I have been a long-term lender on Kiva, an innovative microfinance portal that matches entrepreneurs and their projects in the developing world with charitable people (generally) in the more developed world. I like their model. In just over two years, I have funded almost 20 businesses across three continents. I have earnt no interest on these loans – but have seen it as a creative and sustainable means of charitable giving[1. Although I get my capital back, the level of my 'giving' is the opportunity cost to me, which is equal to the average interest rate that capital would have attracted if invested by other means over the period]. The three great things about Kiva are that I choose who benefits from my money; that recipients have no incentive to request more funds than they need; and that I am constantly updated about the entrepreneur’s progress. I have never had any defaults. This last sentence may not hold true for much longer.
Lately, we have encountered substantial obstacles that may affect the
repayment performance of Mifex and its entrepreneurs on the Kiva
website…
In the microfinance industry Mifex is a very young organization. We were
amongst the first institutions to use Kiva for financing and we have
heavily relied on Kiva funds to start our organization. Although Kiva
and the great lenders that support the site have helped our institution
form a strong base for growth, we have recently encountered substantial
obstacles…A shortage of capital, combined with escalating default rates, has put a
heavy strain on our operation. Many of our clients are also having a
very difficult time making their repayments due to the persistent rains
during the first half of the year. These factors have caused Mifex to
accumulate a debt to Kiva lenders that we cannot pay without putting in
danger the sustainability of our organization.
My thoughts? A shame, but not a tragedy. Investing in any asset class attracts risk. I accepted this risk when I signed up. I reinvest my recouped loans from Kiva into other Kiva businesses, so the main effect of bad debt is the reduce the capital I make available to other entrepreneurs. However, I wonder to what extent I would be this relaxed about bad debt through on a system such as Zopa, where I loan money on commercial terms. I’d like to think that I would be able to put that in perspective as well – but something tells me that my disappointment (and annoyance?) may be greater.
If you have worked that long with them, and they only had one default with them, I will give them a chance.
Time to make a difference. Microfinancing has shown to work (if managed properly
)
Peter
Pingback: Kiva and Mifex
I too have been a long time lender on Kiva and last year received the same message regarding Mifex. What struck me was that most likely those I lent to had repaid the loan; Mifex just wasn’t transferring the funds. The disappointment for me was that Mifex had stopped the wheels of progress. No more lending, no more repaying, no more progress. The social cost is enormous. Your disappointment is no doubt directly proportional to your desire to effect change in the world and having someone tell you “no”.
This is really interesting! I don’t think you’ve taken into account the human factor, but I still think you make a lot of sense.