USA loans

[Guest]

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[Jan & John]

I'm wondering if the Kiva folks might be getting worried about how slowly some of these US loans are funding?  But it's only been a week so there hasn't been much time to judge...

The Single Parents Lending Team just received this message...

Hello Single Parent Loans lending team!
I am an intern at Kiva, and I wanted to point out another US loan that might be of interest to you. Massandjie, a single mother of three from the Bronx is looking for a loan to expand her beauty salon business! She learned how to braid hair from family members in Africa and later went to school to obtain formal training. Her work has inspired many of her younger family members to pursue the profession.

Check it out here if you're interested in this loan request:
www.kiva.org/app.php?page=businesses&action=about&id=114237&_tpos=10&_tpg=1

We also want to encourage you to continue loaning to entrepreneurs around the world!

Thanks,
Anu, Kiva Intern

jan - who likes the encouraging last line but is wondering also - what the heck is a Kiva Intern? must go look.

[Diane R]

An intern is a short-term employee, usually a student, who often works without pay (or for low wages) in an organization related to their eventual work interests.  Often a student will take an internship to experience something about their chosen field, after which they will also have a good entry on their resume for future employment.

Kiva usually has several interns working there, doing a variety of tasks.

--Diane.

[spjack]

I'm not a regular visitor at kivafriends, but I had to register an account, because I felt that I must make an comment on this.

First; I think it's great that people (in US or any other place in the world) who have problem getting regular credit has another opportunity to get this. Regardless if they need money for food, clothes, cameras, housing, it's great when people can help each other (more or less) directly.

However; what I always have loved about Kiva and why it's been easy to recommend it to everyone I know is that the message has been very simple (until now);
"It's about helping poor people with microfinance". That's at least what I believed Kiva was about (maybe I been wrong all time).

When I ask my friends to look at Kiva, I have always known that they would see poor people asking for microfinance loans. When I place my loans, I usually do not read the applicants description very carefully, because I know that since this is a Kiva loan, it's poor people asking for microfinance loans. Sure, as many have already pointed out, it can be hard to agree on a common defintion of poor and some applicants from eastern europe has (according to my definition) maybe been "on the border".

But by accepting these new types of loans (I do not care from witch country); and YES this is a complete new type of loan that I never ever has seen on Kiva before, that hardly fall within the concept of microfinance ($10.000 is NOT microfinance), I really believe that Kiva is changing it's main concept (that has not to be bad!, see below). Even the main goals of the organisations does not seem to be about microfinance and helping poor people. If you look on the "new" applicants from a global perspective, I really believe that it will be hard for anyone to claim that these are poor people.

Maybe it can be a great thing if Kiva turns into a general broker market for loans from every country in the world where you can lend/borrow for any kind of item regardless of your financial situation. If this is the future I would happily make a request next time I need to borrow money for my next car. Personally I do not believe that this is the right path for Kiva.

I think a better option would be to try to keep Kiva the way it is (was) and launch a separate site/community for larger loans for less poor people. Mixing the applicants is not good for ANY of the parts. Many, including me, has argued that both the guy who needs $10.000 for a new camera and the woman who needs $350 for some piglets are people they would like to help, but putting them next to each other is not good for any of these people and will just upset a lot of people.

Also, I think most people want some more control of the money they donate to Kiva.

I really want to be able to continue to tell my friends;
"Check out Kiva; It's great and it's about helping poor people with microfinance!"  

Right now I can not anymore  

[marilyn386]

One thing I have to continually remind myself...
is that Kiva doesn't actually lend my money to anyone.

Kiva is partnered with organizations that are already in the microfinance business.
Kiva has provided me with a window to see...
and method of sending cash directly to...
a loan client that has already been selected as valid by whatever criteria that particular partner uses.

Kiva does not have a perfect record of choosing those partners, but I have come to trust that their due diligence is still way better than what I could do on my own.

Kiva has opened one more window with the US loans.

jan

Jan,

Even though Kiva is not technically a bank, the organization along with Kiva users indeed operate like a bank.

