I Continue to Feel Misled by the NY Times Story

[Guest]

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[Jimerb]

I am pretty upset over the recent NY Times article to the point where I feel compelled to tell my elected officials about it...

Since I always thought Kiva was a great idea, I'm resisting the urge and hoping they are taking aggressive steps to clarify how things work here.

I just got done reading the newly updated 'How Kiva Works" page here:
http://www.kiva.org/about/how

In my opinion it's still missing critical details.

To me, the most important thing to clarify is this:

I recently donated to a person and AFTER the donation time was done I received this email from Kiva:

Dear James Berry,

This is an update on your loan to Baharaddin Aliyev in Azerbaijan. Thank
you for your loan. It has been disbursed to Baharaddin Aliyev by
Aqroinvest Credit Union in Azerbaijan. We are excited to watch this
business grow. Over the 15 months of this loan, Aqroinvest Credit Union
will be collecting repayments from this entrepreneur and posting
progress updates on the Kiva website.

If this does not lead you to believe that BECAUSE I made the loan, he is receiving this money I don't know what would.  This is DIRECTLY misleading. 

A more representative thing to say would be, "Thank you for contributing to micro-financiers.   It's contributions like yours that make distributions of loans like this one possible."    I agree that doesn't sound so good but it's exactly what's happening.

I believe that Kiva needs to step up it's PR campaign with more aggressive updates on this topic to regain trust.   If you can't trust someone your donating money to, you're not going to donate.

I want to be open minded about this so if any of you can point out where I may be mis-informed I would appreciate it.  I would really like to love Kiva again but I've lost trust in them.

Thanks.

[YowieFreak]

Not knowing exactly how you paid for the loan, but assuming you may have used a credit card, the question arises as to when you actually made the loan.  Was it when you checked-out the loan on Kiva?  Or was it when you paid your next credit card bill - perhaps a month or two later?

In theory, it was probably the credit card company who had actually funded the loan when you received the disbursal email but, because they are expecting you to make a payment in the future, they and you are probably quite happy to treat it as if you had actually made the loan up front.

Just as the credit card company doesn't think of the loan as "theirs", even though they are putting up the money up-front with the hope/expectation that you will repay them, the Field Partner also uses its own money to provide loans to the entrepreneurs up-front expecting you (or some other Kiva lender) will provide the payment they need within a reasonable timeframe.

(There is a slight difference between the credit card company and the Field Partner - the credit card company will undoubtedly come chasing you if you don't pay them but, if the Field Partner doesn't receive money from Kiva lenders, they will just have to live with the loss and make it up out of their operating capital.)



Edit:  To correct one small punctuation error.

[tomviolence]

full disclosure would require about 128 pages of documents for each borrower and MFI. Read a microplace prospectus - then add a few layers to it.

Your loan did enable the borrower to receive a loan, possibly combined with other kiva lenders. If no one, or not enough lenders made a loan to this person, there would be no kiva loan, no letter, and the MFI would need to find other funding for him. Kiva has a self imposed limit of only 30% of a MFIs funding.

When you look at a road project and say "Gee, my tax dollars at work.." Did even one dollar from you go to the road ? Did you make out a check to a construction worker for 2.3 minutes of his time ? Probably not, but you can still say it is your tax dollars at work. If you didn't pay taxes, the road would  still probably be built. If no one paid taxes, there would be no road work.

If you contribute to your local school library, can you see what pages of what book you bought ?

Kiva is far more direct than that. The loan payments are tied to you.

No, the borrower does not get $25 US at random intervals over the month long raising period.

It is unfortunate there is a perception kiva did perpetrate about the connection, but there is still a connection.

[JoanW]

I think Kiva's new flowchart explains pretty well (see below)  Maria is approved for a loan. MFI gives her the money, then asks Kiva to fund the loan. If Kiva Lenders agree - the MFI is reimburse for the loan. As maria makes payments, MFI send them to Kiva who then returns them to lenders.  If Maria is unable to pay the loan back, then Kiva lenders bear the cost since we "bought" (for lack of a better term) the loan from the MFI.

If the loan is unfunded, the MFI has already given Maria the loan, so they keep the repayment. If the MFI guesses wrong too many times about what loans will/will not be funded at Kiva (by us lenders) then soon all their money (more accurately up to 30%) is tied up in outstanding loans and they can no longer front any money to new loans. Since they do not want that - the MFI works at figuring out what makes a successful loan on Kiva.

