What is Digg?24 Comments
- rasp, on 02/07/2008, -1/+19as a long time kiva investor, I highly endorse it. So far, I've got every penny back (or is still on schedule). The only problem is that when Clinton and Oprah started to hype it they literally funded all of their projects and had to limit the amount individuals can invest. talk about success problems!
- malfourmed, on 02/08/2008, -0/+5Another kiva investor here. I helped a friend construct a business case for a non-profit microfinancing venture a while ago and what we found was that the cost to administer a small loan is pretty much the same same as for a large loan, which explains the typically high interest rate.
Just say it costs $200 to administer a $1,000 loan: that is, to push through the paperwork, disperse the money, collect the repayments etc. That would equate to 20% interest just to break even. But it also costs $200 to do all the same paperwork, dispersment and collection for a $10,000 loan. So that would equate to 2% interest to recover those administrative overheads.
So why aren't commercial banks lending $10,000 at 2%? Because they want to make a profit, and more importantly, they have to borrow to fund the loan. Ie, they're paying someone 6% who's deposited that $10,000. Then they have 2% in admin costs. And they want to make 2% profit. So that would equate to 10% interest to cover all their costs and their margin.
Microfinancing has the benefit that the people supplying the actual funding (ie you and me) aren't expecting an investment return. We're not expecting to get 6% interest on the $100 we've lent, unlike if we'd deposited it into a bank. If we WERE expecting a commercial rate of return, then the interest rate microfinancers would have to charge would be even higher. (There are exceptions to this: there's at least one microfinancing lender that actually pays people interest on their "deposits" in the same way that normal banks would. But that's not true as a rule.)
So, yes, the interest rate is often quite high. But it's not because the borrowers are getting ripped off. It simply reflects the cost of doing business in this way.
So why does microfinancing exist if it has to charge such high interest rates? Because it lends money to people who would never get a loan from a normal bank in the first place. Because they don't have enough security backing the loan, because they don't have a stable income, because the amounts they typically need to borrow are so small it's not worth a normal bank's time.
It's a fascinating area. I consider it an extension of the peer-to-peer mentality, only applied to money instead of software. - Melindhra, on 02/07/2008, -1/+6I loaned some money out through Kiva not too long ago. I originally found out about microlending by watching Big Ideas on TVO (TV Ontario). You can watch the full video about microlending on TVO's website. Look for past episodes of Big Ideas. The one you will want is "Eric Thurman" originally aired on December 15, 2007.
- someguyouknow, on 02/08/2008, -0/+4I too have been investing via Kiva for a while now. I learn about it through personal finance blogs like thesimpledollar.com and getrichslowly.org.
There is also one similar called MicroPlace. Its an eBay company.
One thing that was brought to my attention, though, is that a lot of the interest rates that these people pay are very very high. I suppose that this help is better than none though. - Idgit, on 02/08/2008, -1/+4It definitely sounds interesting. It's like an internet/worldwide version of the Grameen Bank.
- mille716, on 02/08/2008, -0/+2*page not found*
Try again. - Braxo, on 02/08/2008, -1/+2I'm also a Kiva lender so I was excited to see this post.
Two chicks in Africa owe me some money! - dunderballer, on 02/08/2008, -0/+1Kiva is a cool site but I was aghast when it suggested giving a 10% donation for administrative costs. 10%? Holy *****- not even for profit banks have administration costs anywhere near 10% of loans outstanding. If you do participate, don't give more that 2% donation. They should be able to streamline costs to operate on that amount.
- mille716, on 02/08/2008, -0/+1Remember it is just a suggestion, you don't have to do it. Like all charities, they have to show were their money goes if you want to look.
The big, big reason why Kiva asks for 10% in donations is that they are growing faster than any other charity (is charity the even right word?). After Oprah, Clinton and every news program talking about them, a huge influx of new loaners have joined. They've said now one of their big worries is finding enough potential loan recipients to meet the demand from the vastly increasing number of loaners.
