Discussion on business descriptions / Loan use

[Guest]

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[CasperL]

Hi all KIVAfriends,

Let me start by saying that I enjoy using KIVA, and find it to be a great alternative for passive aid.

It’s fantastic to see how the funding easily dry out the pipeline every day, but lately I have been a little annoyed to see that some loan has nothing to do with the business activity in the header.

Let me give you 3 examples from today:
http://www.kiva.org/app.php?page=businesses&action=about&id=22458
http://www.kiva.org/app.php?page=businesses&action=about&id=22452
http://www.kiva.org/app.php?page=businesses&action=about&id=22836

These 3 loans are listed as barber shop, taxi and transportations. But if you look closer on what the requested loan will be used for, it’s marriage expenses, engagement expenses, and private furniture.

I have nothing against people wishing to loan for these purposes, but I could wish that KIVA would list these types of loan with a special indicator. I will always prioritize loan to “real” developers, I can’t see why I should loan for free, for non-value adding purposes.

As my topic indicates, I would like a debate…

Do you screen the “loan use” before giving a loan?
Do you find it okay that the “loan use” has noting to do with entrepreneurial development?
What do you prioritize when selection businesses?

Let me hear your thoughts
Thanks

Casper Larsen,
Denmark (Copenhagen)
http://www.linkedin.com/in/casperl (linkedin: cl@bestaahh.dk)

[Robert]

Hej Casper, velkommen til KivaFriends! Jeg kan se at du har en pæn ophobning af lån. Mon ikke du er også forfalden, ligesom mange andre her? Nu til dine spørgsmål:

The issue of private loans has been raised several times on this board, usually in connection with home improvement loans in Mexico. Many loans from Fundación para la Vivienda Progresiva are in fact financing the construction of an additional room to a too small house. Most of us think that these loans are useful, but that they don't fit into Kiva's scope (or that Kiva's scope should be widened). Furthermore, the descriptions are usually very poor. We have no information about the way the loan is to be repaid, if the borrowers are self-employed or have a job, or worse do not have a job.

The Lebanese loans you mention are of a similar nature, but their description is better. We know at least that the borrowers are business people and that the income from their business is going to repay the loans. On the other hand, construction of a room seems in my eyes to be more worthy of our support than the romantic love descriptions (not that I begrudge him his happiness) or the wish to brag about furniture paid with free credit (which I disapprove).

Anyhow, everyone is free to fund or not to fund such loans. I don't fund them, but ultimately they get funded. Since I have known Kiva, I haven't seen a single unfunded loan.

Robert 

[Spartan]

I agree completely. This is so because loans of this nature have a direct impact on the risk factor taken by the lender. Additionally they are grossly misleading and can have a severe impact on Kiva's credibility and garnered goodwill.   

[odessaguy]

I also agree that the loan write ups are misleading in that the proposed use of loan funds do not match the business referred to.

Kiva has become a major player in a huge industry and as such is going to have to insure that it's lenders are not being gamed.

Having a wife borrow for her husband, house loans, personal loans all fall outside of the Kiva mission as I understand it.

Howard McCarthy
Titusville, Florida

[Peter S]

Yes, as Robert said, "the issue of private loans has been raised several times on this board".

In answer to Casper's specific questions..

Do you screen the “loan use” before giving a loan?
yes, always
Do you find it okay that the “loan use” has nothing to do with entrepreneurial development?
In two minds on that one.  No objection in principle as some quite legitimately have here, but having said that, out of 90-something loans to date, only one is for consumption, to an honest-looking policeman from Mozambique who doesn't earn enough to buy a kitchen appliance outright.
What do you prioritize when selection businesses?
In practice I do indeed look for evidence of entrepreneurial activity.   Some sort of "business case" if you like.

I suppose like pretty much everybody on both sides of this debate, I do wish Kiva would get around to re-writing the mission statement, to embrace the loans for construction and personal consumption.   That at least would mean we could focus the debate on whether Kiva should be in the business of offering these loans at all, and not have to endlessly have the discrepancy in the mission statement pointed out.

