How many of us have ever voiced the thought that, if we won the lottery or stumbled into a seven-figure inheritance, we could change the world for the better? It’s a nice fantasy, but not one that many people ever have a shot of bringing to fruition here in the real world. On the other hand, making small but quantifiable change in the lives of real people around the world is a goal well within the reach of most of us… no windfall involved. At least, that’s the promise fed to us when it comes to micro-lending. It sounds like a smarmy “feed the orphans!” TV ad to say that you can impact the life of someone living in poverty for less than $1 (USD) per day—but it’s a fact. Sort of. As is the case with so many opportunities set in front of us to “help” the “poor,” there’s a lot going on that isn’t made immediately apparent amid all those smiley photos and feel-good sound bytes.
Microfinance is a thoroughly twenty-first century construct, an industry driven by the realization that mainstream banking falls short of meeting the needs of micro-entrepreneurs and small businesses, especially in parts of the developing world. Trusty Wikipedia defines microfinance as a “movement” with the goal of a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers.
From this idea, a cottage industry of microfinance institutions has sprung up in recent years to connect needy households and businesses with financial services. Complementing it is the growing peer-to-peer offshoot of micro-lending, the best-known hub of which is Kiva.org.
Kiva’s self-described mission is to connect people through micro-lending, with the goal of “alleviat[ing] poverty.” It’s more than just a feel-good statement. In the seven years since Kiva’s inception, it has helped over 840,000 people make almost $367 million in loans as low as twenty-five dollars. (Come on, right? It’s a cliché to say that an American spends more than that on Starbucks specialty drinks per month, but you can fill in your pick-me-up of choice, and I’ll bet it becomes true.)
Money from Kiva lenders is sent to partnering microfinance agencies, which administer the actual loans. Lenders are able to browse borrower’s profiles to get a sense for who needs the money and for what purpose, adding a personal aspect to the transactions. I myself have a handful of acquaintances who have made loans through Kiva, all of whom are satisfied with the experience. From a lender standpoint, Kiva loans are made of win: cheap, convenient, emotionally gratifying.
How about the recipients of these loans, however?
As a general rule, things that tend to sound as shiny-happy as small peer-to-peer loans to Rwandan farmers tend to have at least some dubious associations. Alas! The big names in microfinance are no exception. Kiva lenders earn no interest off the money that they lend, and Kiva.org is a nonprofit organization—which is not to say that borrowers pay no interest on their loans. In fact, Kiva and some of its competitors have been taken to task over the fact that borrowers pay interest on the loans in annualized amounts that would be considered usurious in the United States. There have also been accusations that Kiva loans do not go to the intended recipient(s) and that the entire representation of the peer-to-peer model is misleading.
I guess what this all comes down to is the same old fact, which is that we need to be careful when we set out to help people. One can certainly find criticism of almost any altruistic organization, and there is definitely more good press about Kiva out there than criticism. That’s not to say, however, that micro-lenders can breathe 100% easy about their contributions. If we are going to invest in impact opportunities, it makes sense to vet them first to ensure that people are, you know, actually being helped. All too often, it seems, corporate greed and opportunism find a way to creep in on well-intentioned (but clueless) folks’ attempts to do good.