Monday, October 11, 2010

How To Lend On Kiva

I like Kiva. Sarah-Jane Whittaker sent me a kiva gift certificate circa 2006 and I've been lending ever since. It's fun and it probably makes the world a better place. I added more of my own money and have recently been lending under the Church of the Flying Spaghetti Monster.

I wonder though how to maximize the world's-a-better-place-ness of kiva interactions. Each time you lend, they by default ask for a donation to kiva. I always unselect this. I'm not convinced they need that kind of support from their lending base and it seems underhanded to have it selected by default.

Another thing you'll notice after lending on kiva is that your loans are always paid back. That's nice, but absurd. People default on loans, especially poor people on unstable countries. It must be that the field partner covers the defaults to maintain their high kiva rating.

If you think about it for a while, you'll have to conclude that kiva is not what it seems. David Roodman gives an excellent explanation of this. The reality is that you're not lending directly to some far-away entrepreneur. That would be inefficient and absurd. You are in fact supporting Kiva Field Partners aka Microfinance Institutions (MFIs).

So when you decide to lend on kiva, the crucial world's-a-better-place-ness question is not: Should I lend to Mohira Kholikova from Tajikistan or Nelly from Bolivia? The question is: Which Kiva Field Partner should I loan through? or Which Kiva Field Partner gives the best deal to the borrower/entrepreneur?

I searched through the Kiva Field Partners in Oct. 2010 looking for all that met the following criteria.
- Field Partner Risk Rating: at least a three stars.
- Portfolio Yield: no more than 40%
- Profitability (Return on Assets): no more than 4%
- Average Loan Size (% of Per Capita Income): no more than 300%

That may not be the best metric. I'm open to suggestions. It's hard to know. Low profitability might just mean bad management. High yield might just mean that borrowers cover a wide region with bad roads and therefore represent larger operating costs. But you have to draw the line somewhere. Here they are:

Armenia > Nor Horizon Universal Credit Organization Limited Liability Company
Nicaragua > Fundación Leon 2000
Guatemala > Asociación ASDIR
Ecuador > Banco D-MIRO S.A.
Ecuador > Cooperativa San Jose
Lebanon > Ameen s.a.l.
Mongolia > XacBank
Peru > Asociación Arariwa

Each of the field partner pages has a link on the right-sidebar to "See all fundraising loans from this field partner", so you can first pick a partner you trust, then a profile you like then lend. Have fun.

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