Is Kiva Misleading the Public?

Over the past two weeks, a debate has been simmering about the way in which Kiva (a microfinance organization) describes how they operate. It all started when David Roodman wrote a post on his Microfinance Open Book Blog titled “Kiva Is Not Quite What It Seems”. David is writing a book about microfinance and by live blogging his progress he is soliciting feedback. In the post, David wrote:

Kiva is the path-breaking, fast-growing person-to-person microlending site. It works this way: Kiva posts pictures and stories of people needing loans. You give your money to Kiva. Kiva sends it to a microlender. The lender makes the loan to a person you choose. He or she ordinarily repays. You get your money back with no interest. It’s like eBay for microcredit.

You knew that, right? Well guess what: you’re wrong, and so is Kiva’s diagram. Less that 5% of Kiva loans are disbursed after they are listed and funded on Kiva’s site. Just today, for example, Kiva listed a loan for Phong Mut in Cambodia and at this writing only $25 of the needed $800 has been raised. But you needn’t worry about whether Phong Mut will get the loan because it was disbursed last month. And if she defaults, you might not hear about it: the intermediating microlender MAXIMA might cover for her in order to keep its Kiva-listed repayment rate high.

In short, the person-to-person donor-to-borrower connections created by Kiva are partly fictional. I suspect that most Kiva users do not realize this. Yet Kiva prides itself on transparency.

In other words, Kiva tells lenders (users of the site) that the money flows like this:

  1. Lender picks entrepreneur to fund and gives the money to Kiva.
  2. Kiva transfers the money to a local microfinance institution (MFI).
  3. The MFI gives the money to the entrepreneur.
  4. The entrepreneur pays the loan back to the MFI.
  5. The MFI gives the money back to Kiva who returns it to the lenders account.

But in fact, the money flows like this:

  1. An MFI lends money to an entrepreneur.
  2. The MFI puts information about the loan on
  3. Kiva lenders (users) select a loan to have their money credited towards.
  4. If an MFI reports that a borrower is delinquent, Kiva calculates the amount to deduct from the lender’s accounts.

You can see the two versions displayed in graphics in a post on the GiveWell blog. Note that Kiva shows version one to lenders and version two to MFIs. However, due to the debate, Kiva has updated the version they show donors to more accurately reflect the process [update: GiveWell’s chart compares Kiva’s updated version, but still implies that it is misleading]. In fact, in a guest post on Roodman’s blog, Kiva CEO Matt Flannery offers an excellent response in which he acknowledges that much of what Roodman argues is true, promises to be more transparent and then gives the back story of how Kiva’s model has morphed from the direct lending process to the more efficient process of having MFIs make the loans before asking Kiva lenders for the money.

So here’s where it gets interesting for me. Roodman argues that while Kiva is misleading donors, the process they are using is good:

I hasten to temper this criticism. What Kiva does behind the scenes is what it should do. Imagine if Kiva actually worked the way people think it does. Phong Mut approaches a MAXIMA loan officer and clears all the approval hurdles, making the case that she has a good plan for the loan, has good references, etc. The MAXIMA officer says, “I think you deserve a loan, and MAXIMA has the capital to make it. But instead of giving you one, I’m going to take your picture, write down your story, get it translated and posted on an American web site, and then we’ll see over the next month whether the Americans think you should get a loan. Check back with me from time to time.” That would be inefficient, which is to say, immorally wasteful of charitable dollars. And it would be demeaning for Phong Mut. So instead MAXIMA took her picture and story, gave her the loan, and then uploaded the information to Kiva. MAXIMA will lend the money it gets from Kiva to someone else, who may never appear on

Tim Ogden, writing on Philanthropy Action, offers additional criticism of Kiva’s communications, but agrees with Roodman on the idea that Kiva’s practice makes sense:

In Kiva’s defense, this subtle misleading is not unique to Kiva; most NGO’s operate this way especially in disaster relief, child sponsorship, and alternative gifts (like giving a cow or a goat). The reason it’s so prevalent is that the donors demand it—and they vote with their dollars if the NGO is unwilling to provide the illusion of a person-to-person connection. Kudos to Roodman for exposing the illusion in a comprehensive and thoughtful way. While I think trafficking in such illusions is wrong, I understand why they are perpetrated in the name of the “greater good.“ I wish Kiva and others would abandon this practice, but I also acknowledge that they can’t until donors stop requiring NGOs to mislead them.

