Kiva

May 5th, 2009 at 10:00 am by David Farrar

I’ve just made my first micro-finance loan through Kiva. You can find out more about them at Wikipedia.

Basically you loan money to entrepeneurs in developing countries, through Kiva. It is called as they are all for small amounts, and the typical lender contributes $25 – so 40 people lending $25 allows $1,000 to be made available.

The default rate is only 2.5%. This means if you lend $1,000 through it, you’ll on average get back $975. But instead of just donating $25 to  a charity, you are helping fund $1,000 of business development.

I’ve just lent US$25 to a 24 year old in Nicaragua who is expanding her parents painting business. She is after US$1,000 and has previously paid back two prior loans.

I really encourage people to sign up, and loan money if they are able to do so. It’s a great innovation.

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42 Responses to “Kiva”

  1. lofty (1,303 comments) says:

    What a great idea, I am in.

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  2. goodgod (1,363 comments) says:

    Oh cool they do that here too, but it’s a division of WINZ and no one has the choice of contributing. I once loaned a guy $500 to get started in dealing hooch. Paid me back quite soon and now heaps of people are over the moon. Yay for local investment!

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  3. stephen (4,063 comments) says:

    It was even greater when the $NZ was higher against the $US!! Ah well :-D

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  4. stephen (4,063 comments) says:

    Actually i was wondering if I could get some advice on this stuff – I was looking at someone who wanted to buy more clothes (second hand from other countries) for her clothing business. This is the second time she’s done so, which makes me wonder if it’s worth loaning her money if her business isn’t successful enough to be able to buy more clothes without a loan? Loaning a fisherman money for a fridge makes perfect sense, but i’m not sure about something like this…

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  5. burt (7,797 comments) says:

    I hear Winston has put $158,000 into this and has claimed that qualifies as having paid the money back.

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  6. burt (7,797 comments) says:

    Pay it back Winston!

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  7. emmess (1,368 comments) says:

    According to the left you are making people worse off because this is not “poverty allevation”

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  8. lofty (1,303 comments) says:

    Stephen, at least you have the choice of perusing the candidates and making an informed decision I suppose.

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  9. burt (7,797 comments) says:

    emmess

    The left wouyld say that, there are no votes in it for them. That is all they care about – command and control. There is no command and control potential in welfare if people are not dependent on the state. It’s simple. Keep em poor and keep em voting Labour.

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  10. KiwiGreg (3,170 comments) says:

    @stephen – working capital (inventory) is at least as important for a business as fixed capital (like the fridge). In fact I suspect more businesses are constrained from a lack of working capital than fixed. The fact s/he needs additional funds to acquire inventory doesnt mean the business isn’t succesful (of course it doesnt mean it is either….).

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  11. Kimble (4,377 comments) says:

    Aint markets grand?

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  12. stephen (4,063 comments) says:

    emmess, in my opinion ‘credit availability’ is not a cure-all – it certainly has its place, but in isolation would leave issues like poor water quality unsolved for quite a while, which is why at the moment I value ‘charity’ a little more than Kiva.

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  13. side show bob (3,660 comments) says:

    Oh come David this will never work. Surly we need a government department to handle the funds, God forbid you just can’t have money handed over without palm’s been greased. Think of all the parasites you’re screwing.

    Love it, will look to sign up.

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  14. stephen (4,063 comments) says:

    Thanks you two. I think I will probably steer clear of that sort of thing in future just to be on the safe side…

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  15. racer (258 comments) says:

    “emmess
    According to the left you are making people worse off because this is not “poverty allevation””

    You should let the left speak for themselves, but you don’t, that’s why you have no credibility.

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  16. Patrick Starr (3,675 comments) says:

    Young Chuck moved to Texas and bought a donkey from a farmer for
    $100.00.

    The farmer agreed to deliver the donkey the next day.

    The next day he drove up and said, ‘Sorry son, but I have some bad news,

    the donkey died.’

    Chuck replied, ‘Well, then just give me my money back.’

