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Microcredit: the cure to poverty, or a token guilt-easing gesture?
Kate of Lokys
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Registered User regular
When my parents asked me what I wanted for my birthday this year, I really couldn't come up with anything tangible - as far as material goods go, I have everything I need. So, instead of buying me something I wouldn't use, my parents offered to cover the cost of my next trip down to see my boyfriend... and they also gave me a $100 gift certificate to Kiva, my well-meaning middle-class father's latest love.
What is Kiva, you ask? It's a microcredit facilitation service. To use their words...
Salman Mammadov, a poor Ugandan farmer, raises cattle. He's eking out a living right now, but he figures that if he bought three more cows (and some food for them), he could improve his situation by breeding them and producing more cows to sell. The only problem is, it would take about $1000 to get three more cows, and there's just no way he can get that kind of money up-front.
Jenny Munroe, a middle-class Canadian teacher, wants to contribute somehow to the reduction of poverty. She doesn't have much to spare, maybe $100 or so, so she wants to make sure it actually makes a difference to someone - she doesn't want it to be sucked up in administration fees for some massive aid organization.
Kiva lets Jenny give her money directly to Salman, with the aid of non-profit microcredit field partners. Salman gets in touch with his local microcredit agency, and tells them how much he needs, what he plans to do with it, and when he thinks he'll be able to pay back the loan. The agency posts his request on Kiva, where people like Jenny can find it. Jenny then uses Paypal (which waives its usual fees) to loan her $100 to Salman. So do a dozen other people, loaning amounts ranging from $25 to $250.
In no time at all, Salman has his $1000. He buys his new cows, and over the next six or ten or twelve months, he repays his loans. Jenny and her fellow good Samaritans get the money back in Kiva credit, which they can either cash out, or loan again to someone else.
It sounds like a great program, right? I thought so at first, from the way my father described it to me. $50 to a goat herder in Tajikstan so he can buy a goat, $150 to a young single mother in Bolivia so she can buy a propane grill and a little wooden cart and set up a street sausage vending business, maybe $500 for a group of women in Benin to establish a small palm nut processing mill... small amounts of money, applied thoughtfully, making a significant difference in the lives of the recipients. Loans, not just charity. The first steps towards familial financial stability, not just a few tonnes of humanitarian grain rotting in a government warehouse with no way to get to the people who need it.
So tonight, I created an account at Kiva.org, deposited my gift certificate, and set out to find some worthy farmer or baker or goat herder to loan my hundred bucks to.
What I found was... disturbing.
For starters, the absolute smallest loan request on the site was for $225. So much for loaning somebody $50 to buy a goat.
In fact, I had to look pretty hard to find any agricultural loan requests at all. Instead, I kept turning up stuff like, well, these.
Most of what I saw on Kiva wasn't sustainable, individual-scale economic growth: it was people asking for $500+ so they could renovate their homes, or flog beauty products door-to-door, or sell cheap Chinese knockoffs of licensed stuffed animals wholesale. I had - naively, I admit - envisioned some sort of bucolic third-world communal utopia, villages banding together to purchase livestock to keep them all fed, groups of women requesting loans for looms so they could start manufacturing and selling traditional blankets. What I found was consumerism and short-sightedness and selfishness.
So, what do *you* think about microcredit in general, or about Kiva in particular? Is it a partial solution to poverty, or is it an easy way for us haves to feel like we're helping? Do we have the right to disapprove of someone asking for a loan so they can sell luxuries to the poor, further impoverishing them for the sake of enriching themselves (instead of, say, including them in a community business), or would that be unspeakably hypocritical of us? When we loan someone $500 so they can sell Coke, are we helping them out of poverty, or are we harming both them and their communities by propagating our own ideals of consumerism? Is my own obsession with giving people money for goats and cows just hopelessly ethnocentric and stereotypical?
Can $200 change someone's life?
Even if it can, does it? Or does the current system just result in the same people taking out loan after loan (the latest for $400, repaid over *two years*, to renovate her home again) in an attempt to buy their way into a Western lifestyle?
Discuss, et cetera.
What is Kiva, you ask? It's a microcredit facilitation service. To use their words...
Here's how it works.Kiva.org wrote:You choose who to lend to - whether a baker in Afghanistan, a goat herder in Uganda, a farmer in Peru, a restaurateur in Cambodia, or a tailor in Iraq - and as they repay their loan, you get your money back. It’s a powerful and sustainable way to empower someone right now to lift themselves out of poverty.
Salman Mammadov, a poor Ugandan farmer, raises cattle. He's eking out a living right now, but he figures that if he bought three more cows (and some food for them), he could improve his situation by breeding them and producing more cows to sell. The only problem is, it would take about $1000 to get three more cows, and there's just no way he can get that kind of money up-front.
Jenny Munroe, a middle-class Canadian teacher, wants to contribute somehow to the reduction of poverty. She doesn't have much to spare, maybe $100 or so, so she wants to make sure it actually makes a difference to someone - she doesn't want it to be sucked up in administration fees for some massive aid organization.
