Questioning Kiva
November 16, 2009 4:43 AM   Subscribe

Kiva transparency commentary: "I suspect that most Kiva users do not realize this." The controversy is summarized by the NY Times.

See also: MetaFilter Kiva team, and a microfinance gateway. Links harvested from the estimable CSRL newsletter.
posted by kmennie (78 comments total) 16 users marked this as a favorite

 
Good read. I'm still thinking about loaning some money to Kiva, but it's interesting to see the conflict between attracting people to give and being truthful. They still make the loans, so nothing is intrinsically wrong, but it's still a bit disappointing.
posted by mccarty.tim at 5:07 AM on November 16, 2009


I am acquainted with the president of a charitable organization that primarily gets new donors by offering child sponsors like the ones referenced in the article. Several years ago I asked her what would be the best way for me to give money to them, from the organization's point-of-view. Specifically, I said, "Wouldn't it be better if I just gave you the same amount each month that I would donate to sponsor a couple of children, and then you could use it for anything that was most pressing?"

I had a hard time getting a clear explanation why, but she insisted that, no, sponsoring kids was the best thing I could do. That made no sense to me. Why tie the money to one kid when I'm willing to let you do anything at all with it--including feeding that kid, if that's the best use.

Now I understand why. I know enough people in the organization to be reasonably sure that the kids they work with are being well taken care of--I'm not concerned about that. But the sponsorship thing is a myth. It's a way to keep regular donations pouring in, rather than sporadic gifts, and all it costs them is a picture each year and a thank you letter from the kid at Christmas. It's not like they are going to stop feeding Fernando if my check bounces. It's a fiction for the sake of consistent donations.

I can't say that I'm hugely happy about that, but I don't know how else you could do it. People need an emotional hook. (Well, people other than me, apparently.) Two of my highest values are caring for the poor and being as honest as possible, and they are just going to have to rest in uneasy tension in this situation.
posted by Pater Aletheias at 5:09 AM on November 16, 2009 [17 favorites]


Yet another reason not to use Kiva any more. I hate being lied to where my money is concerned.
posted by Solomon at 5:10 AM on November 16, 2009


As I think about it, I don't think it would hurt Kiva too badly to do a little tweaking of the wording. Something like:

[Angelique's touching story here.]
Angelique has met all the criteria for a new loan, and has received one from one of our partners in her country. But in order to continue to meet needs, she needs sponsors who will replace the money she has received so that it can help other worthy people in her community. Will you sponsor Angelique's loan?
posted by Pater Aletheias at 5:15 AM on November 16, 2009 [18 favorites]


Wait, how could this NOT have always been the case? Obviously Kiva pays for many expenses, including staffing, travel, rent, marketing, etc. Did that money just appear from thin air? If I were to give them $50, obviously they're not going to take my money, fly to Africa, and hand it somebody making candles. I haven't donated to Kiva, but I have donated to a different micro-finance organization, and it never crossed my mind that there was a direct connection between me and my sponsor. I guess I should state that since I haven't given to them, then I also haven't received any of Kiva's literature, so perhaps they really do hammer home the point of direct sponsorship, which I suppose could be construed as misleading. But if you step back and view it from a larger perspective, then of course the money you give is not a one for one transfer from your checking account to the village banker. For the love of Pete, don't stop giving money to a worthy cause just because you didn't put two and two together. Is this about you or them?
posted by billysumday at 5:25 AM on November 16, 2009 [7 favorites]


The child sponsorship model is more successful than framing the same issue in a larger sense. Numerous studies have shown that people feel more moved by an individual's plight than a more abstract community's plight. This is part of why Kiva and other such "sponsorship" programs have been successful, they recognize that fact and utilize it.

If I weren't presently tired as hell and on my way to bed, I'd be able to remember which one of my classes I encountered those studies and could provide actual data to back up my statement above. Maybe someone else here knows what I'm talking about?

Anyway, I'm surprised Kiva doesn't have some fine-print regarding this. That's shady.
posted by autoclavicle at 5:29 AM on November 16, 2009 [2 favorites]


This is pretty cool. Aid organization does slightly shady thing to defeat donors' pseudo-altruism. If you think the bad guy here is Kiva, you're not introspecting very well.

My big concern with Kiva has been that the loans are made at organized crime interest rates, but the local lender takes the complete vig. Clearly some microfinanciers will be able to operate as pyramid schemes for a good deal of time before getting caught and blacklisted from the site.
posted by anotherpanacea at 5:30 AM on November 16, 2009 [8 favorites]


I think the original concept for Kiva was in fact that it would work the way they present it - loans go directly from the lenders to the borrowers. But in practice, the infrastructure for this just doesn't exist on the ground. Kiva did say that they eventually want to move towards being able to do it, but I don't think they'll realistically be able to do this any-time soon.

What Pater Alethias says about the "sponsor a child" charities is also true, and at least partially this is for practical reasons. What if you miss a donation? They're going to kick the kid out of the sponsored school/orphanage/whatever?

Actually this doesn't matter to me, though it would have been better for them to keep their copy more consistent with their technical capabilities. The default risk for a particular loan is still transferred to the lenders who choose to assume it, the fact that it wasn't 100% my money that provided the loan in the first place (whatever that means, it's not like I'm sending cash to Bolivia).
posted by atrazine at 5:32 AM on November 16, 2009


Wait, how could this NOT have always been the case? Obviously Kiva pays for many expenses, including staffing, travel, rent, marketing, etc. Did that money just appear from thin air?

Actually all the money in the lending pool does go directly to local lenders. They fund their operational expenses through charitable donations, whenever you make a loan they ask you to give a 5% donation towards their expenses.
posted by atrazine at 5:34 AM on November 16, 2009 [1 favorite]


I hate being lied to where my money is concerned

Is Kiva really lying, or does it just take a little digging to find the info? I'm not really sure what to make of this sentence,

"Moreover, the way Kiva actually works is hidden in plain sight. On the right of Phong Mut’s page, you can that MAXIMA lent her the money on September 8 and listed her on Kiva on September 21. So while Kiva is feeding a misunderstanding, it isn’t technically hiding anything."