    The farmer said, ‘Can’t do that. I went and spent it already.’

    Chuck said, ‘OK, then, just bring me the dead donkey.’

    The farmer asked, ‘What ya gonna do with him?

    Chuck said, ‘I’m going to raffle him off.’

    The farmer said ‘You can’t raffle off a dead donkey!’

    Chuck said, ‘Sure I can – I just won’t tell anybody he’s dead.’

    A month later, the farmer met up with Chuck and asked, ‘What happened with that dead donkey?’

    Chuck said, ‘I raffled him off. I sold 500 tickets at two dollars apiece

    and made a profit of $898.00.’

    The farmer said, ‘Didn’t anyone complain?’

    Chuck said, ‘Just the guy who won. So I gave him back his two dollars.’

    Chuck became an investment broker for Goldman Sachs.

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  17. KiwiGreg (3,170 comments) says:

    @stephen “to be on the safe side”?????? Even if you participate you are only risking the price of a couple of Mega Triple Dips, it’s not your immortal soul at stake.

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  18. stephen (4,063 comments) says:

    KiwiGreg er haha yes that’s true, but I wasn’t referring to ‘ability to pay my loan back’ – the gist of my first question was ‘is it worth it in the long term to loan this person money if they can’t make their business sustainable (in the business sense),’ not ‘their business might be crap so do I risk losing money?’.

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  19. garethw (205 comments) says:

    Every good business continues to have debt. Particularly in your example, where they are debt-funding the pre-purchase of stock given the success of their sales plans.

    The good businesses will be the ones that stick around and continue to look for money – microfinancing doesn’t have to be startup only (although the altruistic side of it suggests lenders will focus there)

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  20. KiwiGreg (3,170 comments) says:

    @garethw – agree 100%. A business funded solely from equity will typically have very sub-optimal returns, and of course most of these folk will have no cash equity at all.

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  21. garethw (205 comments) says:

    “A business funded solely from equity will typically have very sub-optimal returns” – particularly here where the cost of capital is (I presume) 0! The people looking to raise that money more than once (with a positive history of payback) are quite likely the ones that are making positive returns and frankly are showing a good base understanding of costs of capital

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  22. Tuija (220 comments) says:

    Why would a post about kiva loans become a reason for leftie bashing ?
    Micro loans are just as likely to be made from someone from the left as someone from the right
    Anything that helps lift people from poverty is fantastic
    Good on DPf for publishing this

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  23. Kimble (4,377 comments) says:

    “The default rate is only 2.5%.”

    I intend to package up these loans and sell portions of their cashflows in Collateralised Micro Debt Obligations (CMDOs). Should be easy to get a market going for these securities. I expect my Aunt Annie and Uncle Reddie will buy a big bunch of them, they’re good sorts. These will be very popular with institutions too, given the low default rate I expect a credit rating of AAA- at the very least.

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  24. KiwiGreg (3,170 comments) says:

    @kimble Lenders get no interest so I dont think your (non-serious) idea would work.

    @garethw The lending organisation does charge interest to the borrower, it just isnt paid to the ultimate source of funds (i.e. you) so the cost of capital to the borrower is > zero.

    I found this related site for those interested: http://kivakiwis.org/.

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  25. Kimble (4,377 comments) says:

    “Micro loans are just as likely to be made from someone from the left as someone from the right.”

    But the scheme itself is unlikely to have been created by someone from the left. It is a market solution rather than a state based command solution.

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  26. garethw (205 comments) says:

    @kiwigreg – right. It actually takes a fair amount of trawling through the site to find the interest rate, and even then it’s only an average for the Lending Partner, not for that actual loan. I’d prefer to see the interest rate that is being charged for the particular loan before funding them.

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  27. chfr (126 comments) says:

    # racer (173) Vote: Add rating 0 Subtract rating 2 Says:
    May 5th, 2009 at 11:05 am

    “emmess
    According to the left you are making people worse off because this is not “poverty allevation””

    You should let the left speak for themselves, but you don’t, that’s why you have no credibility.

