Why We Microlend at Team SYSK (Part II)

Josh Clark

(You can read part I here.)

It's unusual to be involved in something we've podcasted on. We've done a podcast on Muppets, and while both of us know live-hand puppets like Ernie from Sesame Street are operated, neither one of us have ever had our hand in one. We know from our podcast that there are about 120 dead bodies on Mt. Everest, but we've never seen them. We know that Einstein's brain was kept in a jar for decades, the ins and outs of mortgage-backed securities, that the FDA doesn't regulate herbs and that there are some decent theories explaining spontaneous human combustion, but none of these things mean what microlending has to Stuff You Should Know. Because of our Kiva team, we are tied to the organization in the minds of other people, and that can be an odd thing.

Very quickly after we founded the team, we learned that we had much to learn about Kiva.org. We learned that the interface is misleading in how it matches you with a photo of a specific borrower. The loans are actually already made to those borrowers. Lenders are repaying the money to the local banks that made those loans. We also learned that the loans made by a user go into a pool, not directly to the person the user selects; carefully selecting a borrower has exactly the same effect as clicking "Lend" on the first entrepreneur on the home page. Finally, we learned that one of the site's lending partners in Ghana charges interest rates of about 68 percent, while the average for all of Kiva's lending partners is just over 38 percent (which is about on par for the global average for microfinance as a whole).

It was weird as news of these things came out in a couple successive articles in the New York Times (please read them here and here). With all of the other podcasts we've ever done, we have passed along the best information we have at the time. With Kiva, we maintained a stake, and our credibility was involved. We've encouraged the people who listen to our podcast to join our team and loan their money based on the idea that it will go to help people, not exploit them.

Over time, we have stopped to ask ourselves and one another if we are right in asking others to join our team. It's one thing for the two of us to personally make loans on Kiva; it's entirely another to encourage people who trust our judgment to do the same. But time after time, we have come to the same conclusion: that, despite the flaws it does have, it's still an organization we can support and we feel like they're doing a lot of good for entrepreneurs in emerging economies. The two of us have put our trust in Kiva, warts and all.

And we are very grateful to the New York Times for the reporting it's done on Kiva and the state of microlending in general, because if microloans are issued to exploit the poor then they should not be funded at all. We maintain this stance toward microlending sites that are intended to make money for users. It just doesn't maintain the original selfless spirit that Yunus envisioned.

There are those, and most likely the majority, who are helped by loans made on Kiva. But this help comes at a cost for people in other locales where the interest rates are highest. Because of the model that Kiva follows, where loans are pooled into one account before being distributed once more, the only way to alleviate those who pay the highest price is for Kiva to pressure its lending partners to lower their rates. But in the meantime, should the site stop lending in Ghana? In much the same vein, should users stop lending on Kiva until the site can lower interest rates everywhere to an acceptable level?

For the two of us, the answer to both questions is no. But it's here that we reach what has become the essence of lending on Kiva, a personal struggle that comes from the conflict of what draws a person to loan (the desire to help) with the reality of the loan process (that it may fulfill a loan with an interest rate of 68 percent). We have made our decisions, and, we have noticed that it is part of the process of becoming a true Kiva lender. The initial euphoria and self-congratulation of the first loan is supplanted by a sense of betrayal and outrage when the reality of Kiva is understood. Here, some people stop lending in protest, but others opt to continue. Either way, this process is vital; realizing that these loans can potentially be used to exploit a human being for profit makes the recipients more human, more approachable.

Somewhere toward the middle of the spectrum between an uninformed lender on Kiva who is nothing but sunshine and good intentions and those people who have never made a loan and are only aware of the bad press is perhaps the most desirable type of lender: one who is acquainted with the pitfalls of microlending. It's heartening to see people on our team's message board wrestle with their decision to continue lending after learning the full Kiva story. As recently as Thursday, one of our team members posted a message damning the two of us and warning others of the high interest rates in Ghana.

What's perhaps most interesting, and heartening, is that a group process to support the individual process has developed. Within 20 minutes of the author's post, another team member provided a link to an Asian Development Bank paper explaining microfinance and the higher interest rates involved. Another six minutes later, the couple that serves as de facto leaders of our team posted a response. The following day, Kiva asked one of its people on the ground in neighboring Togo to respond to the comment.

No one sought to pressure this guy to keep making loans. In fact, no one wants him to keep lending if he isn't fully on board. He wasn't a slouch either; he'd made 25 loans -- about four or five times as many as each of us has -- before learning of the Ghana debacle. One of our members groaned, "We went through this interest rate debate last April. Do we need to do it again?"

It seems like the answer is yes.

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