If this is true what is anyone complaining about? (not a rhetorical question).

The whole thing is interesting from a philosophical point of view. The dispute breaks quite nicely into a utilitarian side, it is ok for Kiva to use misleading marketing because it means more people overall will be helped versus a virtue or deontological ethics where Kiva's actions are wrong because the have the responsibility to be honest and/or it is always wrong to lie.
posted by afu at 5:34 AM on November 16, 2009 [1 favorite]


Anyway, I'm surprised Kiva doesn't have some fine-print regarding this. That's shady.

It does. The issue was that the fine-print contradicted the big-print on the front page.
posted by robtoo at 5:35 AM on November 16, 2009


I've always suspected that child sponsorship is more a helpful myth than an actual representation of how the cash flow works in an organization, but that's never really bothered me. Ditto for the case of Kiva here. It's good to help donors make the connection between their money going to some organization and a person that organization helps. It keeps people donating, because it gives them concrete understanding of the way that the organization is changing people's lives.

I suppose some organizations probably use these myths in an unseemly way ("if you stop donating now child X won't be able to afford school", etc.), but it doesn't sound like Kiva is doing anything like that.
posted by nangua at 5:44 AM on November 16, 2009


Also, I'm puzzled by what people think is shady. People do, in fact receive the money that you give. The fact that you're actually giving it to a microfinance institution which has already distributed the funds on the assumption that the loan will be financed isn't shady, it's efficient (as the article in the post says).
posted by nangua at 5:50 AM on November 16, 2009 [1 favorite]


I was told when I queried this that the money is already given, but the repayments are actually from the individual. So think of it more as repaying the lender for the money lent out. I'm not sure what happens in that process if the funds aren't raised after they are lent.
posted by jaduncan at 5:51 AM on November 16, 2009


Wow, I feel pretty foolish. I admit that I believed that it worked as advertised.

My suggestion to Kiva: Save money by using a random FaceGen modeller. Then couple it with a random name generator, so that people can click a button helping "Wu Gonzalez Bazarov" and his fantastic new (RANDOM JOB HERE)!

If they still provide loans to people, I'd say it's still moral.
posted by Ljubljana at 5:56 AM on November 16, 2009 [2 favorites]


Isn't the problem, really, not that your money's not being used charitably, but that your money's not being used in the way you had imagined?

You give a microloan to someone who has already received a microloan, so all your work on reading about the individuals and making a careful decision on your own terms is wasted by the fact that money is all thrown into a larger pool, outside of any influence you may hope to have? Is that right?

I can see that as being problematic. The very premise that lures people to the process is a facade.
posted by tybeet at 6:00 AM on November 16, 2009 [3 favorites]


Count me among those who don't get what's so shady about this. The loan itself is immediately funded from locally available assets, and Kiva donors replace the funds so that the local organization can continue to operate. Isn't that how you'd want this to work? Would it really be ideal to have someone qualify for a loan and spend weeks or months sitting around waiting for a handout? I thought the whole point of Kiva was to create an economy that rises above the level of operating on handouts, one that supports entrepreneurship.

I don't get it. If this is shady, what's the non-shady model of operation?
posted by majick at 6:01 AM on November 16, 2009 [3 favorites]


What Pater Alethias says about the "sponsor a child" charities is also true

It doesn't have to be, you just have to sponsor a child closer to home. When I lived in California, our church had a relationship with an orphanage in Mexico. Every Christmas you could pick out a child's photograph from a display and read his or her details on the back, size, age and what they needed or wanted. Then you could buy an outfit or two and add some other stuff for the entire orphanage: canned food, blankets, diapers, cash. One year I made a quilt. One year I put together an art supply box with glitter and paper and crayons and scissors and glue. I always had fun thinking up interesting and useful items and imagining how they would be received. Thinking about it puts me in the mood to go find an orphan to adopt right now.

More recently, charities that ask donors for money to buy a farm animal have added disclaimers to their pitches, stating that money might not buy a cow or a duck but finance broader programs.

All those years I thought I was buying goats and now it turns out I wasn't buying goats? :(
posted by Secret Life of Gravy at 6:01 AM on November 16, 2009


" wasted by the fact that money is all thrown into a larger pool, outside of any influence you may hope to have?"

What? I see person X got a loan. I like that person X got funds, so I click on them to send money to their funding organization, encouraging them to do more of the same.

I still don't see the shady bit.
posted by majick at 6:03 AM on November 16, 2009


I was told when I queried this that the money is already given, but the repayments are actually from the individual.

Do Kiva actually claim to have audit processes good enough to support this?

This post on the GiveWell blog (yes, yes, I know) highlights the fact that micro-finance institutions have an interest in fiddling Kiva repayments (in either direction), and gives some data to back up that this might actually be happening.
posted by robtoo at 6:07 AM on November 16, 2009


> If this is true what is anyone complaining about?

They are children at heart who want to believe that charity is a magical Santa Claus that comes to their house, takes their carefully saved nickels, thanks them, and carries those very nickels off to that worn but kind-looking woman in Lower Slobovia who's trying to start a business selling her hand-knitted laptop covers. If the charity has already helped that woman and their nickels are actually going to someone else, it is clearly evil and should be wiped off the face of the earth. One day the real Santa will come along!

