Giving to charity (part 3)

I’m still deciding how to spread my charity donations, but I’ve decided I want to support a mixture of local, national and international charities, and at levels ranging from relief of hunger and disease to support of education and entrepreneurship. For the latter case, I’ve started lending through Kiva.

Kiva is a web-based US microfinance organization. They partner with institutions in a variety of countries in developing countries to offer loans to people who need them to support their businesses. Most of the loans go to sole traders or family businesses. The people to whom I have loaned grow vegetables, raise cattle, run general stores, sell soft drinks, beer, hats and a variety of other goods.

The local partner microfinance institutions provide information about the loan repayments, and Kiva has a system of fellows who do volunteer work uploading profiles of all the borrowers and making regular updates about the progress of their business. The interest rates are not too bad by the standards of our country, at around 20% or more (although this is comparable to the unsecured rates we are charged, for instance on credit cards). However the lenders generally don’t qualify for bank loans in their countries and would normally have to borrow through loan sharks at extremely high interest rates (varies by country but the average is over 85%). The field partner also usually provides a program of business mentoring and support along with the loan.

The standard contribution each person makes to a loan is US$25. Most loans are in the vicinity of US$500 - US$1000 so many Kiva lenders share in each loan. The two main risks are that the borrower doesn’t repay the loan to the field partner, and that the field partner pockets the money rather than pass it on to the borrower or back to Kiva. Both have happened in the past, but Kiva has a system of volunteers to check up on the field partners to try and reduce the latter risk.

The borrowers usually repay the loans a little bit each month over terms ranging from 6 months to 2 years, and the field partners settle up with Kiva the following month. As soon as $25 is repaid, the lender can re-lend it again to another person. As this is charity, Kiva lenders don’t receive any interest. Kiva tries to fund itself through donations, and the interest charged to the borrowers goes to fund the work of the field partners.

I started a month or two ago with 8 loans, which are now between 8% and 33% repaid. I was able to make another loan this month, and should be able to make another in a couple of months time. I like the idea that this is like a donation that can be reused again and again to help people.