I am not as excited about Kiva as I once was, but I have to give them credit - I understand the process these days....or at least I think I do.  I hope this helps.

[waywardcats]

(There is a slight difference between the credit card company and the Field Partner - the credit card company will undoubtedly come chasing you if you don't pay them but, if the Field Partner doesn't receive money from Kiva lenders, they will just have to live with the loss and make it up out of their operating capital.)

Actually I would say there is a major difference between the credit card company and the MFI.  That is that the MFI is actually counting on the payments for running it's operations.  The credit card company meanwhile will only make money from you if you don't repay your loans, or in other words unless you run a balance and pay them interest.  They are rather hoping that you are not too timely in your repayments (just timely enough for them to maximize their earnings).    


Returning now the the serious part of this discussion.

Hello James and Welcome to Kiva Friends,

I understand your frustration, but I do have some disagreement with the replacement statement you offered:

In my opinion it's still missing critical details.

This is an update on your loan to Baharaddin Aliyev in Azerbaijan. Thank
you for your loan. It has been disbursed to Baharaddin Aliyev by
Aqroinvest Credit Union in Azerbaijan. We are excited to watch this
business grow. Over the 15 months of this loan, Aqroinvest Credit Union
will be collecting repayments from this entrepreneur and posting
progress updates on the Kiva website.[/i]

If this does not lead you to believe that BECAUSE I made the loan, he is receiving this money I don't know what would.  This is DIRECTLY misleading. 

A more representative thing to say would be, "Thank you for contributing to micro-financiers.   It's contributions like yours that make distributions of loans like this one possible."    I agree that doesn't sound so good but it's exactly what's happening.

Thanks.

First of all the word "contributions" is misleading, the phrasing "loan' is more appropriate here because repayment is expected.

Second,  I think "that make distributions of loans like this one possible" is OK, but again it does not really capture the Kiva model.  As has been discussed several places on this forum (for example Peters recent post here) sometimes Field Partners do guarantee loans that have defaulted.  But that is not the intended model, and I believe that Kiva discourages the practice, and I certainly hope they will continue to do so.  However, according to the Kiva model, your loan is tied to the repayments of the individual borrower, or at the very least the repayments of the borrower as reported to Kiva by the Field Partner.  So while it's true that your Kiva money lent makes loans possible, that is not by any means the whole picture.

In fact the statement Kiva sends out is not in any way misleading, your part of the loan to  Baharaddin Aliyev has been disbursed by
Aqroinvest Credit Union in Azerbaijan.   Yes, it is true that the disbursal may have happened before the loan was uploaded to Kiva.  However, that is just a matter of timing.  I think that if you look at Matt Flannery's explanation on this you might feel a little better about it.

Instead of waiting, MFIs began to disburse these loans in advance, assuming that the funding by Kiva Lenders on the website would take place. Good MFIs are client-driven. To make their clients wait unnecessarily would have been bad customer service. So, for many of our Field Partners, pre-disbursal became the norm.

Rather than outlaw this practice, which allowed MFIs to be more efficient and better serve their clients, Kiva decided to just make the practice transparent on the website, and to let the lenders decide whether to fund a pre-disbursed loan or to withhold. Hence, we created a system whereby MFIs were required to list the disbursal date on each and every “Make a loan” page, beside the rest of the information we considered important for lenders before making the decision to lend. This was our way of communicating this important detail to our users. We also listed detailed descriptions of the mechanics of Kiva in the Help Center, for those curious about loans that have already been disbursed. Kiva Our Fellows also blogged about this practice and created videos explaining how the process really worked. These, we believe, were great efforts at increased transparency.

Again, welcome to Kiva Friends.

-Kerry-
Edited to fix link and typos

[Jimerb]

Thanks very much for the varying views it helps me put this in perspective. 

The trouble with the analogies is that Kiva is showing me the individuals and asking me to choose WHO I am  donating to.  They are telling me their story and asking me to PICK which person I would like MY money to go to.

The problem is -- none of that happens!

I would be perfectly ok with them just saying, "Hey donate money to us and we will do good."   But they are letting me get to know the person I am donating to and erroneously inferring that my money is going to them directly.    I shouldn't have to read the fine print.   If you let me pick a person then the money should go to them -- nobody else.

To use tomviolence's analogy above -- If I was donating money to my town to repair the roads then I would have no problem with any pothole it was spent on.  But if they asked me to PICK a pothole to have fixed then I would pick one that trouble's me the most (like one by my house.)   If it went somewhere else I would be upset.   That's bait and switch.