    Racer as the voice from the left…enlighten us to your solution.

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  28. MajorBloodnok (361 comments) says:

    @Tuija “Anything that helps lift people from poverty is fantastic
    Good on DPf for publishing this”

    So, are you in?

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  29. Kimble (4,377 comments) says:

    “Lenders get no interest so I dont think your (non-serious) idea would work.”

    So I could create a product that only loses 2.5%? I can sell that.

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  30. s.russell (1,559 comments) says:

    I think this is a great idea. It is better than just giving money for food -usually purchased from rich countries, which puts local farmers out of business – and does no long term good.

    I have just invested $US100. If it is all repaid, I can loan it out again and again. Great!

    Thanks, DPF.

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  31. workingman (84 comments) says:

    Steve

    ‘is it worth it in the long term to loan this person money if they can’t make their business sustainable (in the business sense)

    This is where you trust the lending institution is checking its borrowers. In this example it is perfectly valid for the owner to seek extra capital when they have found out the business is profitable. Think of a simple example. Buys $500 of clothes and seeks to make a 100% mark up. So would sell the lot for $1000. In practice though they would not sell the lot for $1000 as there will be some rejects that may need to be sold at a lower price, some items are not popular so need to be sold at a lower price.

    The business then needs to restock, but does this mean they wait until they have sold enough stock to cover the cost of the new stock? Who wants to buy from a half empty store (or bedroom), maybe certain sizes have been popular. How do they live in the meantime as well.

    Of course maybe the business is doing so well that they want an extra $500 so they can buy $1000 of stock, get a bigger discount from the supplier, make a bigger profit. Maybe so much profit that they can employ someone to sell all these extra items.

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  32. Tuija (220 comments) says:

    Been involved for nearly three years

    Incidentally Kiva, means “unity” in Swahili

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  33. stephen (4,063 comments) says:

    workingman,

    Thanks! I think I needed an example like that.

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  34. raf (4 comments) says:

    David, and others, welcome to Kiva.

    Please join up with the team “Kiva Kiwis” which you can access from your Kiva account under “my teams”.

    It’s a wonderful way to empower people who cannot access capital in order for them to create their own businesses and contribute to building successful communities. It certainly beats the Aid model.

    If you want a return on your money you can try Microplace (http://www.microplace.com).

    Also look at Wokai in China (http://www.wokai.org).

    And coming very shortly is our very own P2P lending company, Nexx (http://www.nexx.co.nz).

    And incidentally my default rate on 171 loans in 2 years is 0%!!

    Time to make those banks work a bit harder.

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  35. Inventory2 (10,095 comments) says:

    Mrs Inventory and I made our first loans over the weekend – A friend suggested we look at the sceme, and we needed no convincing. As with raf above, our friend has been involved for some time, and every loan has been repaid.

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  36. Tuija (220 comments) says:

    likewise

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  37. Fletch (6,010 comments) says:

    I did get an email from someone in Nigeria who wanted to use my bank account and was prepared to pay me to use it, but I didn’t do it, ey ;)

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  38. lofty (1,303 comments) says:

    I have made my first loan to a couple in Cambodia, who want to farm ducks….how cool is that???

    Thanks DPF you have made my week with this info.

    Thornton Wilder said, “Money is like manure; it’s not worth a thing unless it’s spread around encouraging young things to grow.”

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  39. Fletch (6,010 comments) says:

    In all seriousness though, it is a wonderful idea.

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  40. sally (26 comments) says:

    Whata fantastic idea! Fits with my ethos of a hand-up not a hand-out, an alien concept for far too many NZers.

    Just lent a chap in Bolivia, Ricardo Gimenez, $US75 for his coal business.

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  41. wikiriwhis business (3,883 comments) says:

    THis could be a recession beater

    Would certainly be a third world benefitter.

    Better than telethon. Very, very powerful potential.

    Banks could lose a lot if people aren’t lending from them because of this.

    Interest rates down??

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  42. stephen (4,063 comments) says:

    wikiriwhis business, check out the Grameen Bank.

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