MFI's are rated by Kiva.org (kind of like a Moody's rating system).  While Kiva users ultimately choose which MFI's they will lend to, there is no independent rating system.

MFI's share no risk in their loans, since they borrow money from Kiva interest-free and doesn't have to pay if the loan defaults.  They are like the mortgage brokers that present the loans to Kiva users through the website.

Kiva users are the ultimate lenders but they are also silent "shareholders", those who fund the organization through donations at checkout, but have no  say in how Kiva operates (this is why I like this website!)  We share the ultimate risk.

Since Kiva.org is not technically a bank, it is self-regulated and there is no true outside oversight, even though millions of dollars flow through this organization.  I believe Kiva's intentions are honorable and it is very evident that transparency is at the forefront of their operations since creditability is vitally important for maintaining and attracting new lenders.

Some on this blog (I'm not implying you) seem to believe that speaking out against the US loans is somehow cruel and don't we want to help Americans who are obviously suffering too?  Part of the whole banking crisis was the over-abundance of investment funds chasing too few mortgages and the push for home ownership for all from Congress (Republicans and Democrats alike) and the President.  The banks did what they did to supply the mortgages and make money along the way without taking on risk.  Homeowners signed mortgages because we all wanted the American dream and hoped that in the end everything would work out (housing prices would never drop).  I believe the good intentions of all parties far outweighed the fraudulent lending companies and loaners to create a perfect storm. 

These good intentions led all involved to make bad decisions and the global economy is suffering.  My point of Kiva acting like a bank is true... I don't want them to make the same bad decisions in the pursuit of good intentions.

It's not for me to say whether the US loans are a good decision or not, but I do want to voice my concern that I believe it is a slippery slope that we are going down escalating the loan values and taking more risk on.  Even though I won't lend to these businesses (again, I wish them well), the success of Kiva surviving rests on the success of these loans.

Marilyn

[YowieFreak]

What I really fear is if one or more of these $10,000 loans defaults.  On the $400 loans outside the Us, maybe 16 Kiva lenders worldwide are affected.  If a $10,000 loan defaults, 400 lenders are affected.  If I were one of these lenders, I couldn't help but feel in the back of my head that this was a wasted loan... I would find it harder to treat it as a "donation" so to speak.  

Just to try and explain the mathematics a bit, assume $1,000,000 was loaned:

• if there were 100 x $10,000 loans each with 400 lenders (so a total of 40,000 lenders at $25 each) and 2% default, then that's two bad loans and 800 lenders (2 x 400) lose $25 each (assuming the loans default without making any repayments at all).
• if there were 2,500 x $400 loans each with 16 lenders (so a total of 40,000 lenders at $25 each) and 2% default, then that's fifty bad loans and 800 lenders (50 x 16) lose $25 each (assuming the loans default without making any repayments at all).

So, it's not the size of the loan that affects how many lenders are affected, it's the default rate.

One hopes that the default rate in the USA will be lower than in most other countries (certainly there should be less chance of the borrower being killed or lost in civil wars, etc, and less chance that the borrower can simply go into hiding in order to avoid repaying the loan), so hopefully there will be less lenders who end up feeling that they wasted their loan money.


Caveat:  My calculations above assume that each lender makes only one loan and it is for $25.  Things get more complicated because, with 2500 loans there is more chance that less than 40000 lenders will be involved (lots of lenders will be on multiple loans), but this is offset by the fact that on a $10000 loan people are more likely to lend more than $25 which again reduces the number of lenders involved.

[marilyn386]

Just to try and explain the mathematics a bit, assume $1,000,000 was loaned:

• if there were 100 x $10,000 loans each with 400 lenders (so a total of 40,000 lenders at $25 each) and 2% default, then that's two bad loans and 800 lenders (2 x 400) lose $25 each (assuming the loans default without making any repayments at all).
• if there were 2,500 x $400 loans each with 16 lenders (so a total of 40,000 lenders at $25 each) and 2% default, then that's fifty bad loans and 800 lenders (50 x 16) lose $25 each (assuming the loans default without making any repayments at all).

