Why I don't trust Kiva

Maybe you've seen the ads on Hulu of President Clinton touting this non-profit Kiva website that makes it possible for firstworlders to make microloans to borrowers in the developing world. It's also something that's been cycling through the google ads on this site. Not totally surprisingly, I actually have a big problem with this crap.

To begin with I don't trust Kiva because they go to great lengths to hide the fact that the borrowers are charged interest, and interest at high rates, on the money lent. The rates charged on the money lent is not listed anywhere on the site, and you have to dig into their "what is microfinance" FAQ to get the following bit of neoliberal nonsense What Kiva ignores, and frankly I think this is powerfully deceitful, is that 1: the money is being originated for free through charitable lenders and paypal so there are no costs for the money. 2: the risk of default is born by the charitalbe lender, so there is no cost for default. Therefore the only costs are transaction costs, the money that kiva employees and their partners draw. In otherwords the overhead. As a charitable organization, they should not be passing their overhead on to the people they are helping at usurious rates upwards of 36%, which is the only number I could find on the site. It's worth noting that Kiva's response on this is quoting the neo-liberal think tank Consultative Group to Assist the Poor. CGAPs core mission statement is that the access to capital in the form of debt and insurance is vital to improving the lives of people living in poverty.

This is a microlevel version of the theories of liberalization of credit adopted by the World Bank and International Monetary Fund in the eighties and nineties that ended up bankrupting Argentina and funneling development money to corrupt dictators in Africa like Idi Amin all the while talking those same dictators to privatize and sell off state owned industries to multinational corporations as part of the terms for the development aid. But there are people with a better understanding of global capital than I have who can tell you all about why the World Bank and IMF's neoliberal aid policies have ended up crippling the countries that they were supposed to be aiding with mountains of debt. What matters here is that it appears to be happening in the third world with microfinance as well. Why this is surprising to anyone is beyond me.

We have had, in our own liberalizing economy, over the last thirty years our own version of micro lending at usurious interest rates, and it hasn't helped. Of course here, we didn't call it microfinance and hail it as a way for the poor to bootstrap their way into a higher standard of living. No. Here we call it payday lending, and it's widely recognized as a great and immoral scam that financial reformers all over the country have been trying to rein in for the better part of two decades now. And so it should be no surprise that the patterns in payday lending that make it vicious and parasitic are now starting to appear in microlending as well. Among the worst practices are the flat rate calculations that conceal actual APRs (a practice that is mostly illegal for payday lenders in the US because it is so deceptive), and the issuance of loans to pay for essentials rather than to invest in production capacity, which in essence converts the interest on a loan from the cost of expansion of a single persons business to a pure suck on a poor family's already limited income. Add to this the fact that there appear to be no controls on interest rates even contemplated, and the fact that the first world neoliberal braintrusts who love this model so much are treating the high interest rates like the dirty little secret of microfinance and hiding it is much as possible, and the disaster that increasing the developing world's dependence on microfinance much more would be becomes all too clear.

As for Bill Clinton, well, revisionism aside it's important not to forget that he's the son of a bitch that gutted our own social safety net in the nineties with his disastrous "bi-partisan" welfare "reforms." The fact that he looks on the privatization of international development as a good thing is not unsurprising. Which is not to say that I think Bill Clinton is a bad person. But it's important to remember who the members of the new left are, and to identify the character of the policies they support. Because when they inevitably prove to be enormous failures those of us who are paying attention and aren't so stupid as to look to private enterprise as anything other than the voracious amoral cannibalistic monster that it is, we need to be able to say "I told you so" in the most forceful voice possible in order to win the argument about how to go about rebuilding our financial and regulatory institutions in the wake of the coming catastrophes.