So here’s the take away. Donors like to believe that they are helping other individuals. They want their money to go directly to benefitting the people they seek to help. We see this in the Kiva model, in the child sponsorship concept and even in the way that donors want nonprofits to spend nothing on overhead.

Taken together, it seems that donors simply see nonprofits as bureaucratic intermediaries who play a necessary role of linking the donor to the recipient, but who otherwise should get out of the way. Nonprofits, recognizing the way donors think, play into the illusion by reallocating overhead expenses to program costs and then trumpeting their low expense ratio or subtly reframing how money flows as Kiva has been doing to make their process better align with the donor’s illusion.

I’m really not sure what to make of all this. On the one hand, you can’t fault nonprofits for spinning what they do to best satisfy donors. This is exactly what for-profit companies do. Satisfying your customer or donor is the job of an organization. But at the same time, this illusion that donors want to believe in, that they can support individuals rather than nonprofits, is poisonous because it creates an atmosphere where the best nonprofits are the ones who can best stay out of the way rather than the ones who can create the most robust organizations.

According to Roodman, Kiva’s actual process is better at helping poverty stricken entrepreneurs than the illusion of direct lending that Kiva spins for its donors. But would you as a donor rather make direct loans? What should we think about the fact that what we want as donors is not what is best for the recipient? Especially when we tell ourselves that we want to take direct action because we think doing so is the best way to help the recipient?


  1. Tim Ogden says:


    I’ve updated my post because a close reading of the Kiva documents suggests that even the revised money flow steps you have isn’t quite right. MFIs don’t repay Kiva unless the volume of new loans is less than the repayments. In other words Kiva uses a portion of new loans to credit the accounts of older loans. Again, there’s nothing fraudulent about this (it’s basic accounting) and it’s the right way to keep overhead costs down. But it’s just another place where the illusion of person-to-person connection doesn’t match up with reality.

    You ask the right question about what to do about this. Ideally change comes from the donor-side. Either they agree that they like illusion and promise don’t to get angry with non-profits who create the illusion for them OR donors finally understand that illusions shouldn’t be necessary in the first place and everyone agrees to be more transparent and realistic.

    To be honest I don’t hold out much hope of either happening.

  2. You wrote:

    “What should we think about the fact that what we want as donors is not what is best for the recipient? Especially when we tell ourselves that we want to take direct action because we think doing so is the best way to help the recipient?”

    Awesome, awesome questions. This post might be better titled, “Are donors misleading themselves?” And I think the answer would, all too often, have to be YES. It’s not just individual donors, either. This is why people like Grantmakers for Effective Organizations and Center for Effective Philanthropy put so much emphasis on LISTENING to the grantee (to say nothing of prospective grantees). Yes, the donor or the foundation may have a broader perspective that the recipient lacks — but recipients usually know best what their needs (or the needs of the population they serve) are.

    This goes straight to one of the central bugaboos of giving: the unequal power relationships in philanthropy. One has to remember that people who are in a position to give money away, whether it’s their own or others’, are used to calling the shots. They are used to being told that they are smart and they are right, because the people telling them such things want their money and don’t want to risk offending them. It’s very hard to get out of a bubble like that, because people who both a) know enough about your cause or field to critique your giving intelligently and b) don’t care about your opinion of them are hard to find. And you have to push yourself to seek out those opinions. After all, most of us like being told that we are smart and right, the more often the better. It’s all to easy to start to believe one’s own hype…and after that, it’s toast.

