and the Social Capital Markets

The NY Times recently wrote about how has a supply/demand problem. Too many donors, not enough people to give the money to. Caroline Heine on PhilanthroMedia writes today , “the inability of to keep pace with its own success is just one more example of the problems caused by the absence of a “true” social capital marketplace.”

I think Kiva’s problems are a great example of how strongly donors respond when social capital markets are created. I believe figuring out how to connect donors and nonprofits via marketplaces will result in temporary supply/demand imbalances. This is a normal reaction to creating liquidity in a market that did not have it before.

Grameen, the microfinance organization founded by noble peace prize winner Muhammad Yunus opened offices in Queens, NY recently. Kiva’s problem is not that there are too few people in the world who need microfinance, but that they’ve turned on the supply spigot and need to figure out how to turn on the demand spigot.


  1. Basti says:

    Maybe Kiva should point to alternatives instead of limiting investments to 25$. MicroPlace for example offers a similar service but wasn’t able to attract all that buzz so far. Actually I would even favour them since they confront the microfinance institutions with much less transaction costs than Kiva and their business model seems to be easier to scale.

    Of course their feel-good-factor might be much smaller, but for everyone who cares more about the poor than himself that shouldn’t be relevant…

  2. Very good point. Kiva wants to compete like any other organization, but there’s a strong argument that to further their mission they should be referring people elsewhere.

    What do other people think?

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  4. Rachel says:

    It frustrates me that all of the discussion of Kiva as “philanthropy” ignores the fact that “donors” are only lending their money, not donating it, and lending it in relatively small amounts. Perhaps the reason why other charities don’t have this problem is that they are asking donors to actually donate their money, their time or their experiences, rather than feel good for lending $100 to someone who is probably paying upwards of 20% interest (Kiva is totally nontransparent about the interest rates charged by their partners) for the privilege of receiving their “charity.”

  5. Rachel, I can understand your point. Kiva is not a model for donors to give money away. It is not philanthropy in the traditional sense and it will not replace philanthropy. But lending money to people without charging interest (which Kiva users do not charge, although the middlemen they lend to do charge interest to the end borrower) who would otherwise have limited access to credit and doing so with the knowledge that if you do not get paid back you have little or no recourse for collecting your money, is an act of kindness.

    In the evolving social capital markets, there will be a need for both donations and lending (and many other financial transactions). Kiva is not better than philanthropy, but its approach moves the field forward.

  6. Lamont says:

    I like the fact that kiva is not “strictly” philanthropic. Ideally a $500 loan produces not only a the repayment of the loan, but additional profits which continue over time. And then the repaid amount can be reinvested again producing hopefully another bootstrapping of a small business. Given enough time and enough bootstrapping you can hopefully create stronger economies.

    Third world economies are chronically lacking liquidity and credit, which is one of the reasons why they don’t function. Microlenders are attempting to provide it.

  7. Rachel says:

    It’s true that liquidity and credit are frequently a problem in developing nations, but a big part of the reason why they are a problem is that IMF structural adjustment programs instituted over the last 30 years discouraged government lending programs, particularly low cost agricultural loans. So poor people who cannot get significant, low interest government loans are now offered small high interest loans for projects in the informal economy. Loans that support jobs like peddling food or making handicrafts, jobs without security, and benefits, and that don’t really build a sustainable economy in developing nations. Microlending funds african basket weavers, who then are undercut when their markets are flooded by cheap Chinese baskets. Microlending is a more attractive face on neo-liberal economics, it functions as a poverty tax by charging poor people higher interest rates than wealthier people pay, and it’s never going to address the structural issues behind global inequality.