Kiva Microloan Review – an Attempt to Understand Kiva

Kiva started as a tool through which entrepreneurs in developing countries were aided in starting their own businesses and hence improve their financial well-being. The main aim of Kiva was to stamp out poverty from developing countries in the world. It has grown in leaps and bounds ever since and it has turned to developed countries for the same purpose as well. According to many analysts.

Is Kiva all that great?

Kiva hasn’t made any significant impact in helping people in developing countries to pull themselves out of poverty as field partners seem to be factoring some countries over others and some groups over others. Also, national governments have also caused some companies to shut down for political reasons. The high interest rates charged by Kiva seem to be its own undoing and the reason why it seems not to be very attractive to people in developing countries.

This NY Times article describes a few of the general concerns on Kiva. Kiva came out with their response to the allegations here.

It was discovered a while ago that Kiva was facilitating loans that featured interest rates as high as 30% and in some cases being higher than the 50% mark. For this reason, many critics have talked about Kiva as having missed the mark (the whole idea of micro financing is to offer loans with little or no collateral).

It has been argued by others that having high interest rates will help institutions of micro credit to stand firm faster and to attract more borrowers and hence fasten the process of poverty reduction.

According to Kiva, when money is lent on Kiva, the borrower will pay interest, although Kiva does not make money off the interest that will be paid by the borrowers. Kiva is an institution that pays for its operations using tips as it is a non-profit organization.

Most of its field partners will make profit from the loans that they give to borrowers. Interest is charged on the amount that has been lent and the interest rates differ from country to country. The 30% and above interest rates  have been justified by Kiva time and again; one of the justifications being that considering the fact that  interest charged is about 10%, the inclusion of overseas partners makes the interest rates to jump to the 30% and above interest rates. Kiva maintains that it does not make any profits from the loans

With regard to the high interest rates; Kiva has justified this by explaining that the lack of infrastructure in some developing world makes interest rates higher. Also there is the fact that loans in developing countries are generally smaller than loans in developed countries. Generally speaking, the cost of administering smaller loans is higher than the cost of administering larger loans and this is the reason for the high interest rate.

For Kiva to choose its field partners, it ensures that they share the same social mission among other things. Kiva ensures that it has looked at their interest rates and operating costs among other things.  It will also look at the general size of the population being served and how well they match their core value among others.

Field partners are required to endorse some principles;

•  First, the financial institution must be able to prevent over-indebtedness by ensuring that a borrower has the ability to pay off his loans. The borrower should be in a position to pay off his loans comfortably without stretching too much
• Transparency-the field partners must ensure that their consumers are aware of what they are committing themselves to before they get those loans.
• When a client fails to pay back a loan, the institution must be able to maintain high standards of ethics
• The institution must have a healthy corporate culture so that clients are treated well
• They should have mechanisms for resolving complaints from consumers.
• Privacy and confidentiality of client data

How to borrow from Kiva

Business loans by Kiva require that a potential borrower is informed about the loan requirements.

• Generally speaking a borrower must have a good credit score of 525 and shouldn’t be bankrupt.
• All mortgage payment should have been done on time in the last year
• Should have steady income and prove so.
• The applicant  must provide security
• In  the event that the business is an emerging one, the business should have been In operation for the last one six months
• The borrower should provide a market study and projections of the business. A business plan may or may not be required.
• For home-based businesses,  it is required that the applicant has less than $500 in debt and a business plan with a cash flow projection of 12 months.
• For business loans, one must come up with a cosigner. This may not be necessary if the loan is small, if there is adequate security and the borrower has shown that he has a steady flow of cash income.

 Readers do you have any experience with Kiva? How did you find the company or the program?

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