Is kiva ultimately a scam? I hope someone can explain this...

[Guest]

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[gumby]

I know some banks charge 30 percent on credit cards... They are the bloodsuckers I am referring to. The only people that pay 30% are the people that have no choice.

  I also want to talk about unsecured funds. It's OUR money they lent, not theirs. I know they have to charge to send out a monthly bill, etc, but If I give 500 dollars, and the bank gets 250 out of that deal, that's just bogus, not to mention how difficult that is to pay for the low income people we are helping to get a leg up.

  Someone also mentioned about how if there was money to be made, they would be there. I have seen many a big business that won't even consider a risky venture. I think that is the issue. But Kiva takes the risk out by giving the funds to loan. There are only administrative costs at that point. So obviously there are banks to lend money in those areas, or there wouldn't be a section in the lend area describing the lender. So if these people are too high a risk to lend money to, then why will they okay it if someone else fronts the bill? It's just greed.

  And I am only talking about some of the lenders that are charging 50 percent. I saw some reports that 100 percent or more was not out of the question. I really support the idea of kiva, and I hope as it ramps up it gives enough clout to demand a maximum percentage rate from a lender. I think that's a great idea. Kiva just needs to grow enough to gain that kind of presence. I just hate to think of Kiva winding up being the golden cow for bankrolling someone else's profits.

  Lastly, I am not saying Kiva would ever be a scam, but inadvertently being a scam by the lenders that may take advantage of it. I want to make that distinction. I love the idea of kiva, and that is why I am a member. I just wish it could have closed the greed loop, and not just opened a potential loophole for greed. Once again I hope that all makes sense.

  Peace,
  Gumby

[gumby]

and they stay out. Isn't that enough proof that the business isn't yet profitable?

  This is my point... Kiva isn't supposed to be profit based, it's supposed to be a helping hand to people the system turns away. Isn't that why they ARE lending money to poor people?

[AccountAbility]

On another thread here we have been talking about interest rates and the differences between MFIs as well as our perceptions of "what's fair".

If you spend any time at all studying the individual MFIs, you will see that not only is nobody "getting rich" but that a number aren't even breaking even.  They are relying on other subsidies and charities to keep them going.  The goal is to at least get these MFIs self sustaining.

Making loans as a business has two expense components.  One is the cost of the money.  Kiva is helping with that by adding a stream which is "almost" free. 

But the other cost is processing, monitoring and collection.  These are essentially fixed costs.  The smaller the loan the more these convert to a "high" interest.  Short term loans must amortize the initiation and set up costs faster so short term loans also convert to higher interest.  This doesn't even begin to speak to the cost of collection when in the western world it may be not more than the cost of a letter, a comparable collection may be a 2 hour ride on a motor bike through the mud.  And so forth.

Lastly, many of these MFIs are committed to a training component so that their borrowers have a reasonable chance to make their businesses sucessful.  This too adds to the cost--which when expressed as an interest rate will make it higher.  One of the MFIs in responding to a Kiva Friend's question as to why the loan disbursal took longer pointed out they they actually accompany the borrower to purchase the goods for which the loan proceeds were designated.

We who look through the lense of western banking and interest rates have no clue as to what these costs translate into in their location and situation.  So what do we do?  Somebody unnamed said,  "Trust but verify."  I think that is what Kiva Friends are busy doing.

Dan

[fredr1c]

Kiva is not a scam. 

Each of us has to decide what our comfort level is with the compromises that will always be a part of any human activity we're involved in.   We're going to constantly question, constantly weigh the good points and bad points and see how we feel about them.  Our comfort level will shift up and down based on changes inside ourselves, and changes in the activity. 

If we're okay with how we feel about what's going on, we'll get involved, stay involved.  If we're not, we won't.  Being a Kiva lender is no different.

That's the thing I like most about Kivafriends -- it's not a bunch of Kiva yes men and women.  There are a lot of people here asking a lot of hard questions, and almost always getting good solid answers -- even if the answers are not quite what they want to hear.