    Ultimately, donors will need to decide who they’re really trying to please with their donations. If they actually do want to help other people, then sometimes they’re going to have to put aside the ego and the emotion and perform a selfless act of giving.

  3. Kate Cochran says:

    I think you raise the right comment in wondering how poisonous it is to perpetuate a notion that nonprofits are merely there to reallocate resources to needy problems. Problems don’t need resources–they need solutions. Those solutions are driven by all kinds of resources–human ingenuity and effort, cooperation among competing stakeholders and sometimes straight capital. Figuring out the right mix and executing on the plan is what donors should be funding nonprofits to do. If they did, they would measure success on the degree to which the problem is being fixed and not arbitrary metrics of overhead ratios and working capital.

  4. Great questions, Sean:

    “What should we think about the fact that what we want as donors is not what is best for the recipient? Especially when we tell ourselves that we want to take direct action because we think doing so is the best way to help the recipient?”

    A humble but strongly-felt suggestion: get comfortable with words like “sometimes,” “where appropriate,” and other nuanced consideration of the options we have available.

  5. Aaron Stiner says:

    For many reasons we find ourselves in a situation in which the true costs of community benefit are hidden from donors. It seems we focus too much on just one portion of the costs – whatever an organization decides to report as overhead or administrative costs – and focus too little on the total costs to an organization to deliver change.

    100% of what a nonprofit organization raises is for community benefit! It takes every penny an organization raises to deliver change. (Also important that 0% is for personal profit.)

    In my mind a nonprofit business plan should look something like this:
    Mission/Vision – > Outcomes – > Indicators for reaching outcomes – > Strategies for achieving outcomes – > Costs to implement strategies

    The costs would then include everything it takes to implement the strategies for a given program. So we can then say, “It costs $100 for food for a hungry person, $50 to pay a program manager to run the this one program, $100 to pay the person who recruits volunteers to feed this hungry person, $50 to market and fundraise to get the money to do all this, $10 of our CEO’s time to attend the luncheon promoting this program and $25 of our accountants time to manage the process.”

    The total costs of the one program to deliver food to the homeless person is then $335. Of that the direct program cost is only $150 to pay for the food and the program manager. The $185 in indirect costs are typically not transparent to donors and yet we know that’s the money we need to effectively deliver food to this homeless person.

    Add up the costs of the various programs and you have how much it costs to achieve your impact.

    I believe business savvy donors would appreciate seeing the costs of every function embedded into each program, if it’s completely transparent. Then the organization, its board and its donors can evaluate the effectiveness of the true costs. For example, is it really worth $10 of our CEO’s time to promote this? Or is the $50 we are spending on fundraising for this program effective in helping this program meet its outcomes and achieving our vision? What would happen if we applied $25 of our social media managers time to talking about this program on Facebook; how would that help the program meet its outcomes?

    I also think nonprofit employees would appreciate an approach in which they knew that some portion of their time was helping deliver direct impact. It would be incredibly empowering if say, a marketer, knew 15% of her time was directly linked to delivering on the ground change.

    Implementing this would of course present challenges. And there would likely be some costs which could not be directly embedded into specific programs. We would also need to apply revenues in a similar way.

    What I am suggesting is we be more honest with donors about how each portion of the total business costs of the organization help us deliver on our mission. Then we are operating like a business in which a donor can honestly assess the effectiveness of our programs versus their true costs.

  6. Great comment Aaron. I too think that this sort of explanation would resonate with many donors. The trick is that it would also scare off some donors. The transition would be hard to make, but the longer we take to make it, the more painful it will be.

  7. Emily Gerth says:

    I guess I disagree a bit with the conclusions some people are drawing here. I think donors are actually drawn to Kiva because they want to see impact, not just because they want their money to pass-through to individuals.

