Kiva Lenders Have Needs, Too

20 October 2009 at 10:55 10 comments

By Abby Gray, KF6 Togo and KF7 Senegal

Jacques, WAGES' Kiva Coordinator, and a colleague taking a boat to visit a Kiva client in a rural area.

Jacques, WAGES' Kiva Coordinator, and a colleague taking a boat to visit a Kiva client in a rural area.

Meet Jacques.  He’s the Kiva Coordinator at WAGES, a microfinance institution (MFI) based in Togo, West Africa.  Every day, a loan officer hand-delivers a stack of borrower information forms and a USB chip full of photos.  Jacques has trained the officers how to fill out the forms, use digital cameras, and get borrowers to smile and display their merchandise proudly for pictures.

Jacques formats the pictures, writes the information into paragraphs, and uploads everything to Kiva’s website.  Then, during the loan cycle, he reports repayments manually and visits borrowers to collect a progress update and take yet another picture.

The work is inefficient, tedious, and time-consuming.

But it’s worth it.

It’s worth it because, at 0% interest, the funds from Kiva are cheaper than many other sources of funding – despite the significant expense of coordinating the relationship and producing the borrower profiles.   WAGES accepts this administrative work as a necessary cost of using Kiva funds.  Essentially, it’s the cost of marketing.

However, in a much-discussed blog post called “Kiva Is Not Quite What It Seems,” David Roodman offered a critique of Kiva’s model, writing:

Surely it would be better for us to give in a way that allows the microfinance institutions to put more of their limited energies into helping poor people manage their difficult lot and less into making us feel good.

Working as a Kiva Fellow in Togo and witnessing Jacques’ tremendous workload, I was tempted to agree with Roodman.  How selfish of us, the lenders, to demand such wasteful expenditures of time and money just so we can feel we’ve made a difference!

Since then, I’ve come to realize that having a cost associated with attracting lenders is not wasteful or irrational.  It’s simply a reflection of a universal principle: Nothing in life is free, not even charity.  Every non-profit organization marks a portion of its donations for fundraising and marketing.  Sure, cutting back on these expenses would allow them to funnel a higher percentage of donated funds directly to their cause – but would the donations still come in?  There’s clearly an optimal balance to be struck – the one at which a non-profit gets the most bang for its marketing/fundraising buck.

In the case of Kiva, the lenders want a rewarding experience, even at a cost to the MFIs.  Roodman calls this desire an “irrationality” of private philanthropy.  I consider it a rational phenomenon that’s emerging in the new gray area between capitalism and charity.  Like many things in this uncharted territory – including microfinance – its implications are not yet fully understood.  Kiva, however, seems to be harnessing this phenomenon successfully, thanks to a built-in gauge: If the administrative cost of providing the Kiva “marketing” content was too high for MFIs, more of them would seek alternative sources of capital.  And if the warm and fuzzy return on investment provided to Kiva lenders wasn’t engaging enough, lenders would seek other, more rewarding causes to support.

Roodman’s article also criticized Kiva for not adequately communicating that 95% of loans seeking funding on the site have already been disbursed (a system that is actually more efficient than “true” peer-to-peer lending).  Matt Flannery, Kiva’s CEO and Co-Founder responded, reiterating Kiva’s dedication to openness and promising to make things clearer on the website.

How will this improved transparency affect Kiva’s funding supply?  Casual Kiva users probably won’t notice or care, and will continue to lend.  Die-hard Kiva users (they call themselves “Kiva Friends”) already knew and kept lending too.  The conscientious, newly educated user, however, might start to question whom they are really helping when they click “Lend $25.”  The answer to this important question depends on how an MFI uses the savings gained from accessing Kiva’s cheap capital.  Are the savings used to cover financial literacy training?  Are they passed on to clients through lowered interest rates?  Or, are they being used to pay a high salary for the MFI Director?

