In Defense of Kiva and Microfinance

Why is it that Kiva gets a bad rep for funding MFIs that give out loans to the people who otherwise would not receive them?! Recently, a blog was written on socialedge.org/blogs about a particular experience a “video journalist” had when she visited MFIs in Cambodia and Mozambique and spoke to “countless Kiva loan recipients” while there. The author’s article was based on the fact that “none of them had succeeded at pulling themselves out of poverty” because of these five reasons:

1) The High Interest Rates Being Charged
2) Inadequate Economic Opportunities
3) A Lack of Business Skills/Entrepreneurial Talent
4) Over-burdened Loan Officers
5) Lack of Sustainability

As most of you reading this are Kiva lenders, I want to refreshingly remind you of why the people she met (whom we do not learn much about in her article), were only a few of the 180,000 Kiva loan recipients to date, and do not necessarily represent the experiences of every Kiva loan. These few interviews can be seen in Episode 9 of her documentary series.

I want to use this blog post to layout, from a Kiva Fellow’s point-of-view, how challenging it is to lend to the poor, both fiscally and temporally. Let me share with you how Kiva (and microfinance) not only helps MFIs, and subsequently their borrowers/members, to stay afloat, but is also going to, overtime, help reduce poverty.

Kiva prides itself on transparency. Arguably, there could be more *asterisks on kiva.org where people are getting a little confused. I know that when Kiva says their loans charge 0% interest, it may feel a bit funny to learn that some MFIs charge a large interest rate to cover their expenses. The great thing about lending to Kiva is, however, that the influence of Kiva keeps costs down. By giving interest free loans, some MFIs will lower their interest rates, while others will use the extra money to give more loans. Without an interest-free donor, some of these organizations would cease to grow, or even begin.

GHAPE, a Kiva Partner in Cameroon, for example, has their borrowers receive loans in five progressing stages. Type I loans, starter loans, must be 40,000 CFA (about $80). They charge a flat-rate, annual interest rate of 15%. If you do the math, you simply cannot run a center of 40 new members on the interest alone. So, how does an MFI get off the ground? They either charge a lot of interest to first-time borrowers who can barely invest small loans, or they look for funders who are interest free and/or give money as a donation. The later is a common strategy.

At GHAPE, they are always looking for new ways to expand and open up new centers. Centers in rural areas can cost a lot in transport fees, which usually includes check-ups for first-time borrowers. Check-ups and first-time loans are how the poor get to establish a credit history, and it is not cheap. So, to start a new center, GHAPE has to get upfront costs from somewhere. That money is either taken from their portfolio (which means other members do not have access to credit as often) or they look to interest free lenders, like Kiva.

The most common critique of microfinance is that if it is not coupled with business or loan management training then it will have little impact. I agree. All MFIs should help their first-time borrowers receive this type of education. However, not all MFIs are created equal. Some started out as banks, and as a section of their portfolio, give loans to those in poverty. Others start fresh as poverty-alleviating organization. Again, the great thing about Kiva is their transparency. As a lender you can find out information about the MFI the loan is going through. Every “Field Partner” has its own page on kiva.org.

This is an excurpt from GHAPE’s Partner Page on kiva.org:

Program Design: The problems facing the poor, especially poor women and young people, are multiple and interrelated. Because of this, GHAPE has developed an innovative poverty alleviation package, Empowerment Credit (EC), which contains the fundamental empowerment resources required to fight abject poverty. Included in EC are trainings (business development service), credit and social education. To guarantee sustainability and maximize GHAPE’s scarce resources, this package is administered sequentially, and it simultaneously meets the current and emerging needs of borrowers.

When I read this, as it is linked to all of GHAPE’s borrowers, I know that GHAPE has a training package for all five stages of its membership. Having heard a lot of the these trainings and the reactions from GHAPE members, they clearly have an impact on these entrepreneurs. They note that the education is one of the main reasons they join GHAPE.

As for loan officer burden, they have to have large case loads in order to keep costs down. I can attest that each loan officer at GHAPE knows all of their center members. When it comes to getting personal attention, that’s where Center Chiefs come in. GHAPE Center Chiefs co-conduct each semi-monthly meeting and are the connect to their branch office, where they visit regularly. Center Chiefs are also trained and meet once a year to make improvements on GHAPE.

I cannot say enough about the work done at my MFI. It is hard to be impartial. The employees working there understand that GHAPE’s cause is to make a difference. I also know that GHAPE uses Kiva to fund a lot of their loans. Some borrowers say that without a loan from either GHAPE or Kiva, they would not have the income they have today.

For one example: a Center Chief at GHAPE, Christina Manka Ngwa, said to me that if it were not for the loans she had received from GHAPE, she would not have been able to sponsor her child to go to University in Cameroon.

To come full-circle, I will give my final point, one that I cannot know for sure, but I feel very confident about. If we continue to invest in Kiva borrowers, we may not get them out of poverty at first, but we will help feed, cloth and educate their children. I do see that when you send these children to school, they will “live a fine life,” and themselves, be lifted out of poverty. To me, that is why I loan and I hope that, at least with GHAPE, people can see that microfinance is working, even if it is non-obvious and slow to come.

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