    I don’t think we can assume that Kiva donors or people who sponsor children in hunger campaigns see the organization as irrelevant. If they only wanted to help individuals, why wouldn’t they just give to beggars and homeless individuals on the street? At least on some implicit level, they see the organization as an arbiter of who deserves benefits and what kind of benefits they should receive. I’m not convinced that, if you surveyed Kiva’s donors, they would say they are deceived or that they would all consent to give in the same volume through a website that allowed them to lend directly to other individuals and didn’t put credible institutions in the middle.

    I do think that, right now, the person-to-person model is what allows people to best understand their impact, especially with small donations. My $25 matters on Kiva or to the child I sponsor. It’s hard to see how it matters to large, but effective nonprofit which has donors who gives tens of thousands.

    So where the culture needs to change is in helping people broaden their definition of impact. We need to find ways for donors to believe that their $25 is important, even if it doesn’t go to an individual, and that they should be asking not whether it has an impact, but where it has the most impact.

    And that’s the opposite of making donors more selfless or asking them to analyze the real costs of service. We don’t want them focused on costs, but on the impact per dollar (overhead included). It’s about making donors selfish in the right kind of way — selfish for more impact per dollar.

  8. Dan Pallotta says:

    Great post Sean. Telling the public what it wants to hear instead of the truth is not really what the public wants to hear, and ultimately ends up biting us in the ass. The whole admin:program disaster began with us telling people what they want to hear, and look where we are now…

  9. Ross says:

    Is this really a deception? Did anyone honestly think with the distance and logistics involved that these micro flows of cash would flow from Kiva direct to the borrower?

    I have been a Kiva lender since day 1, and will continue to do so. SO WHAT if the loan has already been disbursed when I submit my payment! The point is that an entrepreneur gets the funds they need when they need it. And even if my capital doesn’t flow directly to the borrower, it is making more of the same loans possible.

  10. Ross, I love to hear your take. I agree with you regarding the point is that the entrepreneur gains access to capital. But clearly most Kiva users do think that the cash flows directly to the borrower since this is what Kiva strongly implies on their website.

    To be clear, I’m not bashing Kiva here. I’m highlighting the issue and suggesting that Kiva is dealing with unrealistic expectations from donors.

  11. Sean,

    As always a great post. Thanks for pushing the conversation forward. I chimed into the discussion here:

  12. Jason F. says:

    Interesting post and a challenging question. Over and over when I’ve talked with smaller donors, one thing I hear is that they “like knowing where their gift is going”. And unfortunately paying for an emergency copier repair or coffee for a board meeting is far less exciting than paying for delivery of a meal to a hungry family or medical treatment for a sick child. Similarly, while I absolutely agree with Ross above about the ultimate importance of making these type of loans available, the fact that Kiva donors spend considerable time reviewing different possible projects to invest in clearly shows a falsehood in this process (similar to a conversation my mother once began about whether she should give my grandfather a pig or a cow for Hanukkah…through Heifer International).

    So how to handle this problem? Yes, we need donors of all sizes to realize that to do our work we need to pay for administrative costs which at times can be higher than 10-15% even in the most “well-run” organizations… frankly some types of programs are more administratively intense and most organizations today count as many expenses as programmatic as they can reasonably (or even unreasonably) get away with. This doesn’t make them bad or unworthy of support, it simply reflects the diversity of nonprofit operations and the economic realities of our work. But we don’t want to jeopardize these dollars by doing away with this type of symbolic giving and surveys regularly show that giving “alternative gifts” or making Kiva-like charitable “investments” are thought of differently by individuals than their charitable giving which may help increase overall charitable giving. In the end, it seems to me that the only thing to do is walk the ethical tightrope fact and fiction, between fundraising pitch and operational reality. Groups like Kiva will continue with their symbolic giving approaches but must be much more clear that your gift really goes to support “an entrepreneur like the one your suggested” or that your purchase of a sheep from Oxfam goes to supply “animals like this one to families in need”.

    Ultimately symbols have power, but we can’t let them take the place of the more complex reality they represent.

