Changing someone's life through a loan. That's pretty much the idea behind Kiva, arguably the most popular 'people-to-people' microcredit organisation. In just over four years, Kiva - founded in San Francisco - has supervised loans of nearly 115 million dollars made by more than 650,000 people to some 284,000 entrepreneurs.
People don't receive interest on the money they lend out via Kiva and local microfinance institutions don't pay interest to Kiva either. However, the intermediary moneylenders do charge their clients rather hefty interest rates.
Sinapi Aba Trust charges between 18 and 37 per cent interest, depending on the microcredit or micro insurance a client applies for. Joyce Owusu-Dabo: "We charge among the lowest rates in Ghana. Banks charge us 29 per cent for a loan, and we work with a lot of commercial partners, who don't lend us money for free either. We use the interest we charge on loans funded by Kiva to keep our fees reasonable".
It's Kiva's simplicity and personal approach that appeals to many, according to Pim van Wel, who has lent money to 19 people in the past two years: "I like the fact that I don't have to be a bank to help people set up their own business. I know whom I'm lending the money to, and what purpose it will serve. It's that feeling of proximity that makes lending through Kiva much more enjoyable."
It works like this: lenders go to kiva.org and browse stories and photos of budding entrepreneurs. They pick a profile they like, see how much money is still needed and transfer the 25 US dollars for the loan to Kiva.
Kiva then transfers all of that money to a microlender, who funds the loan of the local entrepreneur. He or she repays the loan in instalments and the lender gets the money back without interest.
But in October last year, David Roodman - a research fellow at the Centre for Global Development - criticised Kiva for putting partly fictional 'personal' stories on its site. In reality, lenders were financially guaranteeing local microfinance institutions who had already made the loans.
Although this would have been clear to those who read the small print on Kiva's website, where the information was 'hidden in plain sight', the news still confused people.
Irene Vermeij, who has funded 36 loans, knew about the intermediary microlenders, but still feels connected to the people she thought she was lending money to. "I admire people who have dreams and are working hard to get a better life. But thinking about it again, it does make sense that the loans are already given by a local microfinance organisation before they're posted on Kiva's website. It would be quite scary if the funding of a loan completely depended on a nice story and picture."
Both Pim and Irene funded loans pre-disbursed by Sinapi Aba Trust, a Ghanaian microfinance organisation with some 90,000 clients throughout the country. Joyce Owusu-Dabob is the programme's marketing manager: "It would be highly impractical for us to wait until a loan was fully funded though Kiva. We group clients together before giving them a loan. We use the money that comes in via Kiva as debt-funding for the loans we already provided."
Microcredits 'won't fix the world'
Financial infrastructure needed
Director Adri Kemps of the Dutch Central Bureau on Fundraising points out that intermediary organisations are vital in microfinancing. "Direct person-to-person funding through the internet is almost impossible, especially in developing countries. Not every farmer will have a bank account, yet you need some kind of a financial infrastructure. This said, the personal stories on Kiva should reflect reality, and not just serve a marketing purpose."
And although the stories and pictures are still by far the most prominent element on Kiva's website, the organisation has toned down the personal aspect a bit since its transparency was questioned. Instead of 'Kiva lets you lend to a specific entrepreneur, empowering them to lift themselves out of poverty', their slogan now simply reads 'Kiva connects people through lending to alleviate poverty'.