.

I donated $100 to Kiva, and spread that to 4 different people I thought could make good use of it and would repay. Almost $25 is paid back already and it has all been on time so far.

Since I don't actually know the people, and their bios were almost all written by a computer (they probably filled out some kind of survey in their native language, and the computer generated the english blurb) I don't have much way to know if I'm doing any good or not.

I have to assume I am.

I may not fully understand it but isn't the portfolio yields horribly high?

I think its an awesome Idea, one of the best things about it is that you are highly likely to get your money back and then you can start the cycle of helping all over again. Also $500 can do a ton for a business in a 3rd world country.

Video of BBC about Kiva:
http://www.skollonline.com/blog/?p=372
IMO this is better than some of those businesses that want to help third world countries. But allot of the donated money goes to the directors of the company(not claiming all of them do this).
Also from what I have understand. Kiva does not see a dime of the interest.

I am not sure but their help they say:
"
Kiva uses a calculation called “portfolio yield” to express the average interest rate and fees that Kiva entrepreneurs pay to the Kiva Field Partner administering their loan. Portfolio yield is defined as all interest and fees paid by entrepreneurs to the Field Partner divided by the average portfolio outstanding during any given year.
"

As I understand it, it is the interest the people will pay back.

So for instance these people:
http://www.kiva.org/lend/185144?_tpos=9&_tpg=1

Want 1700$ and that organization portfolio yield is 55%, means that they will need to give 2500$ back?? That's outrageous...

Or I am misunderstanding?

trusmis Wrote:Want 1700$ and that organization portfolio yield is 55%, means that they will need to give 2500$ back?? That's outrageous...

Or I am misunderstanding?

Interest and fees. Not just interest. Fees could be application fees, or late fees, or many other things. If you're late on your payments every month and drag it out for years, 55% could easily happen. Perhaps people in that area are really bad about paying back on time.

Even if you're on time, try to see how much it costs you in total when you finance a car or house. In some cases, these people -are- buying cars for their business. They cost a lot less than cars here, but they make a lot less money, too.

Just wanted to point out Wikipedia's entries on microcredit and microfinance are pretty good hubs, with good doses of tempering criticism...

http://en.wikipedia.org/wiki/Microfinance
http://en.wikipedia.org/wiki/Microcredit

I think the ideas of microcredit and complementary currency are interesting and have potential as means to an end, but nest0r-alias is not so good with these ideas.

The guy who came up with the idea has been pretty critical of some things...

http://www.microfinancefocus.com/news/20...rof-yunus/
http://feedroom.businessweek.com/?fr_sto...2a86ff0aba

I think it's also worth noting that nobody is forcing these people to take these loans, and they aren't going into it without the understanding of what it is.

In case that wasn't clear:

These people are happy to get these loans!

You can criticize it all you want, but if your criticism gets the service shut down, these people are worse off. (And yes, negative publicity for it could very well make that happen.)

http://sn.im/2bffxto

That is not a TinyURL address. I repeat, the domain is http://sn.im/ and not http://tinyurl.com/ - I say this because I know some people want to avoid tinyurl because it's uncool.

So, this is a big dilemma.
Imagine I choose an institution with the following characteristics:
- Institutions with low interest rate. Currently Kiva's average is 36%. I will use only institutions below that.
- Institutions with a positive Return of asserts (meaning the institution itself makes money and can sustain itself)
- Institutions with 4 or 5 starts (meaning they are in fact being able to collect the money back)

This institution may be just more efficient than others, so they deserve my money more OR it may be that they are just targeting a richer group of people (asking for higher loans per person), or just working on big urban areas.

There is also a average loan given by this institution data. Useful for this. I wish Kiva would do a ranking with all these factors. As people has pointed out. The people want those loans, it is an useful service for them so thinking long term what would do everyone's life better is lowering cost of operation for intermediary institutions.

Ok, replying to myself, just found that the "Average Loan Size" means just that. The lower that number is, the poorer the clients are.
So low on that number and low on portfolio is what I personally am interested in.

@trusmis - You might find this interesting, from pp. 68-70 of Yunus' book:

"Over the years, as more and more organizations have gotten involved in microcredit, some have found it convenient to ignore the original meaning of the term. Microcredit is supposed to describe loans of­fered with no collateral to support income-generating businesses aimed at lifting the poor out of poverty. Yet today there are many or­ganizations that call themselves "microcredit" programs that offer loans to people who are not poor, that require regular collateral, and that are used primarily for consumption rather than income genera­tion. There are even "microcredit" programs that generate enormous profits for investors by charging interest at rates as high as 100 per­cent or even higher!

Under the circumstances, we really don't know what we are talk­ing about when we talk about microcredit. I think it is time we clas­sify microcredit programs according to clear, consistent categories. Here are the categories I would propose:

TYPE 1: POVERTY-FOCUSED MICROCREDIT PROGRAMS
These are poverty-focused, collateral-free, low-interest micro­credit programs. Grameen Bank was created to provide this type of microcredit. Type 1 programs charge interest rates that fit into one of two zones: the Green Zone, which equals the cost of funds at the market rate plus up to 10 percent, and the Yellow Zone, which equals the cost of funds at the market rate plus 10 to 15 percent.

