I got an email today from kiva.org and it prompted me to review my portfolio. I put $650 in on July 4, 2007. I’ve made 7 loans totalling $1000 to folks in Ecuador, Peru, and Tanzania (some of the money that I put in was loaned out, paid back, and loaned out again). How much did these farmers, shopkeepers, and hairstylists pay back? All of the $1000 minus two cents, since my current account balance is $649.98.
7 thoughts on “How are poor foreigners different from us? They pay their debts.”
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The vast majority of Americans are in debt (their home mortgage) the bulk of their lives. The credit card culture also often creates constant debt. The value of money is sadly worth less in places where there is more of it, or greater access to it. Whereas places where Kiva is lending, the value of each dollar or local currency is worth a lot more to the lenders because of the scarcity of credit/debt.
Kiva requires that the loan recipients are vetted. As far as I can tell that is done by field partners who are actual people.
In the US the vetting is done by computers and the goal is to ensure profitability. Financial institutions get over half their profits from fees and often the actual repayment risk is farmed out in bundled securities to others. At no point do you need to provide any form of financial plan.
Is financial planning, taxes etc taught to school kids at any point in the US? I was taught all that in my teens at my school in the 3rd world!
Well, it can be related to cultural and legal inheritance. I’m from Spain and latino countries has similiar legal and finantial systems to that of my country. Here we have a curious and FATAL law that says: “you have to pay your debts with your actual and FUTURE incomes and assets”. Read again… “FUTURE incomes”. When you are in debt in Spain, you can’t default to cancel your debt. Nearly no bank will want your assets or the asset can be valuated bellow market price so after default you have a new debt for the difference between the first debt and the default.
Finantial institutions want your money. not your house or asset, so the State can requise your incomes – until a certain minimum quantity, more or less $600 – until you pay all the debt.
Prosper.com has stopped allowing new lenders or new loans. My portfolio there was heavily weighted towards AA-B credit risks, and my results haven’t been nearly as good as yours.
philg… “Risk” is “exposure over time”. You have very low exposure (how Bernie Madoff’s clients started out). Over very short loan-spans. Not much incentive to fail on a small/short loan.
Suggestion: Try “larger loans” over “longer time” and see what happens. Likely not such a rosy outcome…
real reason is that money lenders in the poor countries
charge anywhere 100-1000% interest rate.
where as Grameen Bank changes 30% interest rate.
So Kiva is a godsend compared to the above. I don’t know
what Kiva is charging for their money lending. probably not telling you.
I haven’t lost any Kiva money either, maybe because I haven’t used
any low-risk lenders.
Kiva does tell you the interest rate of the lending partner they
use, along with the prevailing local rate. According to Kiva
the average over all their partners is 23%, whereas the local
average over all is 85%.