Meanwhile, people with sense have no problem with this. A charity is doing good work and appealing to people in a way that the vast majority of people respond to. If it had the kind of utterly "transparent," "honest" approach that our resident Mr. Spocks would prefer, with no foolish pictures and stories to distract people from the logic of efficient transfer of funds, far fewer people would give, far fewer people would be helped, but they would get less snark on MetaFilter, and I'm sure that's what matters to them.
posted by languagehat at 6:08 AM on November 16, 2009 [30 favorites]


Nevermind, I think I misunderstood the process.
posted by tybeet at 6:09 AM on November 16, 2009


I'm not sure I see what the problem is. If you lend someone money, and then borrow more money to cover the loan, is it really any different then borrowing first and lending second?

It seems about the same to me.
posted by delmoi at 6:12 AM on November 16, 2009 [1 favorite]


This post on the GiveWell blog (yes, yes, I know) highlights the fact that micro-finance institutions have an interest in fiddling Kiva repayments

GiveWell badmouthing another charity? I'm shocked.
posted by delmoi at 6:14 AM on November 16, 2009 [5 favorites]


Some people may have trouble with this on the basis that they've been deliberately choosing loan recipients whose use of the funds fit within a certain acceptable set of practices, and now find that the funds may be going (however indirectly) to 'inethical' recipients.
posted by fish tick at 6:20 AM on November 16, 2009


GiveWell badmouthing another charity? I'm shocked.

Feel free to argue with their data rather than just snark.
posted by robtoo at 6:21 AM on November 16, 2009


I think the original concept for Kiva was in fact that it would work the way they present it - loans go directly from the lenders to the borrowers. But in practice, the infrastructure for this just doesn't exist on the ground. Kiva did say that they eventually want to move towards being able to do it, but I don't think they'll realistically be able to do this any-time soon.

posted by atrazine at 5:32 AM on November 16 [+] [!]

FrontlineSMS: Credit (google search link)

Nokia Money
posted by infini at 6:26 AM on November 16, 2009 [1 favorite]


Once I was responsible for raising money to take poor kids to the beach. For a while, I told folks at the churches - Hey! These kids are super-poor and have never been to the beach. Let's take them to the beach! Please give me money for a bus and sammiches and flippers and stuff. And it was tough. Until one day, I actually figured out what it cost to actually take one of these super-poor kids to the beach, plus sammich, plus bathing suit, etc. It was $5. So I put a bunch of fake labels on water bottles that said something about how, "now one more kid got to go to the beach!" and I sold those water bottles for $5. We raised four years worth of funding for the project in a couple weeks.

People want to look at a water bottle on their desk and think, "Yep. That water bottle is worth one super-poor-kid-to-the-beach." Individualizing stuff makes it much more lucrative.

Goooo saaaaand duuuuuuudes.
posted by Baby_Balrog at 6:29 AM on November 16, 2009 [26 favorites]


Microcredit is an ok thing -- it's not transformative, like its most fervent supporters have claimed. It's just one small piece of a much larger puzzle, and it's not a substitute for effective and functioning local governance or any of the other parts of a decent life. But even so, I think it is just shameful that the only effective fundraising method for groups like Kiva borders on deceptive -- that's a shameful reflection on us in the first world, not on the agencies that are forced to use those methods. I think it's really sad that so many people will only give individually, and only to charities that they believe will "pass on" their donation directly.

The infrastructure of a good organization is worth supporting -- they do research, they do project assessment and monitoring, they spend money to make sure they are complying with the laws everywhere they are operating, and they sometimes do advocacy in addition to on-the-ground projects.

None of that is wasted money. And on the flip side, people in first world countries tend to have greatly exaggerated ideas about how valuable direct assistance (eg shoes for an orphan) is, compared to structural changes (eg a functioning regional hospital administration that can provide clean needles) that affect tens or hundreds of thousands of people.
posted by Forktine at 6:41 AM on November 16, 2009 [8 favorites]


You give a microloan to someone who has already received a microloan, so all your work on reading about the individuals and making a careful decision on your own terms is wasted by the fact that money is all thrown into a larger pool, outside of any influence you may hope to have? Is that right?

Not quite. When you "sponsor" a loan, you are assuming the risk that the borrower will default and offloading that risk from the original lender. The only difference is in what happens to loans on Kiva that aren't fully funded, those loans have already been disbursed so the lender has to hold the risk on their books.
posted by atrazine at 6:43 AM on November 16, 2009 [3 favorites]


I've been promoting Kiva (informally) to people for years because I liked the idea of young entrepreneurs helping people in developing nations through loans. I especially liked the idea that money I was sending would benefit someone in specific ways (I liked playing loan officer with my money and reviewing someone's intention for use. I liked the individuals listed who needed loan money for their kid's tuition or enable the fisherman to buy a refrigerator to keep his product fresh for market).
posted by anniecat at 6:47 AM on November 16, 2009 [1 favorite]


Surely you did give the person the loan? Because of giving through Kiva, MAXIMA knew they could make the loan and have the funds covered. Without that giving, the loan would never have been made. You're still facilitating that loan happening, it's just that Kiva and MAXIMA did the right thing by lending now because they know from history that you're such nice people and will make it up.
posted by Sova at 6:48 AM on November 16, 2009


None of that is wasted money. And on the flip side, people in first world countries tend to have greatly exaggerated ideas about how valuable direct assistance (eg shoes for an orphan) is, compared to structural changes (eg a functioning regional hospital administration that can provide clean needles) that affect tens or hundreds of thousands of people.

That may be true, but Microlending is good because it gets cash into the local economy. Without money, people can't reliably trade goods and services with eachother.
posted by delmoi at 6:48 AM on November 16, 2009


When you "sponsor" a loan, you are assuming the risk that the borrower will default

Except: Are you? The process to support tracking payments back from the loan recipient to kiva donor would seem to be pretty similar to the process to track payments from the kiva donor to the loan recipient in the first place. You know, the process that doesn't exist because the infrastructure isn't there to do it in a cost-effective way.

Also, as I mentioned above, micro-finance institutions have a pretty clear incentive to lie to kiva about their repayment rates.
posted by robtoo at 6:49 AM on November 16, 2009


"As I think about it, I don't think it would hurt Kiva too badly to do a little tweaking of the wording."