TYPE 2: PROFIT-MAXIMIZING MICROCREDIT PROGRAMS
These are programs that charge an interest rate higher than the Yellow Zone. They operate in the Red Zone, which is moneylenders' territory. Because of the high interest they charge, these programs cannot be viewed as poverty-focused but rather are commercial enterprises whose main objective appears to be earning large profits for shareholders or other investors.

This classification may be adjusted for special situations, such as when high salary costs make operating expenses unusually heavy. And these principles will not apply where the microcredit organiza­tion is owned by the borrowers.

However, I think the secretariat for the Microcredit Summit Cam­paign, which maintains a database of all microcredit programs, should classify programs according to a system like the one I propose. What's more, I believe that the Microcredit Summit Campaign should in­clude only Type 1 programs, since only these contribute to the cam­paign's goal of using microcredit to help eliminate global poverty. I would like to see all the poor people of the world being reached by microcredit programs delivered through social businesses, while profit-maximizing (Type 2) programs should focus their operations on people belonging to the lower middle class and above.

There are those who contend that profit-maximizing microcredit programs are actually beneficial to the poor and to the world econ­omy in general. They argue that charging higher rates of interest en­ables a microfinance institution (MFI) to become sustainable more quickly. They also claim that high rates of profit make MFIs attractive to capital market investors from the richest countries, allowing the MFIs to expand their services to the poor. Finally, they say that high interest rates enable bigger loans to create larger enterprises, which, in turn, can employ larger numbers of poor people.

The business model behind these arguments is a familiar one from the world of conventional finance, and I have no problem with it—so long as the customers are middle-class or wealthy people. But I have serious problems when people try to justify high interest rates (30 percent real interest and above) and even very high interest rates (over 70 percent) on loans given to the poor. I say, "Make all the profit you want from your middle-class customers! Feel free to take advantage of your financial position, if you can! But don't apply the same thinking to the poor. If you lend to the poor, do it without concern for profit, so that they can have the maximum help in climbing out of poverty. Once they've completed the climb, then treat them like every other customer—but not till then."

Microcredit was created to protect the people from moneylenders, not to create more moneylenders.

Like most of my fellow microcredit practitioners, I believe that there is room for many varying models of microcredit, and that ex­perimentation across a wide range of options is likely to produce the greatest progress and the most valuable insights into what does and doesn't work. I've learned a lot from my meetings and discussions with other microcredit practitioners, and I think we can find many areas of common ground for cooperation, collaboration, and mutual support, provided we share a common goal—helping the poor get out poverty through their own efforts. "

And one more thought:

Are those microcredits really helping or just making everyone dependent ?

Let me explain.

We have a street, with 10 stands, competing for clients, selling instant food for instance. One of those there wants to improve his income and ask for a microcredit to buy a big sign over the stand. Something very cool, marketing, the other stands doesn't have it so he eventually gets more clients, being able to pay back his 36% interest rate.

He is in a better position now, more income, but this is not created, he just took the income of the stands around him and redirected it to him. The other 9 have suffered. So they may go out of business or they may imitate him. Meaning that after some time and after paying a lot of money on interest, everyone on that street has a sign over the stand.
Winners:
- sign makers
- microcredit institution

Losers:
- Stand owners


Now consider people growing tomatoes, they can figure out how to use your money to produce more tomatoes. If many people does that, many tomatoes on the market ant price goes down. Meaning some people that before could survive with the tomato business, now can not. It will eventually stabilize and the original lenders will win more money, once others are out of business...

So the problem is the collateral damage. The people running the same business but not willing or unable to take the loan and eventually being forced to take it to be able to compete or driven out of business.

If you give poor people money, they'll just use it to compete with one another's businesses or spend it on booze.

Let's say we have 4 persons competing.
One got money and improved his situation, was able to return it back and now is able to compete more efficiently. He will make more money. He may or may not drive out of business the others. He will be just richer. He can use that money for something stupid, or for the education of his children or for further making bigger business. If he makes the business bigger, drives competitors out of business and maybe he may hire them as employees... In the end we have the beginning of a small company...

nest0r Wrote:If you give poor people money, they'll just use it to compete with one another's businesses or spend it on booze.

Isn't that basically what happens when you give rich people money, too?

http://www.afrigadget.com/2010/04/06/dre...mba-story/

"Jane is the poster child of microcredit success, it got her out of poverty and she says it saves her life. She got training and a loan from Jamibora, one of the largest micro credit banks in Kenya. Once she’d paid that back she got another loan, and then a third. This made her eligible for membership in a housing scheme, but first she had to rise 10% of the value of the house, Ksh35,000 ($450). With her earlier loans she had bought a manual sewing machine, using that she made dresses and beaded jewelry for an international market. It sounds easy but she says it was very hard to raise the money. There were hurdles along the way and at times she almost gave up her dream. Perhaps the toughest was the election crisis struck in early 2008 when looters raided the slums and took everything she owned. Without a sewing machine she had lost her means of making a living."

Related: Guess you've heard about this fellow by now: http://www.afrigadget.com/2009/10/14/win...mbas-book/