What's the deal? Where does the money go on Kiva.org
Filed under: Extracurriculars, Investing
In an October 2009 blog post, David Roodman, a research fellow at the Center for Global Development, had no idea he'd set a chain of events in motion that would rock the world of person-to-person lending. But that's exactly what happened when Roodman questioned how the popular non-profit charity, Kiva.org operates.
In the past, celebrities like Oprah Winfrey had extolled Kiva's virtues. But with one seemingly simple blog post, Roodman got donors and interested bystanders asking "where's all that money really going?"
Kiva had been promoting itself as a link between small individual lenders and borrowers -- often in impoverished countries seeking small amounts to support their family's farms and similar businesses.
Roodman's post that Kiva's website was lacking in transparency sent shock waves through the person-to-person lending community. "The person-to-person donor-to-borrower connections created by Kiva are partly fictional," he wrote. "I suspect that most Kiva users do not realize this." An interesting irony since Kiva prides itself on transparency.
Who are you funding?
It's easy for lenders to assume they're loaning money to the person whose picture they see on Kiva's site. But, if you read very, very closely, you'll see that the people on the site have already received their loans. Your loan is going to someone else.
In addition to not knowing exactly where the money is going, seemingly, most Kiva lenders don't realize that quitting Kiva is next to impossible. Kiva fails to make that option one that can be found by searching (rather diligently) the site. An issue Kiva has yet to comment on, despite WalletPop's numerous requests to gain instructions to terminate an account.
On Monday, Kiva issued a response to the media attention the post likely earned the charity. In it, the Kiva acknowledged "the process of pre-disbursal of loans can be confusing." The company went on to say "it's important to understand that the people on Kiva.org truly do receive the loans that are shown on the website. Furthermore, Kiva does not get any portion of the loan. What is different from the casual user's impression is that the farmer's loan is administered by an MFI [microfinance institution] that is local to the farmer, and that the loan is disbursed before the funds are raised on the website."
Kiva also stated they're glad donors are interested in the operational details of Kiva.
But analysts say donors should be more than "interested". They need to be aware that they're connected to a microfinance institution, which technically negates the need to use Kiva in the first place.
For more information, read a blog posting from Kiva co-founder and CEO, Matt Flannery, on Kiva's blog.
Gina Roberts-Grey is a freelance writer specializing in consumer issues.
Reader Comments (Page 1 of 1)
11-11-2009 @ 3:45PM
David Roodman said...
Gina I'm concerned that readers could get the impression from this post that money lent through Kiva is not actually reaching poor people who want credit. As the original blogger in the story, i am certain that nothing I wrote says that. My point is that, as Kiva.org reveals if you read very carefully, the people you see on the site already got their loans, so your money is instead being lent to someone else in the same country perhaps very much like the people you see. Misleading, yes, but not fraud. Your money is still being used in the sorts of ways you want it to be. Also, I think if you read what I wrote, you'll see it's not a rant.
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11-12-2009 @ 2:50PM
Ali said...
I disagree that because the lender is connected to a microfinance institution (MFI), the need to use Kiva is negated. Many people want to invest in Microfinance, but on a small scale. Most of the Investment opportunities that I have come across require very large amounts, generally starting at $25,000 and upwards. I am not an expert on investing directly in the MFI, but from what I have seen, Kiva is one of the only platforms that allows someone to invest on the scale of $25, $50, $100 dollars. Although the loan may be previously disbursed before the amount is collected on the website, there are many people working in the field to ensure that once the money is collected it is given to the MFI to use as the funds for that client. I think that Kiva is a necessary source for people to exercise their philanthropic desire, and I'm not sure there are many other ways to invest in Microfinance with such small investment amounts.
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