"Anyway, I'm surprised Kiva doesn't have some fine-print regarding this. That's shady."

"The issue was that the fine-print contradicted the big-print on the front page."

I recommend that everybody read the follow-ups to the original post, especially the response from the CEO of Kiva. You'll note that Kiva has clarified the explanations on their website. I just spent some time browsing through the site, in particular the front page and the how Kiva works page, and what I see now looks clear and honest.
posted by tdismukes at 6:49 AM on November 16, 2009 [1 favorite]


majick: I still don't see the shady bit.

The problem is that if you find out a charity is misleading you about one thing it creates suspicions about everything they do. It's like when you find out that a friend has pretended to that they still had their job when in fact they were laid off a while ago. It's understandable but it can bring nagging questions about a lot of other things. I'm not arguing that people should give up on Kiva much like I wouldn't break off contact with a friend who hid the fact they'd been fired but this kind of revelation can shade things for a while.

Whether or not one thinks this is unethical or not I'd argue that this is clearly a case of bad public relations.
posted by Kattullus at 6:52 AM on November 16, 2009 [4 favorites]


Thanks, tdismukes. I'd actually read those a few days ago (hence my choice of the past tense in the sentence you quoted above) when I thought about posting this story myself.

But you did just prompt me to re-read the how Kiva works page, and I found out that "We give Field Partners the option to cover both currency losses and entrepreneur defaults." (It is also unclear to me whether such cover is reported to Kiva at all, or how Kiva reports it to their donors.)

So Kiva donors don't really get to pick who they are lending to (I remember reading somewhere that a high percentage -- 90%? -- of loans are pre-disbursed), and probably aren't assuming the risk of the loans defaulting either.
posted by robtoo at 7:05 AM on November 16, 2009


Now I understand why. I know enough people in the organization to be reasonably sure that the kids they work with are being well taken care of--I'm not concerned about that. But the sponsorship thing is a myth.

I once worked for one of these sponsor-a-child organizations, and yeah, this is pretty much the case. You can write to your sponsored child, even send them small gifts, but in reality you were helping to offset the cost of projects that were already in place. Not being able to pay for the child didn't mean that kid didn't get the clean water supply for the day; it really meant that there'd be that much less money available to start new projects. (The NFP I worked for also took "most needed" gifts as well as special collections for disasters, though.)

So it's just a gimmick, but a gimmick that allows them to create emotional, personal relationships between the donor and the recipient. A relationship like that is more likely to last than just having people dump money into the general fund. And if it's what Kiva is using, it's not necessarily bad. The question is how much is Kiva taking off the top in administration.
posted by dw at 7:06 AM on November 16, 2009


I thought this article was referring to ..."I suspect that most Kiva users do not realize this."
posted by Balisong at 7:11 AM on November 16, 2009


The reason this is (a bit) shady is that there's a fundamental difference between sponsorsing a child and making a business loan. I've always assumed that child-sponsorship schemes were a fiction, and who'd want it to be otherwise? The scheme that Secret Life of Gravy describes strikes me as appalling — if a sponsorship scheme really is linked to a specific child, it'll just be a case of Kid With The Cutest Picture Wins. Additionally, you could easily imagine communities becoming divided between the sponsored and the unsponsored.

But precisely the point about the impression Kiva seeks to give about its loans is that you have this level of choice, and that it's a good thing. What's supposed to make Kiva rise above mere charity, surely, is the idea that the lenders are quasi-businesspeople making quasi-business decisions. Of course, they won't profit directly as a normal loan-maker would. But in such a quasi-business relationship, a person who, say, has travelled in Kenya and has a strong connection to the country, ought to be able to decide to fund Kenyan businesses rather than Ukrainian ones. You can argue that the donor should have no such right, of course, but then you have to admit that Kiva is pure charity, with all the problematic condescension and strengthening of power disparities that that entails.

And speaking of condescension...

languagehat: If it had the kind of utterly "transparent," "honest" approach that our resident Mr. Spocks would prefer, with no foolish pictures and stories to distract people from the logic of efficient transfer of funds, far fewer people would give, far fewer people would be helped, but they would get less snark on MetaFilter, and I'm sure that's what matters to them.

It really isn't Spockish to want businesses, charities and quasi-business-charities to be honest, open and transparent. Spockish is dismissing the emotional investment people make in the direct personal connections Kiva has sought to promote, somewhat deceptively. I still think Kiva's a hugely good thing, but they ought to stand or fall on what they really do, not on something that they don't do.
posted by game warden to the events rhino at 7:12 AM on November 16, 2009 [3 favorites]


The problem is that if you find out a charity is misleading you about one thing it creates suspicions about everything they do.

Yep. Charities trade in trust, so this kind of clarification is important - not just for Kiva, but for the public trust in all charitable organizations.

I'm meh on Kiva not because of this issue, or because donations aren't direct (niether are Heifer International's or Adopt-a-Wolf or many other similar concepts), but because of the issues Forktine mentioned - microlending doesn't seem to help change fundamental living conditions much. I think Forktine's points about our overestimation of what this sort of lending can do are rooted in culture, and in the way people in Western democracies look at entrepreneurship as a path to better living.
posted by Miko at 7:12 AM on November 16, 2009 [2 favorites]


This demonstration of most people responding better to the idea of 'individual sponsorship' is very interesting, because I kind of work the opposite. I don't want to give money to one person, I want to know that if I'm donating something it will benefit a group of people. A school for a community rather than a schoolbag for one kid. If I can only give so much, I want to see that it helps as many people as possible. Baby Balrog - I might not have bought one of your water bottles but I would have given you money for the bus.

Its interesting, that's all.
posted by sandraregina at 7:14 AM on November 16, 2009 [1 favorite]


So Kiva donors don't really get to pick who they are lending to (I remember reading somewhere that a high percentage -- 90%? -- of loans are pre-disbursed), and probably aren't assuming the risk of the loans defaulting either.