We're helping small business owners in a very personal way to realize their dreams.  That process isn't pure.  There's probably no good way to do what we're able to do as lenders, from all the places we're able to do it,  without MFIs in the middle.

But I became and still am a Kiva lender because I believe that the ends do justify the means.  It doesn't matter to me so much that some in the middle might take their slice, because I know how much good can and is being done at both ends of these lender-borrower relationships. 

I believe there's a whole lot more good being done in the world because of Kiva than there would be otherwise.

For me, right now, that's good enough.

Fred

[Jill]

Hey Fred...
     Sure am glad you found your way out of the shadows.
     My reply is a
     Grin.

[gumby]

Hey Fred,

  I heard Enron would like some more money..  Maybe you can give there too.. After all, they are there to help humanity with jobs and people's power needs... What better cause could you give more money to...

 G

  Ignore any wrong doing.. they are giving people electricity.. is there a nobler thing?

[RichardF]

Gumby,

Please refrain from personal put-downs.  They're not okay here.

[Jill]

      Thanks, Richard.

       We both know that we get to disagree with each other all over the place, here.
       But that it's incredibly important that we keep this a safe place.
       And that we let everyone know that we will be here for one another.
       That this is KivaFRIENDS.
   
       I'm sure that nothing personal was intended. 
       That it's just so easy to get fired up in the heat of our convictions.
       Still, it's a good thing to be clear.
       And that's where the thank you comes in.

[simba]

"Isn't that why they ARE lending money to poor people?"

Gumby:  You are confused. 

Kiva does not lend money.  They act as a consolidator to the MFI and you.  When Kiva can funnel billions of dollars they can dictate the terms to MFIs.  Currently Kiva needs reputable MFIs more than they need Kiva.

Banks may be bloodsuckers and charge 30% to people who as a group have lousy repayment history and default rate.  They need to make profit. 

[gumby]

I want to reiterate two things.. one is that I don't think KIVA is a scam. I made sure to write that in a few places.

  Secondly I did not intend anyting to be a personal attack. I was trying to showcase the problem I am talking about. It was meant to be ironic or satirical.

  I think I have a better understanding of the problems faced by Kiva.

  I am actually very glad I brought this topic up. I want to talk about the hard facts and juice of this subject. I felt very strongly about peeling away any hidden or ignored "elephants in the living room" I was also very happy to see some of the responses. Especially the one quoting the sadness over some of the very high interest rates. It puts me more at ease with the process.

  I hate to come across as a naysayer, but I also think it's good to not (and this not an attack on anyone) just blindly move forward on a path just because it sounds good on paper. If people were intrinsically good, then communism would probably be the best form of government in the world, but more often than not, there are the snake oil-peddlers and the carpet-baggers that just work the system to their own opportunistic needs. It sounds like Kiva has been very self-policing as far as I can tell from all the responses and what I have read. That makes me very happy. And I stand by what I said earlier. It's too bad that Kiva couldn't close the greed loop. maybe in time and with more people.

  Either way, I have been lending my hard earned money through this service, because I DO believe in helping those that help themselves. Nothing in this world seems more horrible to me than the holding down of people with potential. But it sickens me to think that people may use the kindness of others to scam the less powerful or the needy that are trying to get a leg up.

  One last thing... Please read the topic carefully. I haven't been saying Kiva is a scam. I am saying I dread it being a "scam by proxy" because of some of the extremely high interest rates. It was the one thing I couldn't get any clues about when I signed up with Kiva, and lo and behold when they are now posting the details about the lenders.. "BAM"...  just the thing I was dreading. But in Kiva's defense. The fact that they are now posting that information makes me happy. Now I can choose my lenders more carefully. I just hope that it was voluntary, and not a mandate from the government. (as part of the truth in lending laws, or something)

  Thanks again for debating this. I want to really peel the lid back on the deeper parts of this deal.

  Peace,
  Gumby