Oct

Would you lend me €17.64?

Post title mainly just to grab your attention…

€17.64 = $25 (according to xe.com currency conversion today).

I just made a loan of $25 to an entrepreneur named Patisepa Neli in Samoa.

You’re probably thinking “OK, what?” So let me fill you in on the back story…

George & I had a pair of tickets to see Don McLean at the Olympia this Saturday. Due to a clash, we’re not going to be able to go. Rather than see them go to waste and lose the money, I offered them for sale to my friends via Jaiku and Twitter. The lovely Brian Greene replied and offered to take them off my hands at face value. We quickly completed the transaction using direct messages on Twitter, PayPal and email - and it really couldn’t have been easier.

However, when it came to withdrawing the money from PayPal I needed to enter a bunch of information, and to be honest, I couldn’t be arsed! I use PayPal regularly enough that the funds can stay there and be used against my next few purchases.

Then later in the day a thought struck me - I’d been meaning to give a little bit of money to charity - were there any charities that accepted PayPal donations? A little bit of digging and I came across Kiva.org. In their own words:

Kiva lets you connect with and loan money to unique small businesses in the developing world. By choosing a business on Kiva.org, you can “sponsor a business” and help the world’s working poor make great strides towards economic independence. Throughout the course of the loan (usually 6-12 months), you can receive email journal updates from the business you’ve sponsored.

You can go to Kiva’s website and lend to someone in the developing world who needs a loan for their business - like raising goats, selling vegetables at market or making bricks. Each loan has a picture of the entrepreneur, a description of their business and how they plan to use the loan so you know exactly how your money is being spent - and you get updates letting you know how the business is going. The best part is, when the entrepreneur pays back their loan you get your money back - and Kiva’s loans are managed by microfinance institutions on the ground who have a lot of experience doing this, so you can trust that your money is being handled responsibly.

I decided to loan my $25 dollars (which is what realistically, one round of drinks? A cinema trip for two people?) to Patisepa Neli in Samoa based on the following description:

On Fridays, if you go by the Fugalei market, you will always be greeted by Patisepa with a huge smile. This is the day when she sells her two sacks of taros, which are so high in quality that there are never any left after just three hours.

Afterwards, she heads home to set up her weekly budget and helps get her husband’s fishing gear ready. This is their second source of income; her husband fishes every Saturday, and Matafaa sells the catch early Sunday mornings. The fish is usually sold out in only one hour, despite the huge competition.

With a big family of seven kids, her aim is to provide them with the education that she and her husband had never received. Her children can eventually become financially independent. Currently, she makes a weekly profit of $160 USD.

So, I’d like to challenge you - all you need is $25.00, a PC, an internet connection, a PayPal account, and a big heart - will you join me today in helping sponsor a business? If you do, then leave the details of who you chose to sponsor as a comment below, I’ll be interested to see who you picked and why.

8 Responsed To This Post

Clara said, October 16th, 2007 at 10:12 pm

Elly, I’m not so sure that this is a terribly kosher set-up.
FAQ.
They say they tax deductible then they say they not.
They say they vet the field partners and make sure that charge decent interest rates but they not sure what the interest rates are - they busy collecting them for the website
They talk about the loaners having to pay a voluntary fee to take out a loan - but they already paying interest?

I’m just terribly scared of microlenders I’ve seen first hand how much damage 400% loans cause people. While the concept is good there was too much in the FAQ section to put me off wanting to donate or investigate them any further.

Sorry to put a damper on it, but let me know what you think.

ellybabes said, October 17th, 2007 at 8:05 am

Clara, they are a long-standing company with wide press coverage.

To answer your questions:
The loans are not tax-deductible as they are not charitable donations - they are loans of your money. As part of the loan process, they request a donation of $2.50 to cover admin costs, this donation is tax deductible and this is clearly noted in the FAQ.

As for the interest rates charged by the field partners, you are correct that they are not currently shown on the website. However, if you access the list of field partners on Kiva.org and then select the specific one you are interested in, you can then click through to their MIX profile (The Microfinance Information eXchange) and see all their financial data. I read through the profiles of several of the field partners and in the documents was able to discover that the average interest rate charged is between 2.5 - 25%. If anyone decides to make a loan, then they can check out all the financial info and history of the lender on the MIX website (linked from Kiva).

I think you’ve mis-read the section of the FAQ that you speak about above: “They talk about the loaners having to pay a voluntary fee to take out a loan - but they already paying interest?”
The actual text is: To this end, we support ourselves principally on the “optional fees” our lenders voluntarily pay to the organization in addition to the loans they make.
That’s LENDERS, not BORROWERS - they ask the lender for an additional voluntary donation of $2.50 to cover admin costs - this is not charged to the borrower.

I was happy enough to go ahead, I figured that if extorbitant interest fees of 400% etc were being charged, then surely more loans would have been defaulted on? They have a pay-back rate of over 99%, which logically suggests to me that interest rates must be fair for people to have achieved that… Also, many of the clients are on their 3rd and 4th loan, so something must have made them choose the same company again and again…

lexia said, October 17th, 2007 at 9:39 am

Elly - I’m inspired by your post and I will definately do a couple donations.

I like the face that many of these small businesses are being run by women (often alone) who are trying to provide for their families. Life is tough for single-parent families in Ireland alone, even before one factors in the sustained, generational poverty trap that these applicants are fighting against.

I think that the underlying purpose behind loaning $25 (which let’s face it is a price of a CD or a t-shirt) is noble.

Clara said, October 17th, 2007 at 12:05 pm

See its the 3 and 4th loan that screams even louder in my head that this is dodge. The loan sharks/microlenders get people hooked into a situation where all they can do is take out another loan to pay off the interest on the initial loan. It’s one of the basis tactics that loan sharks use.

I couldn’t find anything else to say that there was anything dodge about this particular company, and they do appear to be quite open about what they are doing, with plenty of links to infomation, so I guess it’s my own misgivings about micro-lenders. I that this company is probabaly the best of a bad situation.

I’m certainly not discouraging people from doing what they think is the right thing to do.

ellybabes said, October 17th, 2007 at 12:21 pm

Clara, You are correct, there is nothing in the FAQ about the point you raise above. I have mailed Kiva and asked them to confirm if loans must be repaid before new ones are taken out or if borrowers can have multiple loans open at once.

I know that you think that you are not discouraging people, but if your comments are left unresponded to and are read by people curious about the micro-financing process, they may be turned off the idea, and personally I don’t want that to happen.

ellybabes said, October 17th, 2007 at 5:32 pm

Clara, I received the following response from Kiva:

Thanks so much for your email. Borrowers can only take out one Kiva loan at a time. We only partner with microfinance institutions with a social mission of lending to the poor in order to avoid pushing entrepreneurs further into poverty–that is the last thing we would want to do.

Sounds like you may have already found this information, but we do post some general information about microfinance on our website. We also recommend some books that can provide more information about microlending! ( http://www.kiva.org/about/microfinance) I want to make these recommendations, because information from experts in the field, will be far more valuable to you than what I have to write.

Dabbling Can Be Big, Are We Ready? : Alexia Golez said, March 25th, 2008 at 10:34 am

[...] easier roads to capital: Some time back Elly blogged how she contributed a loan of $25 in a scheme organised by Kiva to entrepreneurs in developing [...]