  13. Jason F. says:

    One other note that’s worth adding into this conversation is that some other sites do fulfill the direct donation model, at least as far as I can tell. is a site that allow you to browse projects posted by teachers and pick a project to donate to, from buying a class pencils and pads to write poetry to a full science kit for hands on science experiments. They have moved almost $40 million in donations since they were founded in 2002. According to the Donors Choose legal terms in their User Agreement:

    “DC is a non-profit marketplace that brings Donors together with Teachers in order to provide students with the activities and materials they need to learn. Here, 100% of each donation made through DC goes directly to fund the charitable program for which it was given, unless the Donor indicates that a specific portion of the donation may be used for administrative purposes. Included in the “material cost” (the price of the project exclusive of a fulfillment donation to DC operations) are: shipping charges, sales tax, credit card processing fees (regardless of payment method), and the cost of postage and processsing for donor thank-you packages.”

    An interesting new and smaller site is, a “funding platform for artists, designers, filmmakers, musicians, journalists, inventors, explorers…” Unlike most of the other sites discussed in this post and comment series, you don’t get a tax deduction for making a gift on this site. Instead, you’re directly supporting an arts project or something similar and artists offer small tokens of gratitude (often varied based on how much you give). They use Amazon to power their back-end processing and the site charges a 5% fee for all their costs, but otherwise your support goes directly to the project. It’s a new and relatively small site but another example of how this field might shift in the future.

    Just thought it was worth raising the fact that some sites do allow for direct donation, while others like Kiva and the various “buy an animal” programs are more symbolic. Perhaps the difference is a question of scale? Perhaps of the complexity of the organizational goals? Perhaps just a difference in belief about who know best, the donor or the nonprofit leader?

  14. Conor Neill says:

    I am a lender on Kiva ( ). On first read I felt that this was a somewhat pedantic reading of the process. If I don’t actually FedEx a $50 to Uganda there will always be a mix of cash flows and timing and accounting standards. In corporations the idea was that an auditor has a look each year to make sure that the cash flows and the accounting representation of those cash flows represents a “good faith” account of what has happened. I guess this post highlights the need for organisations like Kiva to really think through how web 2.0 tools can really drive transparency through the whole system. I feel much better selecting a specific entrepreneur in Togo or Benin or Uganda than giving money to a big fund and crossing my fingers that some of it arrives to Africa. Keep posting and keep Kiva transparent!

  15. To the author of the article and subsequent comments,

    I understand your concern about misconceptions on the donor-side, however I also think it’s important to take serious note of the comment Ross posted above. It can be impossible for this model to function without pre-disbursals, and for more information on why that has become necessary given the scale of Kiva, please check out Kiva’s CEO’s response to Goodman’s original post:

    As a Kiva Fellow on the ground in my second Kiva partner placement (first with FINCA Peru and now with CIDRE in Bolivia), I cannot conceive of the model working with pre-disbursement, even if another organization was to spring up and seek to offer that. While the child-sponsorship model has been faulted by many, I am of the opinion that humans all exhibit a level of coginitive dissonance — where you could tell an individual that millions are dying in Africa, and the person wouldn’t do anything. But if you were walking by a park and saw a child drowning in the pond, you probably would take action. We are moved by individual stories over numbers and issues portrayed to us on the grand-scale. I think it is creating personal connections that has enabled Kiva to give nearly $100 million to talented microfinance institutions serving the global poor. After CIDRE received its first Kiva money, it immediately ventured to more rural areas seeking out borrowers left out by the financial system. That accomplishes what I believe all the donors ultimately want to see.

    Suzy Marinkovich
    Kiva Fellow, Bolivia

  16. Correction: I meant to write “I cannot conceive of the model working without pre-disbursement.”

  17. Sasha, great post. I encourage people to check it out.

  18. Suzy, Conor & Jason,
    Thanks so much for sharing your thoughts. You all make great points and I’m glad to have you adding such depth to the conversation.