Sure they are. If the borrower defaults on a loan that you sponsor, you don't get your money back. The fact that this isn't the path the cash follows doesn't change the economic substance of the transaction.

The question is how much is Kiva taking off the top in administration.

Kiva is funded by charitable donations which are separate from the loans. The donations are (for Americans) tax deductible, the loans obviously aren't, and any profit you make on them must be reported as income for tax purposes.
posted by atrazine at 7:15 AM on November 16, 2009


A big part of Kiva's unique selling point is that they initially appear to offer huge transparency over what is ultimately done with your money. Except it turns out that that transparency has always been a convenient fiction, justified by the self-righteous because needy people get the money anyway, and a reasonable means to an end because it's all for charidee.

Take away that transparency, and what do you have left? An organisation no better than the other micro-finance groups out there, but now slightly tainted, an over-promiser and an under-achiever.

On preview:

If the borrower defaults on a loan that you sponsor, you don't get your money back.

The Kiva web-site doesn't agree with you (see the part of my post you didn't quote), nor does the only hard data I've seen on this subject (the GiveWell blog post I linked earlier). Unless by "borrower", you mean "Field Partner"?
posted by robtoo at 7:25 AM on November 16, 2009 [1 favorite]


Huh. I hadn't read that GiveWell thing, robtoo. I guess I'm wrong.
posted by atrazine at 7:41 AM on November 16, 2009


They are children at heart who want to believe that charity is a magical Santa Claus that comes to their house, takes their carefully saved nickels, thanks them, and carries those very nickels off to that worn but kind-looking woman in Lower Slobovia who's trying to start a business selling her hand-knitted laptop covers. If the charity has already helped that woman and their nickels are actually going to someone else, it is clearly evil and should be wiped off the face of the earth. One day the real Santa will come along!

What the hell, languagehat? Are you experimenting with strawmen?
posted by brain_drain at 7:42 AM on November 16, 2009 [6 favorites]


I think Forktine's points about our overestimation of what this sort of lending can do are rooted in culture, and in the way people in Western democracies look at entrepreneurship as a path to better living.

Not to mention the validation of a Nobel Prize.
posted by exogenous at 7:50 AM on November 16, 2009


By Kiva's own stats, 96 out of 97 "Active" and "Pilot" Field Partners has a default rate of 0.00% (and the 97th has a default rate of <1%).

I just cannot believe these figures.

Either the Field Partners are lying, and Kiva's audit processes just aren't up to running a multi-million dollar organisation; or the Field Partners are taking advantage of the "option to cover both currency losses and entrepreneur defaults" clause, and Kiva are failing to transparently report this to donors.
posted by robtoo at 7:54 AM on November 16, 2009


Not to mention the validation of a Nobel Prize.

First, that was given at the peak of the microcredit fad, and there's been a lot more critical scrutiny since then, including of the Grameen Bank. Second, the Grameen Bank is awesome precisely because they managed to scale up to the point that their small, individual loans can have systemic effects -- simply engaging in microcredit doesn't automatically make you a junior Grameen Bank.

Pointing out microcredit's limitations, and the reasons it has so much appeal to first world donors, is not the same as saying it is bad, that it shouldn't exist, or anything like that. It's good stuff, when used well and honestly. It won't, particularly on a small scale, cause any sort of greater transformation in the structures of poverty.
posted by Forktine at 8:01 AM on November 16, 2009


It's a lot like the annual United Way campaign in our area. You're offered the option of choosing what specific charity / ies to support. Alternatively, if your beliefs conflict with those of an organization like, say, Planned Parenthood, you're also able to designate UW agencies to exclude from your donation / pledge.

Then when I worked a charitable organization's Board, I learned they all have to submit their budgets to the UW and, if approved, that's the money they get from the annual UW pot. The illusion to the donor is your money is very specifically directed as per the wishes of you and a lot of people like you. The reality is somewhat different. The bottom line is that your donation is still financing local charities, and that's a good thing. It sounds to me like Kiva is structured the same way -- your money is supporting local lending institutions who in turn support the sort of "I _am_ the small business" faces you see on Kiva's website.

So maybe I feel a little taken in that my local "choice" is less relevant than I had originally assumed, but Kiva itself still seems to me like a loaning mechanism worthy of support.
posted by Mike D at 8:14 AM on November 16, 2009


I like Kiva because it puts a name to whomever I'm helping fund, despite it obviously not working on a 1-to-1 basis.

I like Kiva because micro finance where 100% of what you put in go to the lenders is a great way to help entrepreneurs wherever they are nudge their local community and country in the right direction.

I like Kiva because despite this shocking revelation, they are genuinely helping people, and let me do the same.
posted by flippant at 8:20 AM on November 16, 2009 [1 favorite]


I have a slightly different story re sponsoring-orphan charities. When in HS and still a christian, I sponsored a little girl and got letters every few months, occasional pics, etc. This went on for a few years, then one day I got a letter that my sponsored girl had gotten pregnant (I think she was maybe 13 or 14 by then) and had to leave the program.

I wrote back..what? Why can't my money help her now, when she needs you most? And the response I got was that she had left voluntarily, but there were no details and no way to reach her. And of course, I was encouraged to sponsor another child. And I couldn't help wondering if they'd kicked her out for her "misbehavior" because she might sully the good Christian program's name. I mean, did she leave the village? Get married off? If not, why couldn't we keep helping her?