The guy that co-founded it, Matt Flannery, has a blog and last year he had an interesting post about the paradox all charities have of trying to funnel large amounts of money to people yet having difficulties from keeping such low overheads. He writes it better than me.
"Scarcity, while we might complain about it, can become a badge of honor as well. In the nonprofit world, I see that all the time. Nonprofits often compete in terms of their overhead ratios. Most every nonprofit out there advertises to it's funders how it likes to keep overhead low so that the majority of funds it raises goes to constituents. Kiva is not all that different. Last year we raised $2M in loans through our website and spent about $200K on our own staff (aka overhead). Thus, we can advertise that our overhead was no more than 10% of the total funds sent to our consituents. That's golden in the fundraising world.
This kind of competition, while it seems logical to the public, can also be destructive. For instance, is it a good thing that Kiva had no QA testing process last year? Sure, we spent less on dreadful *overhead*, but at what cost? A buggier website? I've definitely thrived on the narrative that Kiva, despite a lack of resources, has overcome enormous challenges and made a positive impact on the lives of thousands. That's a very motivating story. The question is, how will things change once we have more resources? Is there a way to maintain a similar motivation in an adequately- funded organization? Also, can we break the destructive scarcity mentality?" - heckler, on 02/17/2008, -0/+1That gleam in his eye is actually lust. He is thinking about what he would do if he had a cigar handy.
- abhilash, on 02/07/2008, -2/+3It's also really cool b/c one of the most recent nobel prizes was given out for microlending and a new sort of "social economics".
- richbodo, on 02/01/2009, -0/+0dunderballer, not many people give the 10% suggested contribution. kiva takes zero from the loan amount. Give zero in donations too, if you like. It's all good. Being very explicit about an optional administrative amount up front, and being opt-in instead of burying an opt-out admin percentage deep within the site is super uncommon. You get to choose how much overhead there is in your loan with Kiva. I think that's just extremely unusual.
- Dalogi, on 02/08/2008, -6/+6You've gotta love his enthusiasm for this fantastic project. Much respect to Bill Clinton.
- mille716, on 02/08/2008, -1/+1I've been loaning to Kiva for a while and love the site. I put in $50 a year and a half ago that has been loaned, paid back, reloaned, paid back, reloaned...
I first heard about it on Nightline and couldn't get registered for a couple days since they had such a jump in their traffic. As always, Nightline reports it best. http://www.pbs.org/frontlineworld/stories/uganda60 ... - cyberdork, on 02/08/2008, -2/+1Yeah, just that the entire world thinks he was a great president, except for a couple of Repuglicants in the US.
- thenativeraver, on 02/08/2008, -2/+1Hey, That's not right.
Couldn't they have picked another name?
In my culture a Kiva is sacred.
http://en.wikipedia.org/wiki/Kiva - lamprey187, on 02/08/2008, -3/+1go ahead and bury this too.....along with your head in the sand.....but at least read it first
http://www.huffingtonpost.com/2008/01/31/clinton-c ... - invalidnot4long, on 02/08/2008, -2/+0bill clinton should discuss how he can endorse obama
and quickly(were waiting)............C: - lamprey187, on 02/08/2008, -3/+1more Clinton video
http://www.youtube.com/watch?v=yuZhwV24PmM - inactive, on 02/08/2008, -7/+4hrm yeah good idea, give a bunch of money to some random 3rd world people to "start a business"
And here I thought people stopped falling for the Nigeria scams - ensleader, on 02/08/2008, -4/+0Clinton/Clinton 2008....
Don't be surprised when Hiliary picks her husband as her running mate. - inactive, on 02/08/2008, -11/+5You would think that KIVA would choose a speaker with less baggage to push their program. But, some suckers still think that Clinton was a great president, so...
It's all about the marketing anyway. - caseymckinnon, on 02/07/2008, -10/+1I love the passion in his eyes as he talks about it.
- motionblur, on 02/08/2008, -12/+1Clinton rules.
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