Why We Should Debate Loan Expiration

By Suzy Marinkovich, KF 8/9

As you may have seen, over the past couple of months Kiva has seen its first loans expire on the site. Currently, I am in my eighth week of working with a brand-new Kiva partner, CIDRE, an MFI specializing in agriculture and livestock loans in Bolivia. I mention this because I’ve noticed a significant portion of the loans that have expired or are close to expiration are from MFIs in Bolivia. I realize my opinion is skewed by having spent only a handful of days at Kiva headquarters followed by 5 months at two Kiva partners in South America. As a result, I don’t have really have a great vision from the top – I don’t understand all the organizational elements in place to keep Kiva sustainably rolling. I am just going to call it like I see it now, sun-drained from a long day spent on grueling rural roads, visiting incredibly inspiring Kiva borrowers and successful social projects CIDRE has had a hand in.

My understanding of the premise behind loan expiration is that it allows for Kiva to be more of a marketplace – where instead of making decisions on the end of Kiva, they are made on the end of the MFI and the funding choice is up to the lenders. Thus, the website itself is designed to be like an Ebay for microloans, an intermediary between funders and the funded.

Here is my reasoning for why I personally believe the expiration of loans on Kiva could be detrimental:

1(a). To make an analogy with the child-sponsorship model (please bear with me as it’s stretch): imagine a marketplace for sponsoring children’s school loans, with the exact same design as Kiva. At this hypothetical site, lenders like us could lend to cover school fees for children that would pay for middle or high school (in many countries, attending said schools requires paying school fees). Children’s photos and biographies are thus posted to this hypothetical site, and we treat it like a marketplace. Then, as the site expands and more loans are posted, certain kids aren’t being funded – their loans expire on this site. Then, you pull up the pages of all the children whose loans expired, and they are all kids who aren’t cute or aren’t fitting our notion of how a needy child should look. As you can see, this is unfairly discriminant.

1(b). The positive idea behind Kiva-as-a-marketplace is to support the notion that only the most eligible borrowers get funded. But, I think if we pay extra close attention to the “loans expiring soon” page, we may begin to see patterns. For example, as I write this, the two loans closest to expiration are men and from Lebanon. These loans are followed by several from Bolivia, which are in turn followed by a few from Peru (which could also be due to Kiva having more MFI partners in this area). However, I don’t see any fruit sellers or women from Africa close to expiration, for example. Now is a good time to reflect on Kiva’s core mission: “connecting people for the sake of alleviating poverty.” Does this show us that “lending for the sake of alleviating poverty” is actually, in practice, proving itself to look like “lending to certain people that fit our notion of poverty for the sake of alleviating their poverty”? And is this fair?

We can all agree that at times throughout history, capitalism has led to discrimination against certain classes and groups of people. Minority rights cannot be left up to the voting majority; the constitution and the courts must protect them. The clause “all men are created equal” was the premise most effectively used in the fight for civil rights, as it pointed out a gaping contradiction between the social reality and the constitution itself. But ultimately, court cases like Brown v. Board of Education led to the expanded freedoms we now see today. Otherwise, a simple popular vote may have found that the will of the majority (the ‘tyranny of the majority’), perhaps themselves raised with discriminatory beliefs, would’ve refused the minority group’s different interpretation of that clause.

Humans – even in mass – aren’t always right. During Kiva Fellows training, we learned that certain stories are traditionally funded faster on Kiva than others (e.g. fruit stand vendors over taxi drivers). If all other things are equal – meaning those two borrowers are suffering the same level of poverty and have an equal chance that the loan will vastly improve their respective businesses – is that ethical? While fostering growth in the fruit stands is awesome, Kiva still has that mission to help the poor. So is it okay to treat the poor like a market and only take care of some poor individuals over others because their businesses are more fashionable and appealing to us? This is something for us to reflect upon.