  19. The central issue, to me, isn’t that the pool of money is fungible (i.e., my donation goes into a large pool, out of which the partners are funded, out of which individual loans are made). Nor is the question of microphilanthropy vs. the need to fund overhead. The issue is that Kiva implies that the lender’s choice helps determine who gets a loan.

    Kiva gives the impression that if lenders do not fund a project, that project will not happen. Right now there’s a project with $250 left to go, and it “expires” in 8 hours, 15 minutes. That gives me a sense of urgency. I might even give the whole amount. But if the loan has already been made, then the “expiration” isn’t true. There is no real choice.

    I worked for a number of years at, and I can tell you that giving donors an actual choice is hard. Good projects will go unfunded. You have to return credits to donors who have partially funded a project that never happened, and convince them to reapply those funds to a new project, which itself might not be fully funded, etc. Tracking it all is no piece of cake, either. But if you don’t do all of this, you’re not being transparent, and you’re not giving your donors real choice.

    I don’t believe that microphilanthropy (or microfinance, peer-to-peer giving, etc.) is a good solution for most problems. has an advantage, in that they are funding discrete classroom projects within public schools, but do not have to fund the infrastructure of the schools themselves. Most problems just couldn’t be solved in this way. (“I’d like to fund only the violas in the orchestra, please.”) But if you’re going to advertise yourself as giving choice to the donor, you’d better do it.

  20. Mike, GREAT comment. I just highlighted it in a new post.

  21. Joanne Fritz says:

    I think Kiva is actually insulting the donor. Roodman says, “What Kiva does behind the scenes is what it should do. Imagine if Kiva actually worked the way people think it does.” The implication is that the donor is hopelessly naive and thus the deception is justified. I have used Kiva as an example of transparency and and now feel pretty silly. I love Kiva’s graphic because it is simple and easy-to-understand. Now I realize that “simple” does not necessarily equal true transparency. Now I am not a banker and have not a clue about how these things work. I assumed that things were the way Kiva portrayed them. I think Kiva should make the changes already suggested here and trust their donors’ intelligence. I don’t think anyone asked to be deceived, and I’m having trouble understanding why the donor is being blamed. Good public relations means that you never mislead the public, and if you do, that you accept full responsibility and apologize, no matter what the consequences are. If I drink a bottle of beer with a fly in it, the beer company would not likely blame me for being naive enough to drink the beer. I hope Kiva continues to be successful in the important work that they do. I think most donors wish that too, even if they are told that the transaction is not quite as direct as they thought.

  22. Joanne,
    I definitely agree with you that all nonprofits and (for-profits) should do exactly what they tell clients/donors that they do. It appears that Kiva use to work the way they say they do and that they’ve changed to the new model for good reasons. But they should have been much, much more upfront about the changes. In case you missed it, CEO Matt Flannery did write a guest post on Roodman’s blog that pretty clearly apologizes and attempts to fix things.

    Your main point is that nonprofits should treat donors as intelligent people who can handle complicated issues. Treating people like they are dumb never gets you anywhere.

  23. Joanne Fritz says:

    Thanks for the clarification, Sean.

  24. Angela says:

    In reading this post and the comments the message that comes through is simple disdain for the average micro-donor. I realize that people who spend their work life in the nonprofit arena probably get jaded about fickle donors – but many of these comments and observations are condescending to those of us who donated through Kiva again and again because we were ‘naive’ enough to think we had some choice in how and where we wanted to donate. Microfinacing by it’s very nature should be an area that should help connect those who have a little to give to make an impact with those who need a little to change their lives.

    The comments here make it really clear that us silly peons who wish to have some impact personally should just get over ourselves. We should just blindly write a check to Kiva and leave the important task of thinking about who deserves money to the big boys.

    But that over simplifies the Kiva question. Does it not seem at all plausible that those who donate at Kiva would also support other large organizations by donating without restriction to the overall mission of the organization?