Kiva lets Jenny give her money directly to Salman, with the aid of non-profit microcredit field partners. Salman gets in touch with his local microcredit agency, and tells them how much he needs, what he plans to do with it, and when he thinks he'll be able to pay back the loan. The agency posts his request on Kiva, where people like Jenny can find it. Jenny then uses Paypal (which waives its usual fees) to loan her $100 to Salman. So do a dozen other people, loaning amounts ranging from $25 to $250.
In no time at all, Salman has his $1000. He buys his new cows, and over the next six or ten or twelve months, he repays his loans. Jenny and her fellow good Samaritans get the money back in Kiva credit, which they can either cash out, or loan again to someone else.
It sounds like a great program, right? I thought so at first, from the way my father described it to me. $50 to a goat herder in Tajikstan so he can buy a goat, $150 to a young single mother in Bolivia so she can buy a propane grill and a little wooden cart and set up a street sausage vending business, maybe $500 for a group of women in Benin to establish a small palm nut processing mill... small amounts of money, applied thoughtfully, making a significant difference in the lives of the recipients. Loans, not just charity. The first steps towards familial financial stability, not just a few tonnes of humanitarian grain rotting in a government warehouse with no way to get to the people who need it.
So tonight, I created an account at Kiva.org, deposited my gift certificate, and set out to find some worthy farmer or baker or goat herder to loan my hundred bucks to.
What I found was... disturbing.
For starters, the absolute smallest loan request on the site was for $225. So much for loaning somebody $50 to buy a goat.
In fact, I had to look pretty hard to find any agricultural loan requests at all. Instead, I kept turning up stuff like, well, these.
- I need $525 to buy cosmetics to sell. "She has been in business for over eight years and currently makes about $200 in profit each month."
- I need $250 to stock my store with delicious Coca-Cola! "The hot weather makes soft drinks all the more appealing; a very cheap marketing tool! All of which explains why selling soft drinks is such a popular venture, whether you’re the CEO of Coca Cola Ltd in the United States or a micro-entrepreneur in Tanzania!"
- I need $325 to renovate my house. "Roger Mauricio is requesting a loan to invest in renovations to his home located in the 5th zone of Nueva Guinea, he needs to remodel his home to have a little comfort."
- I need $400 to renovate *my* house! "Mrs. Maribel seeks a loan to build a porch and thus provide more security for her home since it is empty all day long while she works and her daughter is at school."
Most of what I saw on Kiva wasn't sustainable, individual-scale economic growth: it was people asking for $500+ so they could renovate their homes, or flog beauty products door-to-door, or sell cheap Chinese knockoffs of licensed stuffed animals wholesale. I had - naively, I admit - envisioned some sort of bucolic third-world communal utopia, villages banding together to purchase livestock to keep them all fed, groups of women requesting loans for looms so they could start manufacturing and selling traditional blankets. What I found was consumerism and short-sightedness and selfishness.
So, what do *you* think about microcredit in general, or about Kiva in particular? Is it a partial solution to poverty, or is it an easy way for us haves to feel like we're helping? Do we have the right to disapprove of someone asking for a loan so they can sell luxuries to the poor, further impoverishing them for the sake of enriching themselves (instead of, say, including them in a community business), or would that be unspeakably hypocritical of us? When we loan someone $500 so they can sell Coke, are we helping them out of poverty, or are we harming both them and their communities by propagating our own ideals of consumerism? Is my own obsession with giving people money for goats and cows just hopelessly ethnocentric and stereotypical?
Can $200 change someone's life?
Even if it can, does it? Or does the current system just result in the same people taking out loan after loan (the latest for $400, repaid over *two years*, to renovate her home again) in an attempt to buy their way into a Western lifestyle?
Discuss, et cetera.
Kate of Lokys on
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The third world is, evidently, no different.
Personally, I was never too fond of charities. Just the idea of the guy running it driving around in a mercedes and wearing a 2000$ suit doesn't strike me as very charitable.
The people I'm usually charitable to however are usually in my immediate surroundings. Like the pizza dude for instance.
Yes, there are going to be some loans on there that many people wouldn't consider being "worthy" - however, I had no problem finding agricultural loans tonight. How are you searching? Also, apparently the site has gotten a lot more popular since it was mentioned on Oprah several months back. There may not always be something in an area you're looking for - for instance, I didn't see anything under the "education" category.
I'll agree with electricitylikesme in that from an individual Western person's perspective there are probably much more effective ways, given our more prominent financial structures, to give more meaningful help. For microfinance to work it would need to be institutionally run and not rely on urging people to, in effect, donate to charity in a less than optimal way.
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Well, microloans only make sense at all in countries where the human development index is around .700 or higher. The definition of "third-world" varies, but for most truly agrarian or developing countries, we're talking about getting clean water and vaccines first and maybe in a generation or so they'd have the financial infrastructure where a loan of any size would make sense.
