Important Update on Kiva

Since I’ve endorsed Kiva in the past (and I stand by that endorsement), for transparency’s sake it’s worth linking to this post from David Roodman (see also the related article from the Times).

The quick summary is that the connection between Kiva lenders and loan recipients isn’t as direct as you might have thought. Although the individuals listed on the site are real and their business proposals are genuine, their loan requests don’t necessarily sit in limbo until they’re funded by Kiva users. (This would, as the article rightly notes, be both demeaning and inefficient.) Instead, Kiva’s partner MFIs often make the loans out of their own funds, then post the information on Kiva’s site so that users who donate money end up reimbursing them for that amount. This wasn’t exactly a secret – Kiva does say that loans may be disbursed before they’re fully funded by users – but it also wasn’t being made as clear as it could have been. I can personally attest to this, as it took me by surprise.

That said, this knowledge doesn’t disturb me. There’s really no reason why it should: after all, money is fungible. It doesn’t make any difference whether I’m donating money directly to an entrepreneur in the developing world, or giving it to an MFI that’s funding that entrepreneur, thus freeing up an equivalent amount of capital for that MFI to make other loans. If the amount being given is the same and the end recipients are the same, then the outcomes are identical. (One thing that did surprise me is that MFIs will sometimes repay lenders out of their own pocket when a loan recipient defaults – but this is just good business practice, and there’s certainly no reason for us lenders to object.)

This news doesn’t make any difference to my intent to continue lending through Kiva, but since I’ve invited other atheists to do likewise, I thought it worth passing on. If it matters to you, please take this into account.

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  • Bechamel

    I’m surprised that everyone is surprised. On the right side of the page for every loan I’ve made, at the bottom of the “About the Loan” section, is “Date Disbursed”. Every time it’s been in the past as I’ve lent. Clicking those words brings up an explanation similar to this “Important Update”, which has been staring everyone in the face since at least late August. When did paying attention to the things one gets involved with fall out of favor?

  • Entomologista

    It’s better to have the organization disburse the loans first, for the same reason I prefer government programs to charity. Paulo Freire made the point that charity is inextricably linked to systems of oppression. First the oppressors put people in unfortunate situations, they then force the oppressed to demean themselves for handouts.

  • D

    Hooray for transparency! And I agree that the actual way they do it is better than the pretend way I used to think they did it. What could I have been on?

  • Michael

    I think I was aware of this before my first donation — but I agree with D, the other way is much less flexible for the people who need the loans.

  • Valhar2000

    When did paying attention to the things one gets involved with fall out of favor?

    I don’t think that has ever been in favour; it has always been the province of a small, if devoted, community.

  • Ebonmuse

    Although I’d noticed that the disbursal dates for loans I contributed to were sometimes in the past, I assumed that the date was just an intended target, and that the actual disbursal of the money could be earlier or later depending on when the lender funding came through. I have to admit that the real explanation makes a lot more sense.

    It’s also worth mentioning that Kiva originally did operate this way, with loan disbursal waiting on the arrival of lender funding. Evidently, this changed when they started to partner up with other international MFIs that already had a microcredit infrastructure up and running.