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.