Monday, June 11, 2007

Be a Banker to the Poor

The website of the day is Kiva (thanks to Nicholas Kristof at the New York Times!). No flashy graphics or cool gizmos - just a real cool concept. Kiva allows you to make loans to poor farmers and entrepreneurs in Third World countries to help get their businesses going. Studies have repeatedly shown that micro-credit is far more successful than foreign aid in uplifting these communities, and now Kiva provides a platform for you to participate with loans as small as $25. The default rate for most of the Field Partners - the agencies that actually disperse the money and audit the businessmen is ... take it slow, zilch, nada. At the end of the term of the loan, you get your money back and retain the option of either taking the money or rolling it into another loan. Great stuff!


Su said...

Very interesting. Will read more about it. It is rather sad to read some of the stories. However, what is the credibility of these stories ? Does Kiva act as a liason and validate their claims before they put it up in the website ?

Karthik Narayanaswamy said...

Kiva works with reputed micro-credit agencies which work with the people in need. That access to credit is an issue is in a sense a function of the intermediary. You bring up a good point - there are no audits or the like ... the only metric seems to be repayment rates.

Which leads to a more interesting question of what exactly the micro-credit NGO provides. There has been some criticism of the Grameen Bank, the NGO from Bangladesh that started the micro-credit revolution, that a focus simply on giving loans without other services is not as effective in the end-goal of poverty alleviation, as NGOs that also invest heavily in training and other programs.

Rags said...

Interesting stuff. But what's also interesting is that only about 10 countries across the globe have been profiled. Do you know why? Why are people in need in other countries like India and Bangladesh not profiled? This is especially eyebrow-raising considering the presence of Grameen Bank in Bangladesh. I would have expected some sort of tie-up.

Karthik Narayanaswamy said...

Kiva's a new organization, and they start by partnering with NGOs that the board has existing relationships with. So I wouldn't ding them on that count. I suspect they would start with NGOs in India, B'desh down the road. But not with the Grameen Bank, which frankly is way too big to deal with a small org like Kiva.

Actually the whole microfinance industry is interesting. A group like Grameen Bank focuses on credit-worthiness of clubbed loans, rather than social impact. That's not necessarily a recipe for success. When I gave my Kiva loans, I delibrately chose people who had entrepreneurial spirit, because I was seeking not simply a repayment, but rather that the loan actually kickstarted the engines of capitalism. But I don't think that's the norm among macro-institutions that specialize in micro-finance.