My experience investing through Kiva (Invite Link to the Quality Abundance Team), as an alternative ethical loan mechanism. Originally posted on Reaching Aspiration.
To be better and live a more purposeful life, I am actively looking for ways to make a more meaningful impact on the world. I’m also conscious that there are ways to do good, better, to give better, simply, to be better. I recognise that unintended consequences from a positive intention can range from ineffective to debilitating.
While looking for an ethically conscious ways, to allocate (my limited) capital such as investing through Trine, I was introduced to Kiva by Amanda.
What is Kiva
Kiva is an interesting concept, generally through their partner companies, they provide short term loans to those that the existing financial market mechanism neglects. Neglected due to economic forces such as lack of stability, little or no collateral or simply the amount required is just not worth the work needed. Administrative costs on small loans are often higher than the risk premium in the form of interest.
My experience with Kiva
Kiva is probably more of a marketplace for loans than a financial provider. Effectively I became a partial provider of the loan, no, that is not quite true. There is an intermediary providing the loan, I am underwriting that, reducing the risk faced by the intermediary for some financial gain.
In the KIVA marketplace of loan options there are plenty available. The first step was to narrow this down, by choosing a category or region. I went with Zimbabwe given my family history and affinity to this beautiful country.
Choosing Zimbabwe narrowed my options down to 13, most of the recipients were seeking a loan to stock a shop/store. I glanced through the various options to see if there was an obvious correlation between generosity of support and the pictures – males/females, groups, smiling… refreshingly there wasn’t an immediate correlation that I could see. Although the butcher seemed to be the least supported, perhaps it was because of the obvious correlation between vegetarians and socially conscious living, perhaps it was coincidence.
The intermediary
On closer examination, it became clear that for the ones I looked at, the loan had already been made, this was then underwriting the loan risk. Each loan has a recipient and typically an intermediary (partner), which has stats on how much it has loaned, typical APR, delinquency and other stats. The cost to the borrower is high, the two I looked at were 69%, but I imagine the majority of this is typically transaction costs and it is still, far lower than alternatives (assuming there are any) and still lower than a large section of short term loans in places like the UK which can be in the 100s or 1,000s percentages.
The story
Each loan had a story explaining why they needed the loan and the length required. Given the price fluctuations in Zimbabwe, it can make running any business tricky. It’s admirable for these entrepreneurs to persist, whether driven by necessity or determination, the need for loan may not be driven by lack of business prowess. It really is a case of, you need money (or credit) to make money and the loans ranged from $600-$2,500. The reality is that there is very little natural credit in the system and even less that is affordable.
For the purposes of this review, I decided to support the one closest to be meeting their funding goal. The option to support goes up in increments of $25 to the remaining amount of the loan. I added a $25 loan to my basket and then proceed to check-out. On check-out kiva pre-added a donation of $3.75, this is adjustable and shows a tree with fewer or more leaves depending on which direction you slide it. Very cleverly done in a visual way.
Paying it forward
It also has the option for a gift card, which aligns well to giving better. In all likelihood, the person will get the money, the awareness and the impact. I love it.
I signed in/created an account with Facebook. It asked for my profile and e-mail address. I then had the option to create a lender page or remain anonymous. I went for the lender page an it pulled my profile pic to add to those supporting the loan.
Checking out with Paypal was easy enough and they gave an option for a credit or debit card. Normally with these things they encourage the use of a current account to reduce fees, so assume Paypal has a good rate, or they absorb the credit card fees.
Then they gave an option to share the borrowers story and my lender page.
The is followed up with an email titled “Your first step toward changing the world“.
Conclusion
Overall, I’m impressed, the process was slick and they are making a positive impact in the world. I have faith (and evidence) that we will see more of these companies in the future. Looking to make a difference and I certainly will be supporting them in the future.
Kiva does not give a return to the funder and even encourages the person doing the funding to cover the fees, so from an investing perspective it does not make sense, from donation perspective it is great as it is socially accountable and a hand-up, not a handout. As one person pays back, a new person can be funded. I am likely to limit my contributions to gifts and what I call accountable giving.
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