It was all so weird and strange. I guess it's good that they were honest, instead of just feeding me stories that she was still ok, but I started to dislike the whole process; now I do my charitable giving just to secular organizations. I still wonder what happened to her.
posted by emjaybee at 9:08 AM on November 16, 2009 [3 favorites]


I know this won't win me any fans here - but this is why I like giving to my (congregationalist) church. The budget is public and transparent and I can be a part of the outreach committee that decides where the money goes. There are regular opportunities to donate to larger (denominational) ministries, or I can just give to the deacon's fund that helps needy folks right off the street in the neighborhood with stuff as mundane as gas bills and community college tuition. I never have to wonder where the money is going - a chunk of it supports the church but the church, in turn, supports some fantastic local organizations. It's like sitting on the board of a local foundation or something.

rant: unfortunately the church has completely dropped the ball on explaining this process to young philanthropists and the "tithing" model has people thinking that they're "paying to go to church" which is backward and completely disconnects parishioners from the offering plate.
posted by Baby_Balrog at 9:17 AM on November 16, 2009 [1 favorite]


So it sounds like Kiva is sort of acting as a secondary market for microfinance loans. Are they actually securitizing these loans? [-->;No, their FAQ clearly states that these are not securities.] What kind of contract, if any, do you enter into when you loan Kiva money? What are the tax consequences of the repayment - their FAQ states that making a loan to Kiva is not tax-deductible because of the possibility of repayment, but if you choose to take your repayment as cash rather than relend it, does that count as taxable income to you? (Aren't there weird IRS consequences for zero interest loans, having to do with imputed interest and such like?)

Might have to fund one of these just to read the paperwork it generates.
posted by yarrow at 9:20 AM on November 16, 2009


Here's a response by Kiva's CEO that's worth a read.
posted by Kimberly at 10:34 AM on November 16, 2009


> It really isn't Spockish to want businesses, charities and quasi-business-charities to be honest, open and transparent.

Yeah, actually it is, if the kind of transparency you demand means fewer people give. Don't take my word for it; listen to Sue Halpern:
In an experiment to determine what motivates individuals to donate money to charity, researchers conducted an experiment in which subjects, divided into three groups, were each asked to give $5 to alleviate third-world hunger. The more data they had, the less likely they were to part with their money:
One group was told the money would go to Rokia, a seven-year-old girl in Mali. Another group was told that the money would go to address malnutrition among 21 million Africans. The third group was told that the donations would go to Rokia,...but this time her own hunger was presented as part of a background tapestry of global hunger, with some statistics thrown in. People were much more willing to donate to Rokia than to 21 million hungry people, and even a mention of the larger problem made people less inclined to help her.
It's not for nothing that donor-driven NGOs like Save the Children fund-raise by asking people to "sponsor" particular children in need (even though the money doesn't go to them directly), or that the remarkably successful Internet fund-raising group Kiva is able to raise tens of millions of dollars in $25 increments from people all over the world by posting the photographs and stories of individual entrepreneurs in need of a small loan to start a home-based business, like selling baskets or running a soft-drinks kiosk. People connect with each other, not with statistics. (In another study, researchers found that after doing math problems, people were much less likely to give to those in need.)
So you have a choice: you can have charities that practice a deception so slight as to hardly be worthy of the name in order to attract more donations, or you can have a charity that makes your transparency-loving soul feel all warm and fuzzy but attracts fewer donations. Note that I'm not against transparency in general; obviously I think charities should be open and aboveboard about their administrative costs, what they do with the money, and all other relevant facts. I just don't think "transparency" equates with "shoving off-putting facts in people's faces." If you want to know what Kiva does, it's easy to find out. If you just want to give to a good cause and what makes you want to give is pictures and personalized descriptions, Kiva supplies them. I personally consider anyone who has a problem with that Spockish, if not a complete fool.
posted by languagehat at 11:10 AM on November 16, 2009 [6 favorites]


So basically: users aren't funding the loans but are purchasing pre-existing loans which were already made by the MFI partners. The loan to Phong Mut had already been made, but you can buy it from his bank so that he now owes you the money instead, and you accept all of the default risk, thus freeing the bank to make another questionable microloan that they will market to Kiva to find users to buy the loan off their books.

Except that you're not buying off all of the risk; the MFI presumably keeps enough of the repayments to cover the loan interest and only returns the principal repayment portion to Kiva. So, even Kiva sponsored loans aren't risk-free for the MFI; they're still gambling whether the debtor will pay back the 20% or whatever the interest payment was. Their lending profile would optimally grant loans to those assessed with a high likelihood of paying back 20%-100% of their loan, since they can sell the principal portion of the risk to Kiva.

The theory is, presumably, that Kiva users can pick out the lower risk loans from the rest and bias their sponsorship/repurchasing in favor of that, which would encourage MFI's to approve similar profiles for future loans in order to market them to Kiva. Or at least the users will use some metric, not necessarily repayment but heartbreakiness or something, to similarly influence future lending profiles.

However, as we all learned in the credit/housing bubble/crisis, a healthy repurchase market prompts the loan originators to first scour the earth for matching loans, then bend the truth about borderline cases, then start outright manufacturing them. The MFI's have found that Kiva users favor those loans (and hence lenders) with the highest repayment rates above all else. So, the MFI's have responded by inflating repayment figures back to Kiva, one way or another - maybe by skimming from non-Kiva loans or by only marketing the repaid loans to Kiva in the first place. Whatever the mechanism, there is some accounting sleight of hand going on there.

Is that an accurate summary? Do I have to wait for the animated flash explanation?
posted by ceribus peribus at 11:27 AM on November 16, 2009 [1 favorite]


I am still a little confused by the "How Kiva Works" page. Am I correct in saying that loans are repaid to me not by individuals, but by the field partners?
posted by lalex at 11:37 AM on November 16, 2009


I personally consider anyone who has a problem with that Spockish, if not a complete fool.

Well, I'll own up to being a complete fool then, because I absolutely think this was shady. Knowing where your donation is going is an important part of all charitable giving.

I chose many of my Kiva loans not necessarily on the basis of cute photos and endearing descriptions, but because I was inclined to support, say, a female entrepreneur or development in a country I feel close to. I don't think it's unreasonable to be annoyed that my loan may not have reflected my intentions.