Comments

One thing to make clear, and

One thing to make clear, and that I was confused about at first, is that if YOU give Kiva money for a loan, YOU don't get any interest on that money, because that would change the charitable character of Kiva or some such explanation. You get your money back with no interest. However, the third-party lenders that Kiva works with take YOUR money and use it to make loans in developing nations at usurious rates, making a large profit off of your "charity". That's the problem with Kiva.

that's just the beginning of

that's just the beginning of the problem. but yes, that's the crux of it. what I want to point out is that the thing that i find the most troubling is that their justification for the usurious interest rates is based partially on the "cost" of the money and the "cost" of default. Except that none of the lenders actually bear those costs because what's essentially happening is that Kiva donors are guaranteeing their loans with a secure 1 to 1 deposit which is being transferred to the lender free of charge. the whole thing is really fucking shady.

Okay, Okay. Neo-liberal

Okay, Okay. Neo-liberal economics are a crock and it's all fucked up, etc. That's true, but if you want to be an articulate opponent of those doctrines, you need to avoid telling fibs and applying misleading omissions in your analyses: 36% is NOT the only number you could find on the KIVA FAQ. Don't make your arguments look as weak and self-serving as those of your opponents.

ok wiseguy, show me some

ok wiseguy, show me some other percentage rates:
here's their "about microfinance" link:
http://www.kiva.org/about/microfinance

here's their "facts and statistics" link:
http://www.kiva.org/about/facts

here's the "how kiva works" link:
http://www.kiva.org/about/how

the only interest rate I see anywhere on those pages is 36% as an example given in the article taken from CGAP.

In other words, watch your mouth, asshole.

more links without interest

more links without interest rates:

data on individual field partners:
http://www.kiva.org/partners

current loan projects being funded:
http://www.kiva.org/lend

description of field partner's role in assessing risk:
http://www.kiva.org/about/risk/field-partner-role

Er. Watch my mouth? You're

Er. Watch my mouth? You're not really so good at this oppositional rhetoric thing, are you? The first link you posted includes the 36% you cite in this sentence: "To break even on the $500 loan, the MFI would need to collect interest of $50 + 5 + $25 = $80, which represents an annual interest rate of 16%. To break even on the $100 loan, the MFI would need to collect interest of $10 + 1 + $25 = $36, which is an interest rate of 36%." Did you even look?

ah. i see. you've elected to

ah. i see. you've elected to be overly literal instead of trying to make an actual point.

you're done.

I think Jack Tripp's point is

I think Jack Tripp's point is reasonable. It seems like your claim about interest rates is completely literal. Why are you so hostile? We're on the same side, but we do have to present the facts truthfully or we wind up being as self-serving as the opposition.

I'm hostile because i'm an

I'm hostile because i'm an angry, childish person who doesn't take criticism well. now fuck off.

Wikipedia's page on them

...shows low rates of 8% and high rates of 80%, a few zeros in Islamic countries. Eyeball average range looks like something between 20% to 50%, with many in the 30 to 40% range. The arguments for this are local rates of inflation.

which is nonsense, of course.

which is nonsense, of course. inflation rates globally top out somewhere around 30% in the very worst cases. The fact is that the "field partners" are operating on a for-profit basis meaning that this is yet another example of the privatization of aid to the developing world..

Most of what I've read about

Most of what I've read about this hints at precisely that. There's also the problem that sheer charity tends to undercut local development, too, as in giving away solar powered flashlights, food, etc. Africa would be able to feed itself if its farmers weren't on one hand growing luxury crops for Europeans and Americans and on the other, being the dumping ground for government-supported crops from the US and the EU.

Micro finance thieves victimize the poor

You stated that the micro rates are up to 36%...actually that is low compared to many of these Kiva partners.
If you want to see the financiers rates charged to the borrower, in Kiva click on lend, then select a random borrower profile, then see "About the Field Partner " for that loan. The rate from many are 60 to 80%!!!!

These for-profit Kiva partners exploit the poor who have no other option but to solicit these corrupt loan sharks and their exorbitant interest rates that Kiva does business with.