    They way this organization so aggressively pushed the personal connection is deceptive. As many point out, it takes money to support the administrative side of nonprofit work. But don’t forget that with every loan made they also asked for an additional administrative fee/donation. So on top of giving the false impression that one person might actually make a difference with a small donation, and that all of the criteria for deciding what type of project you would like to donate to would be honored, they also implied that the administrative fees were incremental to the donation.

    Sorry but I simply do not see how it is defensible to so overtly obfuscate the process. Claiming that small donors are simply too stupid to understand how the real world works will quickly alienate all of us small timers and the result will be that we do not click to donate. Making your donors feel like nudges for investing time, emotion, and money, results in no more donors.

  25. Hi Angela,
    Thanks for your comment. Since my post included excerpts from other posts and there are over 20 comments in this thread, I can’t be sure which statements (mine or others) that you thought expressed disdain for average donors.

    So I’d just like to state on my own behalf that I have nothing but the deepest respect for people who give at any level. Regarding Kiva, I think it is clear that the way they described their process was (and still is) misleading. I don’t think this is acceptable.

    In my post, I tried to elevate the discussion from an expose on Kiva to a broader discussion of why Kiva might promote the idea that they do direct lending when in fact they don’t. I very much do not believe that “small donors are simply too stupid to understand the real world” which is one of the reasons I write this blog. But I do believe that donors of all sizes (including many foundations with hundreds of millions or billions in assets) do behave in ways that do not serve the best interests of the people they are trying to help.

  26. Steve Wright says:


    A fantastic discussion. A great post and many brilliant comments. From my point of view, social enterprise is struggling mightily to re-conceptualize marketing from a science of the partial lie to the simplicity of transparency and the truth. Personally, I look to Kiva to continue to struggle with these issues with integrity. Their track record has always been to make their mistakes publicly and correct their course accordingly.

    Maybe to just indulge myself, I have taken excepts from several comments that I helped me gain insight in to this issue. Thank you all for your engagement here, it is very helpful to me as I try to find my way in this world.

    Kate Cochran says:
    October 13, 2009 at 11:19 am

    I think you raise the right comment in wondering how poisonous it is to perpetuate a notion that nonprofits are merely there to reallocate resources to needy problems. Problems don’t need resources–they need solutions.

    Emily Gerth says:
    October 13, 2009 at 1:51 pm

    I guess I disagree a bit with the conclusions some people are drawing here. I think donors are actually drawn to Kiva because they want to see impact, not just because they want their money to pass-through to individuals.

    Joanne Fritz says:
    October 14, 2009 at 5:32 pm

    I don’t think anyone asked to be deceived, and I’m having trouble understanding why the donor is being blamed. Good public relations means that you never mislead the public, and if you do, that you accept full responsibility and apologize, no matter what the consequences are.

    Angela says:
    October 14, 2009 at 10:44 pm

    In reading this post and the comments the message that comes through is simple disdain for the average micro-donor. I realize that people who spend their work life in the nonprofit arena probably get jaded about fickle donors – but many of these comments and observations are condescending to those of us who donated through Kiva again and again because we were ‘naive’ enough to think we had some choice in how and where we wanted to donate.

  27. Sean,

    To answer your question no I don’t think it would be good to make direct loan. In my personal experience I think there are two major road blocks that people overlook when thinking about these type of direct loans.

    To copy and paste from another comment I just made:

    1) Banking – Until banking systems improve or sites like paypal extend there reach its very hard to send money directly people in developing nations. Yes I sending money directly to people who need it would be great but I don’t think its realistic just yet. Believe it or not its actually faster and cheaper for my family in Panama to send me money than it is for me to send them money.

    2) Finical Responsibility – I think even if we could directly fund individuals it might not be a great idea. Finical literacy and responsibility are not as common place. Even if I could give $5,000 to improve their store, its hard to tell if that is what they would use it for. I want to be careful here and make sure no one takes this the wrong way.

