"The person-to-person donor-to-borrower connections created by Kiva are partly fictional. I suspect that most Kiva users do not realize this." The storm unleashed by a blog post exploring a model in which loans go to microfinance institutions, not necessarily the specific Mr. goat herder or Ms. cassava farmer upon whose face you click. (NYT)
Digging in to the donor details at Kiva.org
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There has been a mini-brouhaha in some of the Kiva forums over this, but I think that most sensible people see that it's fuss over nothing.
When a microloan partner lists an entrepreneur, and we lend money to the microloan partner, the entrepreneur gets his or her loan.
Sure, it's not necessarily funded with exactly the money we loaned to the partner, but it comes to the same thing: the partner now has $25 dollars more, and it loans $25 to the entrepreneur, so it works out even. We don't need the exact physical dollars from our own bank accounts to make their way into the hands of the entrepreneurs.
Some people complain that we are sometimes loaning money for a loan that has already been funded. I don't see this as a cause for complaint at all: The fact that they sometimes lend early is great. It means that they have come to rely on Kiva lenders, and trust that they are picking good entrepreneurs, so that they can afford to front the loan earlier. This is great for the entrepreneurs being loaned to. But that's not to say that the entrepreneurs would be loaned to without Kiva -- if we stopped loaning to a partner for whatever reason, that partner would stop being able to give the loan early.
I'm not sure what's wrong with this, except for the vague sense that we feel like we need to have our exact physical dollars are actually making into the hands of the entrepreneur we picked -- possibly we should be sending bills in envelopes to the microlending partners, and have them hand it over to the entrepreneur. Of course that's silly. Instead what we are doing is making it possible for the partner to make the loan.
Another commenter elaborated on my comment in the Kiva forum:
"Consider this analogy. Grandma gives Haley a $20 bill to buy a DVD for her birthday. Haley deposits the money in her savings account, which already has $500. A month later, she takes $20 out of her savings account to buy a DVD. Should Grandma be incensed because Haley didn't spend HER money to buy the DVD? That's what "fungible" means."
Any Kiva users who don't realise that this is how it works - indeed, must work - probably just haven't thought about it. It's quite obvious that while there's an advantage to creating a bond between lender and borrower, there's none in going through the tedium of making sure it is the lender's particular $25 that goes to the borrower in question, and not another identical $25. Indeed, there's no real sense in which this is possible, except perhaps to delay the payment of the loan until all the requested money is pledged. The disadvantages of making poor people wait an extra month for loans that have been approved surely outweigh the slight advantage of making a rich computer user think they have a deeper relationship with a distant borrower than they actually do.
As I read the article, all that's really happened is that the site has clarified their disclosures, which I feel is probably a good thing.
It's a shame that boingboing is only highlighting the negative aspect to this story instead of the responsiveness of Kiva to concerns or the general benefits of microlending.
This reminds me of the stink about the Red Cross not giving donations to Katrina victims as had been specified by the donors. Look: You're giving money to an organization that specializes in helping people. At some point you either need to trust them that they know what they are doing, or just stop donating because you think you know better.
As for me, I'd trust Kiva and the Red Cross until the point where there's actual evidence of actual wrong doing. Because I sure don't know as much as they do about where that money needs to go.
Agreed with other posters, its a bit of a tempest in a teapot.
I wonder if Kiva has considered a slightly different model, where users donate the money to Kiva, gaining the tax deduction, but retaining a limited ability to control the use of the money within Kiva while never being able to take back the donation. As it is, correct me if I'm wrong, Kiva users take a double hit or triple hit... they lose the value of their money to both taxes and inflation, not to mention the possible but unlikely defaults.
When my sister adopted, I gave money to a charity that earmarked the money for her adoption. I received the tax deduction and she received a grant for the amount donated. I am assuming that if the adoption did not proceed, my donation would have gone to fund grants for people I didn't know or the administrative costs of the charity. But, it was a nice systematic way of contributing to the arrival of my new nieces.
I've been a Kiva "lender" for several years now and I never for an INSTANT believed that there was a direct relationship between me and the alleged recipient on the other end. It is intuitive that it should work through donors funding "the bank" and the bank paying out as it can.
Getting upset about this would be like finding out that the $20 you donate to Heifer.org for a pair of ducks actually goes into the big fund from which animals of all stripes are purchased - and not specifically your two ducks.
While the comments so far are very reasonable-- the money is fungible, it would be impossible to give money directly to the entrepreneurs-- I think they are missing the main reason people might be getting upset. Isn't Kiva's popularity, all the buzz and media it's received, based on this very suggestion?
If this is just asking people to invest in organizations that finance these *type* of entrepreneurs why not say that. But than that doesn't sound especially web 2.0 does it.
