An interesting new article about Microloans from James Surowiecki, the New Yorker’s financial writer.
It prompted me to check my portfolio at kiva.org. I loaned out $650 back in July. The borrowers were four people running small shops and hair salons in Ecuador. Nearly all of the money has been repaid. By choosing Ecuador, I have apparently done better than the average Kiva user, who loaned out $95 and who has suffered a 3.76 percent delinquency rate (compared to 0% for me). I re-loaned $100 to Rhoda Mbwila in Tanzania so that she can raise some more chickens to sell. She has previously paid back a couple of loans from the same local organization. I loaned another $100 to a woman running a shop in Huancayo, Peru (a Google search reveals this to be a very nice town indeed). I loaned the rest of my $350 in available credit to Luz Perez Yauri, who has an alfalfa farm in Huancayo (as long as the Chinese keep getting richer, I have faith that commodity prices will stay high, not to mention the fact that the U.S. will need to import food like crazy once we’ve melted all of our grain down into biofuel for our SUVs).
One of the reasons I like Kiva (I have $675 in loans out) is that although they won’t tell you the percentage rate that their in-country handlers charge the individual, they do say that it is capped at a fair rate. From everything I’ve seen and read from them, I have no reason to believe that they are allowing the 30-40% rates mentioned in the article. My only delinquent loans are ones that i put into Kenya before it fell apart.
The micro loan idea also fits well with my beliefs in that we can’t turn poverty in the world around in one day, because the people that have those kind of resources don’t have any inclination to do it. What I can do is help out one person at a time as that is within my own means. I could donate the same amount of money to some charity and hope that 1% of my donation actually makes it to someone that needs it after the org takes salaries and rent and everything else off the top, or I can make a micro loan that looks to be going 100% directly to the person pictured. I donate to Kiva’s expenses separately every time I put money into my account.
The service that I am really waiting for, and would create if I had the money and time, is a direct healthcare system based on the micro loan model.
I’m not sure I understand why it makes sense to lend via kiva. Some banks that work with kiva, such as moldovian “microinvest”, make high returns on secured (they do require a collateral from businesses) loans financed by us “semi-rich” americans for free. By doing this, are we helping third world financial markets to grow into monsters that can take down entire economies?
When Muhammad Yunus won the 2006 Nobel Peace Prize, the New York Times web site had a headline that said “Microloan Pioneer wins Nobel.” My first reaction to that was “where is Microloa?”
I will check out kiva.org: I’d never heard of it but it sounds like a wonderful idea.