I have to take slight issue with what Howard just said about Kiva being a major player in a huge industry.  Although it's not easy to find information about exactly how large the world microfinance industry is, the global microfinance market is rising now towards $20 billion of assets according to this summary of a 2006 banking industry paper.

Kiva's $14 million represents not much more than a tenth of one percent of that global market, so hardly major yet.   And $20 billion itself isn't really such a huge industry.    The monetary* costs to the US of the war in Iraq are marching on towards $500 billion according to this site.  I don't mention this with any political intention, merely to put a figure like $20 billion in perspective.

Where Kiva is a major player is in the still relatively tiny online person-to-person social lending market.

Peter


* deliberately bolded "monetary" there to acknowledge other far more significant costs...

[AccountAbility]

Welcome to the Friends, Casper.  As this forum keeps moving forward and keeps getting broader, it is harder and harder to see what threads already exist on a given topic (or were hijacked to include a significant discussion). 

But if you read back through the threads you will see enough posts to get a feel for where people are coming from.

To answer your specific questions, we read and analyze the loan write-up, the summaries and often the field partner's pages before making a loan.  We only lend to businesses, and have focused on clear business purposes which will increase income production.

That being said, Kiva apparently cannot find enough of these type loans through the MFIs (field partners) it so far has connected with.  Thus I think they have loosened their focus to include other "Banker to the Poor" loans, because lack of access to credit is one aspect of poverty.  There are many on this forum who applaud this shift, although some wished Kiva would also broaden their mission statements and marketing to acknowledge this.  Others here are less inclined to accept this shift, seeking to hold Kiva closer to its originally stated purposes.

I am ambivalent about the shift.  I wish Kiva well and this may be necessary.  On the other hand we are firm believers in microenterprise as a way to increase productivity and income in poverty stricken countries of the world.  That is where our own focus is.

Dan

[QueenOfHearts]

Do you screen the “loan use” before giving a loan?
Yes, I always check what the loan is being used for

Do you find it okay that the “loan use” has noting to do with entrepreneurial development?
Speaking for myself only, I would not be a lender on these loans.  My goal on Kiva is to help with entrepreneurial development and not
construction or personal loans.  While some construction loans could be classified as "enriching the lives of the borrower" I still opt not to partake in them.
And Personal loans would never tempt me either.

What do you prioritize when selection businesses?
I prefer to loan to women, especially those who are single mothers and struggling.  I tend to lean towards businesses that are food/agricultural based although I have branched out a bit with some loans for artisians and medical/educational.  I did two loans to carpenters in memory of my father who was a master carpenter.  There has to be a connection.  I think most of us want to have that feeling of being connected to our entrepreneurs....either by location, name sake, type of business, etc.
Let me hear your thoughts
Thanks

[/quote]

[Peter S]

What do you prioritize when selection businesses?
In practice I do indeed look for evidence of entrepreneurial activity.   Some sort of "business case" if you like.

Here's a good example of the type of loan that catches my attention.   Excellent business case concisely expressed - Deborah plans to use her loan to buy a generator, so when the electricity goes out her clients won't be without a hair dryer.  And a very good write-up, with some nice word pictures that place the entrepreneur within her community.
http://www.kiva.org/app.php?page=businesses&action=about&id=23298

[Tomcat]

Do you screen the “loan use” before giving a loan?
I always screen the loan use before giving a loan. And I won't loan when the writeup doesn't match the category shown. Those loans seem to get funded just about as quickly anyway.

Do you find it okay that the “loan use” has nothing to do with entrepreneurial development?
It's okay with me if others want to fund loans for a home addition or the like, but I will only make loans where the loan is to start or improve a business and where the improvement in the business is to be the source of the repayment funds.

What do you prioritize when selection businesses?
1. I mostly make loans to women, businesses where the business is actually operated by the woman and not just a man's business with a woman listed on the loan.
2. I prefer loans where the FP charges a relatively low interest rate for the particular country. So if I look at the FP and see that it charges 36% in a country where the average is also 36%, I usually stay away.
 

[RichardF]

So if I look at the FP and see that it charges 36% in a country where the average is also 36%, I usually stay away.

Tom, can you tell us the MFIs where you have seen that?  I would like to stay away from them too.