JoanW:  I believe the box, "Kiva Lenders Fund the Loan Request" is misleading.   The loan request has already been funded before the Kiva Lenders even take a look at it.   What we are actually doing is paying back the lenders -- not the recipients request for a loan.   A casual Kiva user is led to believe that the money is going directly to the person AFTER the loan money has been raised by it's members.

YowieFreak: If I decide to extend the loan from a credit card I still owe the money.  My concern is not the payment method but rather the mis-representation that my money is going to an individual person.  It isn't.  It's just paying back a lender that I don't even know.

waywardcats: The fact remains that I am led to believe by picking a person that my money is going to them directly.  It isn't.  it's already been sent there.

Here's an example:

Recipient 1 wants a loan for $5000 to open a health care center in Kenya which will possibly save lives and bring a better quality of living to an entire village.

Recipient 2 wants a loan for $5000 to open a gun shop in Russia. (Small business startup.)

Now you would think that the plight of Recipient 1 would be more generally attractive for donors to pick where to put their money.  Kiva would seem to be a great way to help fund this.   However, under the current Kiva model, BOTH start ups have exactly the same chance of getting funded once the micro-financiers decide to make the loan to them.


How am I wrong on this?  Believe me I want to be.

[wthepoo]

How am I wrong on this?  Believe me I want to be.

Well... I will try and modify an(other) story Tom told in another thread here (the "Gift Card Analogy"):

I recently started a new job in a brand new office that lacked certain pieces of equipment - among them an electric kettle. My employers asked me to buy it for them and promised to re-imburse me afterwards. I did - I bought the kettle (using my credit card as it happens, but I won't follow that line) with my money, sent the bill to my employers and received the re-imbursement a couple of weeks later.

Who paid for that kettle?

If your answer (like mine) to that question is "your [that is: my] employers", then that is how you are wrong on the whole NYT-Kiva-story... The respective Kiva Field Partner is relying on being re-imbursed for the loans they are handing out with the intention to later post them on Kiva - just as I had been relying on being re-imbursed for my expenses. They grant the loans with Kiva as a funding source in their minds (at least I believe they do) - and wouldn't in many cases be able to do so without Kiva. You take over the loan (not in a legal, but at least in many cases and to a certain extent in an economical sense) by contributing to the loan request posted on Kiva and thus make it (partly) yours.

Thus my answer to these allegations:

My concern is not the payment method but rather the mis-representation that my money is going to an individual person.  It isn't.  It's just paying back a lender that I don't even know.
...
The fact remains that I am led to believe by picking a person that my money is going to them directly.  It isn't.  it's already been sent there.

would be: Oh yes, your money is going to an individual person - just maybe not as "directly" as you might have imagined. - And, once again, you cannot blame this imagination on Kiva because (a) anything more direct is mostly impractical and not in the best interest of any party involved (including you because it would cause severe further delays) and (b) Kiva has been upfront about these procedures and processes at least since fall 2008 - you just had to read the loan requests thoroughly or look in the Help Center.

Finally:

Here's an example:

Recipient 1 wants a loan for $5000 to open a health care center in Kenya which will possibly save lives and bring a better quality of living to an entire village.

Recipient 2 wants a loan for $5000 to open a gun shop in Russia. (Small business startup.)

Now you would think that the plight of Recipient 1 would be more generally attractive for donors to pick where to put their money.  Kiva would seem to be a great way to help fund this.   However, under the current Kiva model, BOTH start ups have exactly the same chance of getting funded once the lenders decide to make the loan to them.

I am not sure that I am getting your example - even apart from the facts that Kiva doesn't currently do business in Russia and has a policy not to post loans supporting the sale of lethal weapons (obviously with an exception for hunting shops) and apart from everything I have written so far.

If you are saying that "your money" attributed on the website to recipient 1 could end up with recipient 2, this is obviously and plainly incorrect as - even with pre-disbursed loans - your funds are used to re-imburse the specific Field Partner that handed out the loan you choose to lend to on kiva.org. So your money would definitely end up with the Field Partner in Kenya that deals with recipient 1 - and according to what I (and several other KFs) wrote before and in several other recent posts, it would even be attributed retro-actively to the loan to recipient 1.

If you are saying that Kiva hosts diverse businesses and that once they are posted on the website each business has a chance to attract lenders according to their own preferences, that's true, but also very obvious and bears - as far as I can see - no relation at all to the questions the NYT article has raised.