I would also be annoyed if I made a donation to a cancer foundation in memory of a specific cancer victim, and then later found out that the money actually went to the ASPCA. Both are awesome causes that I am happy to support, but I'd like to make that decision.
posted by lalex at 12:07 PM on November 16, 2009 [3 favorites]


he now owes you the money instead, and you accept all of the default risk

No. As I said above: By Kiva's own stats, 96 out of 97 "Active" and "Pilot" Field Partners has a default rate of 0.00% (and the 97th has a default rate of <1>pocket profits and repay out of that.

The real risk to your donation is the Field Partner defaulting (possibly due to them being fraudulent.)

loans are repaid to me not by individuals, but by the field partners

As I understand it, this is correct.

Kiva is now open that it doesn't have the infrastructure to cost-effectively track payments from you down to the ultimate recipient. I think it is a reasonable assumption that there is no infrastructure to track payments back the other way.

What Kiva is really doing is allowing donors to make short-term, low-risk, zero-interest loans to micro-finance institutions. Everything else is just intentionally-misleading marketing.
posted by robtoo at 12:08 PM on November 16, 2009


My first paragraph should read:

No. As I said above: By Kiva's own stats, 96 out of 97 "Active" and "Pilot" Field Partners have a default rate of 0.00% (and the 97th has a default rate of <1%). If the ultimate recipient does default, the reality is that the Field Partner will just dip into their own pocket profits and repay out of that.
posted by robtoo at 12:31 PM on November 16, 2009


Kiva says the following about default rates:
How this is calculated:
Amount of Ended Loans Defaulted / Amount of Ended Loans

Many Field Partners do not yet have many Ended Loans due to their short history on Kiva (see "Time on Kiva"). A more meaningful indicator of principal risk is "Delinquency Rate".
For loans that are delinquent at the end of a loan term, Kiva allows the Field Partner 6 additional months to attempt collections before deeming the loan as Defaulted
So this partially accounts for the low default rate - they have the full term of the loan plus six months before being in default. For my two Kiva loans, with loan terms of 6 and 14 months, the field partners have been with Kiva for 26 and 14 months, respectively.
posted by exogenous at 12:39 PM on November 16, 2009


languagehat: If you want to know what Kiva does, it's easy to find out. If you just want to give to a good cause and what makes you want to give is pictures and personalized descriptions, Kiva supplies them. I personally consider anyone who has a problem with that Spockish, if not a complete fool.

To be clear: Kiva purports to let you select one loan-seeking businessperson rather than the others, and thus to choose a country, region or an industry you'd like to support rather than the others, to let you choose to focus on women entrepreneurs, etc... and as I understand the FPP, you don't actually have any of those choices at all. That's completely different to personalizing intangible problems like global poverty, or expressing a fundraising scheme in terms of "buy a goat" or "buy a cow". I'm a supporter of Kiva, but the idea that it's my job to assume that the entire front-end presentation of the site is wrong and that I better go and read the small print is just silly. Better for Kiva and its supporters to admit that this was a screw-up and that a change of approach is needed.

And to repeat, judging by the research you cite and your other arguments, you seem determined to think of Kiva as pure charity. And perhaps a greater degree of "slight deception" is indeed more acceptable in the realm of pure charity. But the whole point of Kiva's approach is that it's not pure charity, and that it avoids some of the vast power-relationship problems that afflict pure charity.
posted by game warden to the events rhino at 1:20 PM on November 16, 2009 [4 favorites]


Yeah, actually it is, if the kind of transparency you demand means fewer people give.

It should also go without saying that, even in the world of charity, how much you can raise in a single appeal isn't the only criterion to be considered. There are long-term issues of trust and reputation that arise from persistently misrepresenting what a charity is doing.
posted by game warden to the events rhino at 1:22 PM on November 16, 2009 [2 favorites]


However, as we all learned in the credit/housing bubble/crisis, a healthy repurchase market prompts the loan originators to first scour the earth for matching loans, then bend the truth about borderline cases, then start outright manufacturing them.

The problem with the credit crises was that loans were lumped together and repackaged so that their riskiness was disguised from the end purchasers. If when organizations/banks bought the package loans from they could have known who the actual people who were being lent the money (like you can on Kiva) there wouldn't have been problems with those loans. As long as Kiva makes sure that an equal amount of money that goes into these organizations gets lent out to the people advertised on the site, I still don't see a problem.

Kiva purports to let you select one loan-seeking businessperson rather than the others, and thus to choose a country, region or an industry you'd like to support rather than the others, to let you choose to focus on women entrepreneurs

And by buying that person's loan, you are saying, "I will support loans that go to this country, region, and industry, and generally people who are like this person." So when the next person with a business plan similar to that person walks into the office of the microlender, that microlender is going to be more inclined to make the loan. It offers a form of direct accountability (thru people like you funding or not funding loans) that will help determine the microlender's behaviour.
posted by nangua at 2:24 PM on November 16, 2009 [1 favorite]


I am less likely to give to kiva than I was before, not because my money isn't going to an individual person, but instead because my money isn't going to any person directly -- it's going to some pay day lender sort of companies.
posted by garlic at 2:41 PM on November 16, 2009


So when the next person with a business plan similar to that person walks into the office of the microlender, that microlender is going to be more inclined to make the loan.

Fair point — I see that I retain some influence to make a microlender more inclined in the direction of my preferences. But that's still far different than making the decision myself.
posted by game warden to the events rhino at 2:48 PM on November 16, 2009


And by buying that person's loan, you are saying, "I will support loans that go to this country, region, and industry, and generally people who are like this person."

This is great and worthy, it's just not what Kiva implied in its marketing.
posted by lalex at 2:52 PM on November 16, 2009 [1 favorite]


I'm delighted to learn that Kiva is operating in a reasonably sane way, rather than in the moronic but crowd-pleasing way their website had led me to believe. It makes me much more likely to give them money. So there's that.