As a lender with Kiva, I have no doubt that some borrowers greatly benefit from a low interest loan, unfortunately, more and more of these shady financiers are charging outrageous, criminal even, interest rates with Kivas blessings and endorsements.

A follow up on the borrowers would certainly reveal a subsequent economic enslavement as the poor and gullible/desperate borrowers struggle to pay off the loan shark.

I no longer loan with Kiva unless the field partner has reasonable interest rates, and that is a rarity.
I was shocked to find that one loan that I made to a Filipino business woman was at a 78% interest rate. I wanted to find a way to contact her directly to offer her a no-interest loan but Kiva does not reveal that information.

Kiva should be ashamed of their affiliation with these criminals and it is time for a wake up call to those that lend with Kiva, thinking that the borrower is getting a free or low interest loan.

It's horrifying

It's like the IMF model that bankrupted the developing world in the eighties and nineties has gone bust, so now these people with their idiotic ideas have decided to try the same thing on an individual level. Every time I think about this it makes me furious. Because microlending COULD be a very productive tool. If an organization like Kiva capped it's allowable interest rates at even a usurious APR like 17 or 18 percent it seems like they could still attract lenders and do so in a more ethical and sustainable way.

Need to target the true problem: banks

What about banks that would never lend to these people that Kiva lends to? Why not comment on them? They're the ones that drive people to Kiva and payday lenders because they 1. Would never lend such a small amount, 2. Charge unthinkable rates for overdraft fees, which also target the poor.

They put on their suits and 'white hats' and cater to 'responsible' (i.e. upper middle class on up) and then complain when the U.S. legislature forces them to do things like *gasp!* ask consumers if they want overdraft 'protection'.

http://www.nafcu.org/Content/NavigationMenu/Legislation_Regulation/Legislation/Overdraft/Overdraft_Programs.htm
"NAFCU is also concerned about the requirement in both pieces of legislation that overdraft protection services require consumer consent. If overdraft programs become subject to an “opt-in” requirement, credit unions could be forced to bear a significant regulatory burden by having to contact all of their members to obtain consent for the service. NAFCU prefers an “opt-out” provision in the legislation instead, which would still give consumers the option of declining overdraft protection, while greatly reducing the burden on credit unions."

They collect BILLIONS annually in 'fees' which is essentially interest on short term, small dollar amount credit:
http://www.publicintegrity.org/blog/entry/2718/
"Earlier this week, Financial Reform Watch reported the Consumer Federation of America’s call for the Fed to step in and stop banks from manipulating payment order to drive up overdraft fees until the new Consumer Financial Protection Bureau is up and running in July. The advocacy group says that consumers pay $23.7 billion annually in fee-based overdraft programs, an amount greater than the “loans” extended in exchange for those fees because of the hefty cost of overdraft protection."

Say a person overdraws $25 on their checking account 2 days before their paycheck is deposited and is charged a $35 fee:

($35 fee / $25 principle) / 2 days * 365 days * 100 = 25,550% APR !!!!!!!!!!

Even U.S. payday lenders (which are required by the Truth In Lending Act to disclose the interest rate on the first page of the loan contract) come out smelling like a rose compared to bank overdraft interest rates. In my home state of KS the max loan amount is $500 and payday lenders typically charge $75 for two weeks (from one paycheck to the next)

($75 fee / $500 principle) / 14 days * 365 days * 100 = 391.07% APR

While I agree on several points about Kiva, particularly their disguising of true interest rates and casting themselves as a charitable organization, I personally think Kiva is small potatoes compared to the criminal behavior banks are allowed to get away with.

Banks should be forced to classify overdraft fees correctly as interest on short term credit. This would would then cause the overdraft charging process to fall under the auspice of the Truth In Lending Act which would expose their astronomical interest rates.

BE WARNED kiva non payment

kiva charge very high interest rates and the poor victims are bullied and threatened into payback. It took a long time and many demanding messages before I could withdraw my money. Half of my loans never got paid back, they call it "delinquent" but in my opinion kiva took my cash. BE WARNED