Hope that helps, welcome to KF.

Best wishes,
Wolfgang.

[YowieFreak]

To use tomviolence's analogy above -- If I was donating money to my town to repair the roads then I would have no problem with any pothole it was spent on.  But if they asked me to PICK a pothole to have fixed then I would pick one that trouble's me the most (like one by my house.)   If it went somewhere else I would be upset.   That's bait and switch.

If you donated money to your town to fix a specific pothole, what would probably happen is that they would deposit the money you give them into a general fund.  Then, when they go to repair the pothole that you "paid for", they would draw money out of that general fund.  But is it your money that they are using?  Probably not - your money might have been used to repair some other pothole.  (Or maybe that same general fund paid to repair the local school buildings, and your specific dollar note was given to the tradesman who did that work.)  But what is important is that the pothole you wanted filled in was filled in.

[Jimerb]

Thanks wthepoo,

Some of this is helpful to me.  I like the analogy with the Kettle.  That does make sense to me.

Some thoughts:

I do not view Kiva as my employer asking me to do them a favor. I view them as a facilitator of the micro-loans ultimately between their users and people in need.    The efforts put into the stories and shared on the web are the value-add that Kiva brings to the equation. Another key element they must bring to the table is clarity and trust.  To advanced users and general users alike.

I can tell by some of your corrections (about not doing loans in Russia, etc) that you are much more knowledgeable of the workings of Kiva that I am.   The trouble is that with any donation, there is a donors intent of how the money is to be spent.   I consider myself a "regular user" and if they ask me to pick a person, they're implying that some of the money in the check to be dispensed in the future will be mine.   They further propagate that misconception with the email confirmation I receive after the money has been "raised."

(By the way, I consider this a donation because I don't expect to get it back and if I do I put it towards someone else. You can call it a loan but there's no interest on it...)

To your point:

If you are saying that "your money" attributed on the website to recipient 1 could end up with recipient 2, this is obviously and plainly incorrect as - even with pre-disbursed loans - your funds are used to re-imburse the specific Field Partner that handed out the loan you choose to lend to on kiva.org. So your money would definitely end up with the Field Partner in Kenya that deals with recipient 1 - and according to what I (and several other KFs) wrote before and in several other recent posts, it would even be attributed retro-actively to the loan to recipient 1.

I'm not saying it would switch hands.  I'm saying I have no say in the matter at all.  The micro-financiers have already made the decision and led me to believe it was mine.  I don't want my money ending up in the field partners hands in Kenya.  I don't even know who he/she is.   I want money to wind up in the hands of the recipient as a DIRECT result of me deciding it should.   I want there to be a feel that If I didn't donate, the person in Kenya wouldn't have gotten the amount they did.

Impractical or not, the model needs to be clear.  If for logistical reasons Kiva cannot operate in a Direct Payment model then they should not ask me to choose individuals.  They should simply show the people they are trying to repay financiers for and ask for a generic loan.

YowieFreak:  To your point:

If you donated money to your town to fix a specific pothole, what would probably happen is that they would deposit the money you give them into a general fund.  Then, when they go to repair the pothole that you "paid for", they would draw money out of that general fund.  But is it your money that they are using?  Probably not - your money might have been used to repair some other pothole.  (Or maybe that same general fund paid to repair the local school buildings, and your specific dollar note was given to the tradesman who did that work.)  But what is important is that the pothole you wanted filled in was filled in.

The result would be the same, but the pothole that I care about would get fixed AFTER I donated the money.  If they fixed it a week before I made the donation, I'd feel like I was cheated.  That's my point.  I don't care if the same serial numbers on the dollar bills end up in the person's hands.  I care that it happens because I decided it should.  Not some micro-financier who I don't know.

[alan]

Hi Jim, and welcome.

I think for me the most helpful word is "refinancing". That's what I see us lenders doing, is refinancing loans that have been advanced (in most cases, but not all) by an MFI to the person whose loan we are being asked to take over. I personally feel that the consequences of failure to refinance on Kiva (Expiry of the loan) would be severe and quite devastating to the borrower if actually receiving the loan depended entirely on whether we coudl get the loan request funded. It would be humiliating and extremely discouraging, not to mention financially devastating. So in fact I like the fact that we are refinancing. For me, I see it as me taking part of a loan off the hands of the MFI, thus helping three parties: the borrower, the MFI and the next borrower. And I'm just fine with that.