Once lenders start thinking about questions like these, they might start paying more attention to Kiva’s field partner profile pages, perhaps asking for more disclosure.  Roodman points out that Kiva may fear that complete honesty would undermine growth.  Flannery refutes this. Only time will tell. What is clear, however, is that Kiva will constantly evolve, thanks to its dedication to self-improvement and transparency – and with the help of conscientious critics like Roodman.


fb-for-meI am a Kiva Fellow Alumna, Class of KF6/7, who served three months in Lome, Togo, and three more in Thies, Senegal. I now volunteer at the Financial Access Initiative in New York City, sharing research-based insights with the Kiva Community.

Entry filed under: Africa, KF6 (Kiva Fellows 6th Class), KF7 (Kiva Fellows 7th Class), Togo, WAGES. Tags: , , , , , .

Seriously? Another Typhoon? Stop Thief! (…too late)


  • 1. tonywan  |  11 April 2010 at 18:16

    thank you,abby

  • 2. JohnR Kiva Friend  |  23 October 2009 at 06:50

    Thank you, Abby, for speaking so elegantly and comprehensively on this issue.

    Even Mother Teresa had detractors. There’s no pleasing some people.

  • 3. Suzy Marinkovich  |  22 October 2009 at 13:26

    Great post. Yet another great argument for Kiva. I also love how it takes microfinance’s embrace of the free market and applies it to how we choose to give through Kiva in the first place. It is true, charity is a competitve field, and fundraising costs always exist. Plenty of charities fail each year and Kiva is close to 100 million for a reason.

  • 4. roadknowledge  |  21 October 2009 at 05:08

    I just leaned about KIVA at a Catalyst conference in Atlanta. Jessica Jackley spoke and she was very inspiring. People see what they want to see. I see KIVA as a hand up, instead of a hand out. I really like that.
    Mike in Houston

  • 5. David Oglaza  |  21 October 2009 at 00:17

    Anybody that knows anything about micro financne will know that its very difficult to acheive profitability with a MFI and without profitability there is no growth. If you are working in a densley populated area then your costs are going to be lower than in the rural area.

    Zero percent interest rate from KIVA will allow higher profitability for some clients and allow the MFI to target the harder to reach clients.

    Maybe the MFI profiles should start to state briefly what they using the KIVA nil rate for, For many it will be a pilot with the all the extra admin involved on taking photos etc For others it may be greater profitabilty and there is nothing wrong with that

    Im going to read the other post regarding this as ive read it the wrong way round!

  • 6. maplesyrup21  |  20 October 2009 at 17:27

    nice post

  • […] Is Not Quite What It Seems…” by David Roodman and a rebuttal article found here which was written by the Kiva Fellows […]

  • 8. Jan & John, KivaFriends  |  20 October 2009 at 14:50

    Love your posts, Abby. You present such a reasoned explanation and make things easy to understand. Some of the – lol – ‘Die-Hards’ at Kiva Friends do dig much deeper and are constantly nagging ‘Kiva Prime’ for more transparency. Some of my friends are ‘casual’ lenders and just make a loan and move on. We lenders are many and varied and Kiva tries to please everyone.
    I too appreciated the Roodman blog and was annoyed by the backlash it produced. Kiva, like anyone else, needs that kind of constructive criticism in this world peopled by very ‘imperfect’ humans 🙂 And we human lenders appreciate very very much the hard work done by the Kiva coordinators at all the MFI’s. jan

  • 9. Howard Zugman  |  20 October 2009 at 14:46

    Right on post, Abby. What can be a more valid test of any format than to let the (free) market vote with their dollars? With Kiva’s “open air” policy about just about everything, inefficiencies of any sort will have a tough time hiding. Personally without the accompanying stories my enthusiasm for these loans would be much lower. Whether that says more about me than Kiva is for others to decide. This isn’t just a “business deal”. Better “business deals” are available elsewhere. Please keep up the marvelous posting.

  • 10. charmaine  |  20 October 2009 at 11:42

    wonderful post!!!

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