If it is in fact technically impossible to do what apparently many people thought Kiva was doing, why have they received so much attention?
The moment connectivity and finance allow for that kind of set up, now that will be newsworthy.
It would be interesting to know what, exactly, is upsetting those who are upset. Is it a feeling that they've been lied to? Or is it the concern that the big faceless aid organization isn't necessarily allocating the resources that go into the general fund properly? Or, could it be, that (under the surface, I don't think that this is conscious in most cases) a fair few people are treating this microlending site more or less like Neopets, or one of its ilk? Adopt a virtual pet, buy it stuff, follow its stats, etc; but now they are told that the virtual pet system is just window dressing...
rekinom: the problem with your solution is that it requires donations, which are the only thing that can be tax-deductible. I think Kiva would never reached the many millions of dollars in oans that it has now if people had been required to domate instead of lend.
Sure, lenders get a bit of hit with inflation over the course of the 14 month loan (not as much as 14-months' worth of inflation, of course, because half of it has already been paid back by the 7th month), but that's much less that donating the entire amount.
Plus, if it's still a loan, then who does the money return to? And if it's not a loan then it's a gift, which isn't generally considered a good way of helping entrepreneurs.
@curveclimber: But the money is going to the entrepreneur, in exactly the same way that rekinom's donation when to his sister, and the grandmother's $20 in my comment #2 went to the DVD.
Money isn't countable and traceable like canned-food donations are. It's just numbers on a speadsheet.
Kiva has some issues like why if the loans are not directly linked to specific reciepients are the repaind funds held until that loan is repaid? Can you say float? If you lent out 100 mill and don't pay interest on it and don't have to pay it back until you are paid in full that is a good business model. It would only be better if you got your vaccintes and bailouts before everyone else.
I think there are some potential issues with the process.
I had reasons to send funds to a country that is one of the poorest but that country stopped being posted for some time.
There is no transparency on the interest rate charged to reciepients. In Nicrauga there is a no paga (don't pay) movement against microlenders who are accused of over chaging(18%). This seems like a bigger issue than is the money going to a specific reciepient.
1. Money is fungible.
2. Kiva is fun.
Just for sheer entertainment, there are a lot of worse ways to burn $25. Whatever issues Kiva might have, your money's probably a lot safer and more productive there than it is on Wall Street. If I'm going to lose money, I'd rather lose it to a guy putting in long hours to raise pigs (mmm, bacon!) than to get ripped off by a banker who's just going to buy another Maserati.
I'm a Kiva lender and I love it. Yeah, it's not perfect, but it works better for me than most of the other giving options I've seen.
I'm still investing 25 bucks in an entrepreneur's business who's less fortunate than I am and they're still using the money to help themselves and repaying it to me so that I can either spend it or re-lend it to someone else who needs it. I still feel connected to the people I pick and enjoy the updates from my borrowers. It's not 100% direct or 100% exactly what I'd ideally love for it to be, but for me and my situation, it's a lot more in line with what fits in with my ideals and makes me feel good about giving than the other charity options I know about.
I can't believe anyone is wasting time criticizing an organization that's doing something real to help alleviate poverty. There's plenty of things way more wrong with the world than Kiva's transparency issues that journalists could be focusing on instead of complaining about the flaws in an organization that's working hard to do something positive.
@SamSam: I don't think the grandma analogy is accurate. I might be understanding the whole thing incorrectly, but to me the analogy would be: Grandma wants to give Haley a $20 bill to buy a DVD for her birthday, but in reality Haley already got her DVD from the $500 gift fund. So, now grandma's $20 goes to Harry her ne'er-do-well grandson. Whoops, she didn't ask for that to happen.
So I guess what I'm saying is money is fungible, yes, but are these entrepreneurs? If they are all equally valid/worthy investment opportunities why list them as individual investment choices? Why not just list a gallery of people who have been helped by MicroFinanceCorp before.
I have an idea why, because individuals will be more likely to invest on a person to person basis than to MicroFinanceCorp.
@curveclimber:
Perhaps a better analogy would be that Haley is out shopping with her mother shortly before her birthday and sees a DVD she really wants. She asks Mom for the $20, knowing that she's due a $20 gift from Grandma. When her birthday arrives, Gran ponies up the cash, Mom gets it back and everyone's happy. Haley sends a lovely thank you note to Grandma thanking her for the money which she used to buy a High School Musical 3 DVD (kids today!)
With Kiva, despite the time-shifted nature of the distribution of funds, there is a very real sense in which the $25 I lend to a particular entrpreneur is tied to that entrepreneur, and that's in terms of the repayment. If the entrepreneur I invest in defaults on their loan, I'm out of pocket. I invest in someone I believe in and I get a glowing feeling when that very person rewards my trust by successfully paying back their loan.