2. Kiva encourages our MFIs to use the new funding to further one of Kiva’s goals: bringing financial services to areas that are traditionally left out of the financial sector. So let’s say that in line with our goal, one of our MFIs reaches out to a new group of people, perhaps spending significant resources traveling to a rural village eight hours away from the nearest office. Then, we don’t find these borrowers’ stories to be compelling enough to fund, and our MFI must forfeit services for the new group of people.

Now, I anticipate that one of the counterarguments to this point is that loan expiration is to reflect the will of the lenders. This example allows us to turn away from the lender view and assume the perspective of MFIs on the ground. We have all heard about plenty of charities who spend frivolously creating completely unsustainable projects in other countries; that is precisely why the lot of us were attracted to Kiva in the first place! The example above could be detrimental to our relationship with our MFIs, not to mention our mission. When we encourage an MFI to do something with our new funding, and then hold back the funding, we are looking at a waste of time and money on the part of the MFI. Is that what we really want?

3. Loan expiration might unintentionally incentivize our MFIs to begin embellishing their borrower profile descriptions, as more “dramatic” or “interesting” stories (e.g. woman lost her husband, makes artisan crafts, and has 8 kids) get funded over more “boring” ones (e.g. young, single man with a DVD shop and 2 kids). Thus, if the MFIs see they are losing money to other Kiva MFIs who are posting great stories, they may begin to be less transparent with Kiva by embellishing their borrowers stories. Transparency is the hardest to combat when there is a major stake at risk; in this case, it is much needed funding for the MFIs. I think loan expirations could set Kiva up for transparency issues from our many field partner MFIs. Logistically, this would be really hard to combat.

4. My final point stems from a comment I read on a recently posted article that was critical of Kiva. To paraphrase, the commenter was critical of the Kiva site because on the site, loan expiration appears to indicate the borrower doesn’t get funded. In reality, all of the borrowers that we see on the site are already selected and funded beforehand by the MFIs, as it is the most efficient way for Kiva and the MFIs to work together (for a more in-depth explanation, click here).

Kiva does put a time clock in red that counts down to loan expiration. Some of you may be thinking, “yeah, but it’s not that confusing, I understand how it works.” Let’s take a look at one of our popular lending teams, Late Loaning Lenders. The team page says that they loan because they “hate to see loans being left unfunded on Kiva. If the Field Partners feel that the entrepreneur deserves to be funded, so do we.” Then in the ‘About us’ section, it reads, “Loans that are nearing expiry won’t get funded if they don’t get noticed. We try to find them and get them noticed.”

Because our MFIs pre-qualify and pre-disburse each loan on the site, these borrowers do get funded even if they expire on Kiva. Their MFI will have to front the capital itself instead of using Kiva capital, which of course is less than ideal for the MFI. But, it does not effect the individual borrower you are looking at.

It is worthwhile to think more in depth about the biases we carry when selecting loans. My sister and brother-in-law, for example, rightfully chose not to fund butcher shops because they are both vegetarians. We all deserve the right to make that choice. But, lets think about choices we make unconsciously. For example, the lot of loans close to expiration from Bolivia: are there some internal biases we might have against Bolivia? Or do we simply not know much about the country? We would have to wait a while in order to reliably discern whether or not such patterns are emerging, so I am fully aware that this point is very hypothetical. Nevertheless, I think it important to examine now rather than later.

The last charity I worked for was heavily criticized for its use of “poster children,” i.e. children in wheelchairs on posters meant to ‘guilt’ people into giving; as a result, there were protests at fund-raising events and vital dollars were lost. Hindsight is 20/20. I hope this post at least helps us get our wheels turning now so that we can ensure that we are doing the best thing for our lenders, borrowers, MFIs, and Kiva as a whole.

Suzy Marinkovich is a Kiva Fellow at new Kiva partner CIDRE in Cochabamba, Bolivia, the second of her three placements. She has a wholehearted passion for microfinance, social justice, and poverty alleviation. Suzy is most excited to listen to the incredible stories of Kiva borrowers in South America and let them know how much they continually inspire us all.

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