So, it's not the size of the loan that affects how many lenders are affected, it's the default rate.

Yowie,

I agree with what you are saying.  However, you are hoping that US's default rate will be better than the rest of the world and I am fearing that it will be worse.

Marilyn

One hopes that the default rate in the USA will be lower than in most other countries (certainly there should be less chance of the borrower being killed or lost in civil wars, etc, and less chance that the borrower can simply go into hiding in order to avoid repaying the loan), so hopefully there will be less lenders who end up feeling that they wasted their loan money.


Caveat:  My calculations above assume that each lender makes only one loan and it is for $25.  Things get more complicated because, with 2500 loans there is more chance that less than 40000 lenders will be involved (lots of lenders will be on multiple loans), but this is offset by the fact that on a $10000 loan people are more likely to lend more than $25 which again reduces the number of lenders involved.

[gill]

"This and many other USA loans are completely out of line with Kiva's mission statement. This is one of many LOANS THAT WILL NOT CHANGE LIVES."

I'm just wondering how anyone could know that, exactly? As a random example, take Jorge (http://www.kiva.org/app.php?page=businesses&action=about&id=114238&_tpos=15&_tpg=1). It says in the write-up that his biggest issues with his business (a photography business...I remember at least a few such businesses from Nigeria) included finding working capital. Doesn't sound like he had a plethora of credit opportunities to choose from.

Now, the write-up states that Jorge has been successful in his life (he was a reporter beforehand, apparently)...he's far luckier, far less poor, than someone from Cameroon or Ghana. But imagine what would happen if he was unable to get the credit he needed? His business would take a hit (if just that)...especially in a business like photography, where customers expect the best, most up-to-date equipment. I find it hard to believe that this man's work will be unaffected by, and won't be helped by, this Kiva loan. Would a Cameroonian borrower benefit 'more' from that money? Perhaps. But they'd also benefit more from the money than someone in Costa Rica...or maybe even Lebanon, there have been some borrowers there that didn't look as desperate.

(A bit...ok, a lot!...off-topic here: We're not talking about Bill Gates applying for a loan. Those living in the middle class can be just as in need of help. At least, from what I've seen; I've definitely been raised in an upper-middle-class home, my family isn't exactly about to starve, but there's a risk of a parent losing a job next month and if that happens, there'll be some serious money issues to figure out. Not that you'd be able to tell by looking, which is why appearances can be deceiving. And the worse case situation isn't nearly as bad as it would be if we lived in Senegal. But that doesn't mean it's a good situation.)

The argument that Kiva's purpose has always been to help people climb out of utter, risk-of-starvation poverty is a good one, and I'd agree to some extent. I just don't understand why no one raised such a fuss about certain Ukrainian, Moldova, or Costa Rican loans. Particularly with Costa Rica, none of those people were starving, at risk of starving, or near as poor as the Cameroonian borrowers. Their businesses were usually smaller than their American counterparts might be, but they weren't the poorest of the poor. A couple of the borrowers (I wish I had links) didn't look all that poor at all.

I agree that it would be great to see some really in-need American borrowers pop up here...and who's to say they won't? Fund the loans that seem the most desirable, and if that doesn't include any of these middle-classish (maybe) borrowers, than that's the loaner's choice. I just don't want to throw the baby out with the bathwater. (That being said, everyone should do what they feel is right in terms of loaning, and if there are people who would rather not make Kiva loans due to these American borrowers, that is 100% their right to decide that.  ) 

--

EDIT: (like this post wasn't long enough!  ) After reading Premal and Matt's update, I've decided my favorite thing about Kiva is the choices it gives us. I can choose to lend only to the poorest of the poor, such as those in Sudan or Sierra Leon; I can chose to lend to those still trying to get their lives going after the fall of the Soviet Union, such as those in Tajikistan; I can choose to lend to refugees, such as a large percentage of the Azerbaijan borrowers. Heck, I can chose to lend to 'interesting' countries like Mongolia and Kyrgyzstan ...though I cannot actually spell Kyrgyzstan. I can loan to countries in the news constantly, and usually for negative reasons--Afghanistan, Iraq, The Democratic Republic of the Congo. I can loan to people trying to achieve the American Dream. Or I can loan to none of the above, and stick to only loaning to Pakistan because my family is from there, or only to Peru because I was there once on vacation (I wish!) and loved it, or...etc etc etc.