    I am not saying that people bad and that they blow the money on something else. However the reality is that when you just make enough to get by, you get a fresh source of income and something goes wrong you are going to use that new income even if its not meant for that reason. I say from personal family experience.

    Lending to people directly might seam like a nice idea but it practice its a lot harder to pull off. I is doing a great job of making this as transparent and direct as possible.

  28. vaalea says:

    Sorry if I repeat anyone… but I don’t believe in this “your money is not really going to such and such a person” because of the way the loan may be pre-distributed. To me, this is like those that say people who pay for green power aren’t really getting it because they are getting electricity from the same lines as everyone else… mixed in with the dirty power. In the end it is the intent. If green power customers didn’t have the intent then green power overall does not increase. Where we intend our money I think is the same… no matter where it goes and what bank account it is mixed up in that it doesn’t “technically” get from us direct to the person we intended to get it…. in a non-linear way those we choose are still getting a loan from us.

    And I’m not a donor… I’m a lender. This is not really philanthopy except that I’m investing without promise of interest.

  29. vaalea says:

    ….without promis of interest but still the same risk to lose it, as with other forms of investments. 🙂

    But I would prefer to put my money in something like this where I can grow my “portfolio” putting in more money as I go along, but I can see the same initial $25 work again and again and again to benefit these people and their community… rather than see it “disappear” upon payment like charitable donations. Regarding it as charity probably helps soften the blow of losing your investment though… when that happens. 🙂

  30. Vaalea,
    I like your green power analogy. But of course the electric company doesn’t tell customers who buy green power that it is coming straight from a specific windmill.

    • vaalea says:

      Yes, but if I was paying for a particular windmill I would feel a personal connection and greater sense of involvement even though I could never expect to actual receive the power from that particular windmill. Same with Kiva… as I said it is not linear (takes some time travel ;)… the money is all mixed up but personal connections are still being made. It still matters to all parties, I am sure, WHO exactly is receiving the loan and WHO exactly is providing… even though the flow of money is not direct. In the end, whether or not our money technically went to the borrower… do we not receive our money back from them only when/if they pay it off??? (ok, besides the whole thing about the MFIs possibly not reporting every defaulted loan and rather covering it to keep a good rating on KIVA)

  31. Mark says:

    My perspective on all this…

    I started doing loans with Kiva in 2007. I’ve become good at finding loans which repay quickly. As a result, I have loaned about $20K, with an actual investment of about $5K.

    Upon reading all this I have concluded that KIVA is, in part, a kind of ponzi scheme. That doesn’t mean it will all crash and burn like a Madoff enterprise. That’s why I said, in part. This notion of lenders using new money to pay back old loans is part of what I’m referring to; the other part is a virtual ponzi scheme. As Roodman points out, KIVA plays on our need to feel good, just as Madoff and other hucksters play on our greed.

    Interestingly, the one thing that’s not covered in this is the interest rates and fees that KIVA partners charge, staring at a low of about 15% (credit card rates) and going all the way up to almost 80% (loan sharking rates). KIVA has justified this saying this is the cost of loaning money to people who couldn’t get a leg up otherwise.

    I guess I question how well KIVA’s partners manage their operations that they have to charge this much to stay afloat, or get ahead.

    That’s why I look carefully at the this aspect before I loan. If I find a loan I like with a low portfolio yield (that’s KIVA’s term for interest and loan fees – just like credit card jargon), I lend that person(s) money.

    If I could find an organization that does KIVA work, only better, I’d pull my KIVA money and go there…

    …any suggestions?

    • Hi Mark,
      While I think Kiva has made mistakes around marketing, I do tend to think they are a quality organizations. However, the bigger question might be around the effectiveness of microfinance in general.

      The debate over the effectiveness of microfinance is still going on, but I can tell you that charity rating group GiveWell has one microfinance group that they think is doing very effective work. You’ll find more info here.