Earlier this summer, Kiva.org launched a new initiative – to apply their process for making microcredit loans to entrepreneurs in the U.S. In this tight economic market where obtaining credit is a significant challenge, you would think that Kiva’s new venture would be a slam dunk, one to be lauded by the masses. Yet, in fact it has faced some considerable criticism.
Traditionally microcredit has been utilized as a strategy in the developing world. Small loans are made to individuals to spur entrepreneurship as a means of alleviating poverty. This has worked historically well abroad, I believe due to the fact that a small dollar amount loan can profoundly impact an individual’s ability to have a sustainable income. A similar impact domestically in the U.S. would require a much larger loan.
Yet, Kiva seems to have all the right pieces to make the application to the U.S. work – a great track record, the media contacts to actively promote the new endeavor, committed users and the boldness to experiment. Since its founding in 2005, over $81 million has been loaned to entrepreneurs in 183 countries in the developing world. Over 500,000 individuals have made loans to nearly 200,000 entrepreneurs with a repayment rate of 98.52%.
So what is all the criticism about?
It seems that the heart of the debate is the question of whether the U.S. entrepreneurs really need the loan as a means to alleviate poverty. Among The Friends of Kiva site’s 20 pages of comments and the Unhappy Kiva Lenders group on the site there is also concern that money going to the U.S. will decrease loans going abroad where the need is deemed much greater.
To me it felt like comparing the U.S. profiles to the international profiles was like comparing apples to oranges. The U.S. profiles range from Sonia who has applied for a loan for $10,000 to acquire working capital and purchase inventory such as a key-making machine for the hardware store she owns with her husband to Erik and Shane who will use their loan for advertising and inventory for their store selling board games. I completely admire all of their entrepreneurial spirits, but does it equate a loan of $675 to Trang in Vietnam so she can buy baby livestock for her business raising water buffalo for sale allowing her to earn $170 a month in terms of poverty alleviation. It really does make you question the impact an individual loan can make in moving someone out of poverty.
I also wonder if because circumstances in the developing world are so dire, that we, as individual donors, feel like any contribution we make is better than nothing. We are so far removed both geographically and culturally that it is easier to act emotionally rather than strategically. I don’t factually know that helping to buy a baby water buffalo for Trang will get her any closer to escaping poverty than the growth of Sonia’s hardware store will help her and her family, but it just feels like I am making a much bigger difference.
Quite simply, the U.S. stories did not pull on my heartstrings in the same way as the international entrepreneurs. But are heartstrings enough of a reason to decide to make a loan or give a charitable gift?
Filed under: Uncategorized Tagged: | Kiva, microcredit
Excellent article, bookmarked for future referrence