Help by doing nothing on Kiva with charitable microcredit

Ever wanted to dip your toes into lending, microcredit, and microloans or start investing in the developing world? Figuring out how much to give to charitable causes and how much to save might be difficult. Those two things were at odds. Until Kiva came into the picture.

The purpose of Kiva is very simple: To provide finances via microcredit operated by charitable institutions. That means your money goes to small-scale entrepreneurs, students, and social groups in areas with a lack of funding or without access to financial institutions. The underbanked billion in the World. Lenders providing funds do not earn any interest (hence charitable microcredit) nor does Kiva itself. But borrowers still pay interest to organizations operating on the grounds and providing in-person services.

How does it work?

Kiva itself has a great resource on the subject but the basic idea is this: Field organization in a country where loans are provided, provides funds on regular basis. It identifies a suitable candidate for Kiva via its own application process and creates a loan application for refinancing. Refinancing means that the money was already provided but with the financing, the institution will get cash to provide to someone else. They are also incentivized to loan to more people like the mentioned borrower if it means getting additional funds more quickly.

On the website, lenders read the applicant’s story and decide, whether they want to support this particular endeavor. If so, they provide funding in $25 increments (that’s US Dollars to be precise), which the borrower then repays in installments – as with a bank. And the lender? They can lend their money again to another microborrower; or withdraw it if they need to.

How can you join?

I’m glad you’ve asked! There is a simple 4 step process to it:

  1. Register your new account
  2. Top it up from PayPal, it takes card as well
  3. Select a borrower you’d like to support and pledge your money (also choose how much to support Kiva, it can be zero – at least for the first time)
  4. Setup a monthly payment to Kiva (that’s a new one!)

Account registration

Account registration is incredibly simple. You have to fill in just a few pieces of information and create your account.

Funding your account

The next step is to top-up your account in order to provide funds that you can lend to people. You have to use PayPal as a payment processor but fear not, takes all the cards (no bitcoin thought also bitcoins now)

Adding funds for your charitable microcredit is just a three-click affair
Adding funds is just a three-click affair

How do you choose to whom lend on Kiva?

When you click on find a borrower, you will be transferred to a site, where you can choose. Click on the filter, select what is a worthy cause for you (Is it education? Clean energy? Agriculture? Manufacturing? Anything else?) or which region is important for you to support. In the example below I selected South America, Food and Youth applicants. I like to vary the regions, but give money mostly to agricultural causes (mainly because I believe agricultural workers are the most impacted by climate change and least likely to have access to capital). What will be your choices?

Selecting the right loan for your microcredit to make an impact.
Selecting the right loan for you to make an impact.

Making the investment

The last step is extremely simple. When you choose the right recipient for your money, it goes into your basket, as if you were shopping for iPhone smartphone case. When you visit your basket, you can decide how much to donate to operations (not mandatory, but most welcome). Complete order and pay via PayPal. And feel good for supporting people in need!

Actual money lending for charity!
Paying for funds

Actually, how did it all start?

We’ll have to go back a couple of decades back to the birth of microfinance. There is a story involving a Nobel peace prize, Bangladeshi women, an old professor of economics, and a bank.

Grameen bank

In the 1970s Mohammed Yunus was a professor of rural economics at Chittagong University. During the devastating famine of 1974, he met a woman struggling to buy supplies for her weaving business. She had to borrow money from local moneylenders for extraordinarily high interest rates which made sure she was forever going to be in the debt cycle and in poverty. After learning that more women were struggling with the same situation and no bank will ever lend to them (they possessed no stable income, no assets as collateral, no references) Dr. Yunus decided to lend them money himself. The loan totaled $27.

To his surprise, the borrowers paid the money back in full, which prompted him to repeat this little experiment in other villages as well. This microcredit experiment was later expanded as a research project on the University of Chittagong in 1976, providing credit to nearby villages. After few years the project was expanded again to service the whole region with finances from the central bank and in 1983 Bangladeshi government awarded Grameen bank with a banking license. The bank is owned by borrowers themselves and for efforts to alleviate poverty, it was – together with Dr. Yunus – recipient of the Nobel Peace Prize.

From Grameen to

Grameen bank was a direct role model for Kiva, according to co-founder Matt Flannery. According to his record, he and his wife were inspired by Dr. Yunus to start a social enterprise investing in Africa in microfinance. In their first business proposal, they already identified the need to select and work with locally established microfinance institutions (MFI) and use them to distribute money. At which point they’ve established that refinancing is the way to the goal is – to me – still a mystery.

At first, their idea of socially responsible enterprise did allow for investors receiving interest, but fear of regulation prevented them from realizing that part of a plan. The founding story is actually interesting and fun to read, so i recommend it. Reading rest of the journal is also recommended but bear in mind its age (over 13 years)

Is Kiva effective?

Yes, in a way. People in underdeveloped places need access to financial products, which they can leverage in their business. It’s also important to say that those loans are business loans, not consumer credit, which more often than not can have a devastating effect on the lives of the borrower in long term (higher probability of debt spiral). There are other things to remember:

  • Unless specifically stated, you don’t provide funds to people you invest in, you refinance their loans (if market forces are effective, more loans like that will be given in the future, but this unique person doesn’t benefit)
  • Funds and investments are good for alleviating long-term development issues, but not immediate ones. If you are interested in helping in an area struck by natural disaster or sudden war, just donate to humanitarian aid. Give a man a fish vs teach him to fish is a great saying, but only if you can keep the person fed and alive until they learn.

Why is Kiva bad?

I don’t think it is but in the grand scheme of things, there are some weaknesses. First of all, MFIs that are supported via Kiva charge interest and more often than not interest higher than we in the developed world are used to (excluding impoverished communities). They are also not a provider of loans but a refinancing institution (am I repeating myself? Apologies…), which can create confusion and lack of transparency. It also, by means of market forces and access to capital, motivates loan providers to assume more risk (not a bad thing for Kiva investors) and cover losses in case of default to keep the repayments ratio on Kiva-listed loans high enough for inclusion in the future.

Lastly, it creates a spectacle of poverty by means of personification and storytelling. It doesn’t come anywhere near where I would draw the line where spectacle is bad, because – in a way – you could say the same about any charity or attempt to draw attention to suffering. Documentaries like Dilli might be spectacular but much more important in raising awareness.

Alternatives in charitable microcredit space


European alternative to Kiva is called Babyloan. Originating in France, it was started 3 years later and uses the same principle of finding field organizations – Microfinance institutions – providing loans, listing their loans on Babyloan website and getting funds from investors. I could not find information on whether those loans are refinanced by investors or actually funded (latter would be less efficient but more corresponding with casual investors expectations). Babyloan is member of European Microfinance Platform


Zidisha took a different approach. After experience with running microfinance fund in Senegal and insight into high costs of operation of MFIs (mainly rent a and wages), Julia Kurnia decided to start an online venture connecting directly lenders and borrowers (in true P2P fashion). Zidisha was one of several non-profits that took part in Y Combinator accelerator and received funding from venture capitalists as a result. One of the features enticing to lenders is direct communication with borrowers, so if you have business wisdom to share, you might find an audience there.

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