As the article put it: "What Kiva does behind the scenes is what it should do."
posted by moss at 3:03 PM on November 16, 2009 [3 favorites]


However, as we all learned in the credit/housing bubble/crisis, a healthy repurchase market prompts the loan originators to first scour the earth for matching loans, then bend the truth about borderline cases, then start outright manufacturing them.

That's not really a healthy market, but poorly regulated one.
posted by krinklyfig at 3:30 PM on November 16, 2009


This is great and worthy, it's just not what Kiva implied in its marketing.

But as has been mentioned many times, if they did what you ask, they would be much less effective at raising money, and by consequence, lending money. So they wouldn't be able to do as much good by selling the idea of helping a group as they can by using the well-tested method of marketing the idea of helping individuals, even if the money is pooled, which is what a lot of charities do, including the good ones.
posted by krinklyfig at 3:36 PM on November 16, 2009


So they wouldn't be able to do as much good by selling the idea of helping a group as they can by using the well-tested method of marketing the idea of helping individuals, even if the money is pooled, which is what a lot of charities do, including the good ones.

This is a question of degree, and of crossing a line. I'd argue that these two scenarios are not the same:

Scenario 1: Person A sees an ad in the NY Times magazine with a picture of a cute kid that says "Just $1 a day will lift Sarah out of poverty", calls the charity to pledge $1 a day, and is outraged to discover, months later, that he wasn't actually sending $1 a day directly and exclusively to Sarah.

Scenario 2: Person B visits Kiva and sees its (former) slogan "Kiva lets you lend to a specific entrepreneur, empowering them to lift themselves out of poverty". She is presented with a variety of different businesspeople, each with a "lend" button, reads the various business descriptions, considers them, clicks a specific "lend" button, sees that the loan is 50% achieved, helps out with the remaining 50%... and later discovers that it made no difference which "lend" button she clicked, except in providing the microlender with some market research data, and that the loan had actually been 100% achieved, some time earlier.

...unless you're really arguing that any amount of dissembling is justified if it works to help a good cause.
posted by game warden to the events rhino at 3:44 PM on November 16, 2009 [2 favorites]


The scheme that Secret Life of Gravy describes strikes me as appalling — if a sponsorship scheme really is linked to a specific child, it'll just be a case of Kid With The Cutest Picture Wins.

I forgive you for making assumptions because I didn't go into much detail, but no, there was no child left behind. By choosing from a photograph, you got to chose the age and sex you wanted to shop for, that's all. If you were feeling especially generous, you might chose the picture with the brother and sister or the twin girls. But our church made sure that every child had a sponsor-- often people didn't get a chance to buy for one particular orphan because the photographs were all spoken for, so they chipped in for food and cleaning supplies and linens and blankets. It just gave a very human face, and a touching one at that, to the charity so that people would be more inclined to open their pocketbooks.
posted by Secret Life of Gravy at 4:03 PM on November 16, 2009


But as has been mentioned many times, if they did what you ask, they would be much less effective at raising money, and by consequence, lending money. So they wouldn't be able to do as much good by selling the idea of helping a group as they can by using the well-tested method of marketing the idea of helping individuals, even if the money is pooled, which is what a lot of charities do, including the good ones.

I like and will continue supporting Kiva, but this seems like a dangerous road to go down. What if Kiva had completely made up the entrepreneur profiles, posting fake pictures and fictional heartrending stories that had been focus group tested to bring in the most bucks? Is that okay since it's for a good cause?

Is it okay if I start a blog where I fake cancer, posting emotional descriptions of the daily struggle, as long as the only purpose is to encourage donations to research? How would you feel if the deception were practiced by an organization that, say, promoted a political viewpoint that you disagree with?

I also think it's fundamentally unfair to similar non-profits, such as Grameen, who never pretended to connect donors with individual recipients.
posted by lalex at 4:32 PM on November 16, 2009 [4 favorites]


And yes to the point game warden makes about scenarios.

Looking through my older emails from Kiva, they really push the point that the lender is giving to a specific person:

Dear [lalex],

The business you have loaned to, Bar ONE LOVE run by Adadjrosso AMOUZOU,
has made a repayment of $80.00. The total amount repaid is now
$1,040.00. This repayment will be divided amongst all the lenders who
helped to fund this business, depending upon the percentage each lender
contributed...


and


Dear [lalex],

We are very pleased to notify you that the business you have loaned to,
GLOIRE A DIEU run by Kossi Anani LOGO, has repaid the full amount of
this loan $950.00...

posted by lalex at 4:40 PM on November 16, 2009


I forgive you for making assumptions because I didn't go into much detail, but no, there was no child left behind. By choosing from a photograph, you got to chose the age and sex you wanted to shop for, that's all.

I stand corrected. I failed to note properly that you were buying actual clothes for people, so picking an individual kid was clearly crucial for co-ordinating your plan, regardless of any other issues.

posted by game warden to the events rhino at 4:48 PM on November 16, 2009


Well, I'm a little disappointed that my efforts to feel good by lending to people close to their stated goals relies on a little misrepresentation, I'll stick with Kiva until someone proves that it's a total scam. Lending to as specific individual or project is designed to make the donors feel good; the point of the loan, though, is to help people, and that's good enough for me. In fact this debate sent me back to Kiva just now to kick in a few more dollars, and yes, I chose to seemingly help put someone over the top. I'm glad there's more transparency but the new information isn't enough to send me away.
posted by etaoin at 7:07 PM on November 16, 2009


Looking through my older emails from Kiva, they really push the point that the lender is giving to a specific person

Yes, indeed they did, and made it all seem as though it was really that specific and that repayments were happening in real time.
posted by Zinger at 1:05 PM on November 17, 2009


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