Yay for choices. 

[RichardF]

A Letter from Kiva About Pilot Partnerships in the U.S.

Dear Kiva Lenders:

Last week Kiva launched two pilot partnerships with microfinance institutions in the United States: ACCION USA and Opportunity Fund. These two partnerships represent the 115th and 116th organizations Kiva has partnered with. The United States is Kiva’s 45th country. It represents our first foray into the developed world.

Our decision to work in the U.S. is controversial. Over the past few years, one of the top questions asked by our users has been "Why aren't you working in the U.S.?" We've been criticized for helping out entrepreneurs abroad while "ignoring" those in our own backyard (Kiva is based in San Francisco). Thus, long ago, we made a promise to research the idea. It took us nearly four years to get here, but we finally made the move on June 10th.

Since the launch of the U.S. pilot, we've received a new criticism from a different set of users. They asked us "Why are you working in the U.S.?". They point out that entrepreneurs in the U.S. aren't as poor as those in developing countries. Others argue that we are favoring the U.S. because we are an American nonprofit. Some of them have even been particularly vocal!

Both points of view have a lot of merit and we are joining the conversation. It is inspiring to see the passion of the Kiva community as they stand up for what they believe. We thank you for making your voice heard and promise to take into consideration your feedback as we evaluate U.S. pilot. In this short letter, we wanted to explain our thinking up to this point and our action plan moving forward. Lastly, we want to invite you to be a part of the decision making process.

How we decided to partner with microfinance institutions in the United States

Kiva was founded with only Ugandan borrowers in 2005. Shortly after launch, we began to get feedback from all over the world that the concept could be applied elsewhere to great benefit. Soon, we began to see loans sent around the world in all directions, from the United States to Tanzania, from Australia to Mexico, from Mexico to Peru, from Kenya to Indonesia. As we grew, we incorporated feedback we received from the internet community and MFIs around the world. When Kiva Lenders asked us for a partnership in Iraq, we worked really hard to make that a reality, when Kiva Lenders asked for connections to Afghanistan, we listened. We continue to do so.

Kiva strives to give lenders the power of choice. It has always been important to us that lenders can choose the individual they make a loan to, the Field Partner facilitating the loan and the country in which the entrepreneur resides. We believe these choices are a part of what makes lending through Kiva fun and satisfying. Each new country that Kiva expands to offers additional choice to Kiva Lenders, and this is true also of our partnerships in the United States.

Ultimately, however, the choice is yours.

How this fits within Kiva’s social mission

Kiva’s mission is to “connect people, through lending, for the sake of alleviating poverty.” We of course recognize that poverty is relative, and the poverty experienced by some of the entrepreneurs in Uganda or El Salvador is not at all shared by some entrepreneurs in the United States. It is usually the case, however, that they lack access to financial services from the formal financial sector in their country. Whether, due to lack of collateral, illiteracy, ethnic or gender discrimination, or due to lack of credit history, or an economic downturn, our Field Partners target entrepreneurs that are denied access to credit elsewhere.

The Field Partners we are working with in the U.S. target low-income entrepreneurs who are often marginalized from the formal credit markets in the U.S. That said, the U.S. entrepreneurs posted to the site represent a spectrum in terms of income level and degree of marginalization. We realize that while some may appear to need the loan, others may not appear to need the loan as much. From the Internet, it is impossible to make perfect judgments. This introduces a degree of controversy as our users debate on the site who really needs the loan and who doesn't. These are debates we are following closely.

