOW" button. You'll be asked to create an account on Kiva.org, and will also have to log in to PayPal. You'll have an opportunity to add an additional 10% to the transaction amount if you'd like to help Kiva pay their rent (since 100% of the loan amount goes to the entrepreneur). Then you confirm the amount, and OK the transaction—and now you have a portfolio on Kiva.org. Remember, the loan won't be active until 100% of the target amount has been collected, so check back to see how your projects are progressing.

Another way you can participate is by purchasing a Kiva Gift Certificate. Available in $25 increments, these certificates let you share the opportunity to get involved and fund business opportunities around the world. I think a Kiva Gift Certificate would be a great gift for a kid, to teach them about the joys of giving and helping others in a way that's different from a one-time charity donation.

My First Loan

I chose to lend the last remaining bit of the target dollar amount to a group of fishermen in Senegal. Here's the description of the business venture:

Location: Palmerin, Senegal
Activity: Fishing
Loan Amount: $1000.00
Loan Use: Fishing equipment purchase
Loan Repayment Term Range: 10-16 months
Start Date: Not yet started
Status: loan has been raised
Partner Rep: Julia Blue, Doudou Mbodj
Partner: Senegal Ecovillage Microfinance Fund

This group loan will be shared by the sixteen members of the Jalki Jeg Association, located in the seaside fishing village of Palmarin. Loan funds will be used to invest in better fishing equipment for the group members, including new fishing lines, nets, hooks, sinkers, and floaters, as well as transportation of their catch to market. The group, represented by Saliou Sarr, described their business plan as follows:

This project intervenes in a zone where fishing is the main way of earning a living. Paradoxically, the fisherman finds it very difficult to obtain the equipment needed to practice his trade. This project aims to find a solution to this state of affairs. The objectives of the loan are: 1) to provide local fishermen with appropriate fishing equipment; and 2) to provide the local population with quality seafood at a good price. Activities include: 1) investment in fishing equipment; 2) selling at the market and on order; and 3) a post-purchase quality guarantee.

The loan hasn't yet become active—they usually launch on the first of the month, but I only completed their loan request yesterday, so this might not activate until January 1. I'll check back and comment here on progress. If you decide to become a lender, share your Kiva experience in the comments here!

This kind of microlending is an exciting opportunity for borrowers and lenders alike. It won't completely solve the world's poverty problem, but it gives power to the people on both ends of the transaction. It feels much more satisfying to support an actual person's specific goals than to drop a $20 into a bucket.

>> www.kiva.org