I think Kiva's problem is that they've grown too fast too quick. They've put the call out to local financiers and business-owners to look for viable candidates, and so they've received a glut of candidates who simply aren't any better than credit-card-addicts in than US... only poorer. And when you consider that the average interest rate on these loans is in the 30% range, it starts to smell a whole lot like predatory lending.
I think there's a place in the world for microloans. I just don't think Kiva.org is that place.
the "no true scotch man" fallacy.
A lot of the philanthropic institutions that are behind it, now that it has become popular, are targeting non-risky clients that can be served by for-profit firms, instead of those who have no other options. The original idea was great, and what it eventually led to was a lot of institutions figuring out how to turn it into a profit making business. Which is great, there are more than 10,000 microfinance institutions around the world today, and plenty of competition. But it still looks like a brand new fad to a lot of charities, and they're competing with for-profits for clients, instead of looking for more a more needy base. I suspect because they want their returns to look good, and to hail their ventures successes, instead of going where commercial alternatives don't exist.
The OP's focus on this "we" that lends to "them" is misguided. Most of the successful, top microlenders are indigenous outfits like Compartamos and ProCredit that are self-sustaining. You don't hear about them like you do a website like Kiva because they don't need random donations from the internet.
Microfinance is no longer a charity-only proposition. Now it's just time for charities to get the memo.
And I don't have a problem with any of those business propositions. If it helps you get money, do it. I don't see a reason for individuals to worry about how their jobs will affect the health of the economy.
IIRC, the average microcredit loan is around $300. So, that's not unusual.
Seems pretty interesting, the projects we're doing, and I'd probably be able to contribute a lot more to this discussion once I come back
Actually, last summer I did some research for work on microfranchising, which seems like a pretty cool thing. Examples would be Honey Care in Africa where farmers can buy, via loans, a special high yield bee hive thing, and they guaratnee to buy honey at market price and have connections with distributors.. or this dairy company that does bike vendors for ice cream products. Seems like a good model overall as it gives a franchise type business framework for the people to go off of, making it likely the business will at least be relatively stable
Microcredit, on its own, is great and all. What Kiva appears to be doing is making the microcredit aspect of their program subordinate to their "making western folks feel like they're making a difference" marketing angle. They're just introducing an unnecessary middle man by conveying requests half-way around the world to westerners.
I don't think I'd knock the people requesting loans however. Some of them sound like they have businesses to run to support themselves just like everyone else, and need credit to expand those businesses.
Heard a great guest speaker a couple of months ago, Naresh Singh from the UNDP's Commission on Legal Empowerment of the Poor. I recall he was a little critical of microcredit, but I think it was because the rates can be pretty high, especially when people don't have collateral.
The commission's job is pretty awesome - basically to assist people in the developing world assert their legal rights, both politically and economically. A big focus is business law and property law, because one of the greatest problems is the lack of "certainty" as titles to property are unclear or non-existent. He cites a figure of $250 Billion worth of property worldwide that is essentially unusable because it can't be sold, can't be used as collateral (so what they're trying to do really works hand-in-hand with microcredit), or isn't worth investing in (because you might lose it tomorrow).
If you have an hour or so to listen to something in the background, [URL="mms://media.osgoode.yorku.ca/events/IPPLecture-Feb152008.wmv"]here's his presentation[/URL] (launches in Windows Media Player). It was very interesting.
It almost sounds like I'd be helping someone fund a goddamned ACE payday-loan store.
However, my question "How much of the interest these people are obviously going to be charged do I get?" still stands.
In other words, if the lending intermediary is charging 10% APR and I'm only getting 2%, that's a problem. I don't even care what I'm actually getting, and can even accept nothing if the interest rate is low. I just don't like the idea of the intermediary profiting off of ass-fucking people with high interest and ass-fucking me out of that earned interest while simultaneously giving me zero incentive to re-invest it in someone else.
― Marcus Aurelius
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I have no problem with charity.
I have a problem with an intermediarty selling my charity as a loan (which is what they are doing, unless I just completely misread the entire thread) and making a bunch of interest off of it in order to profit for themselves.
People are supposed to pay back, if they fail to do so the bank will take action, just in a more humane way than normal banks. If people can not pay them back because of hardship outside of their control then I'm sure the bank will not take away their home or something.
It is important to remember that the people taking microcredit are not poor people who are dependent on your charity to survive, they are people like me and you who live in a much harder environment who just need some money to start up their business and become stronger. They are not sad, little, malnourished, big-eyed, cute Africans, they are human beings who just need some cash to get started.
Yeah I'm curious about this too.
I'm also confused about the OP - It is apparently a good idea to lend some cash to someone who hasn't owned a business, so they can open a (hopefully successful) hot-dog stand, but it is a bad idea to extend credit to an already-established business?
I've used kiva for a while, made about 8 loans. You do not earn any interest at all. AFAIK, they don't charge the lenders interest either, but I might be wrong.
but if you are worried about earning interest on your $25, if doesn't sound like you should be investing it in a bank designed to help out the really poor...
Why not? Are you saying that the poor should only be helped through charity and gifts? In order for these sorts of systems to really thrive, EVERYONE needs to be benefiting, including the lender.