How we plan to move forward

Kiva continues to build a portfolio of Field Partners across the globe, balancing our reach in each country to ensure we are widely diversified. At this time, Kiva’s U.S. Field Partners are 2% of the number of the total number of active Field Partners. If we continue with only these Field Partners, they will account for no more than 5% of Kiva’s total portfolio outstanding. However, if we decided to enroll additional U.S. Field Partners, the US could represent a larger percentage of the portfolio. The Kiva staff and community have the chance to make a thoughtful decision together before we jump into anything.

Thus, we are currently in "wait and see" mode with regard to this possible expansion into the U.S. and other developed countries. For the next few months, there are several things we will be monitoring. For instance, does the U.S. offer increase our lender base so that everyone benefits? Conversely, do the U.S. loans detract from the loans in developing countries? Are we lending to borrowers who can truly benefit from our help in the U.S.? Can we have a demonstrable positive impact for our Field Partners here?

As the summer progresses, we will be looking for answers to these questions and more in order to determine our strategy. We invite your feedback along the way. The best ways to contribute are:

1) Vote with your wallet - we will be tracking the rate of funding for U.S. businesses vs. other businesses
2) Post your opinion to this thread on Kiva Lending in the U.S [this topic right here]
3) Vote in this online poll.

4) Join our next Community Conference Call, scheduled for July 15th. Dial-in details will be posted here, on the Kiva Blog.

Thank you for caring and for helping to shape the future of Kiva. We look forward to continuing the conversation.

Sincerely,

Matt Flannery, CEO and Co-Founder
Premal Shah, President
POSTED BY MATTHEW FLANNERY AT 5.06.MD

[A Nonny Mouse]

I really want to be able to continue to tell my friends;
"Check out Kiva; It's great and it's about helping poor people with microfinance!"  

Right now I can not anymore  

Hey there spjack,  to KivaFriends! 

I appreciate the thoughtfulness of your post!  But, you know...Kiva is STILL about 'helping poor people with microfinance.'  Your loans to people in Cambodia and Viet Nam and Peru and Bosnia are still just as valuable and STILL just as needed.  Don't let this dim your enthusiam for Kiva and microloaning.  We ALL have criteria about what we will and won't loan to, based on our values.

Give it some time.  Keep loaning in your usual way (although I recommend you start reading those loan descriptions!  )  I myself focus on one or two countries.  I don't let other things distract me.  I know those people still need my help, so I keep loaning. 

Glad to have you join us!

Nonny

[Marilee]

I haven't read all of this, so I'm posting cold and will probably be repetitive.  My apologies.

I voted yes, but not because I agree completely with any of the options as listed.

I voted yes because having some US loans on the site is really calling all the "us powerful people loaning to them humble destitute people" stuff out onto the carpet where we can see it.

I do think there's poverty everywhere.  I don't think that *automatically* makes Kiva the right instrument to address all lending situations.  (In a parallel situation, there are lots of men who need loans, but I'm glad for the MFIs that preferentially loan to women, because sometimes with limited resources you simply must focus on the subgroups where it will do the most good.)  But I'm really glad they're considering it, and doing a careful pilot to see if it makes good business and development sense for them to list some US loans.

I must hope and trust that the people who run Kiva, who have put a lot more time and thought and research into this than I have, are just as concerned as I am with the problem of finite resources versus infinite need.  I don't think Premal or Matt have any intention of taking actions that will short-change Africa.

Matt's news post at http://kivanews.blogspot.com/2009/06/letter-from-kiva-about-pilot.html is reassuring enough for me.  They're looking at it, they're thinking about the same concerns that I am, they're offering choices and seeing how it goes.

Kiva employees reading this, hello!  Thank you for all that you do.  I appreciate your attention to detail and your sincere efforts to act ethically and consistently in the face of complex social questions.  It's hard and we keep yelling at you to do ten different things at once, and you keep working on it anyway.  Keep up the good work.