Microcredit organisations help farmers and other small business people in developing countries with small loans financed individual lenders in developed countries. I’ve lent through US-based Kiva www.kiva.org/ for several years now (thanks for the intro Marilyn!). I thought others might be interested in conclusions from some quick web research just conducted (Aug 2012), which threw up a surprise.
Summary
If you want to make money available for microcredit – and especially if you want to do so in a way that makes best use of your funds all the time, and can be set up to doesn’t require any work on your part – then US-based Kiva is probably still the best. And you can sign up to a humanist group there. But there are other alternatives. In particular UK-based lendwithcare.org, which is part of CARE International and partnered by The Co-Operative, is an interesting option. But you should be aware of an issue on interest rates.
Background
I was rather alarmed when a Google search came up with this piece http://irregulartimes.com/index.php/archives/2011/06/17/a-hand-up-or-usury-kiva-fee-and-interest-rate-review-june-2011/ which pointed out that, while Kiva itself is non-profit, some of the Partners it works with on the ground in developing countries – who actually make the loans – charge high rates of interest to borrowers. The author quotes up to 88%, based on data from the Kiva site in mid 2011 (though that is exceptional, they go down to 4%). I then found this response from Kiva to a similar piece the New York Times in 2010 http://www.kiva.org/updates/kiva/2010/04/15/new-york-times-article-on-microfinance.html
I accepted their arguments that the cost of making small loans to people with no credit history, in hard-to-access places, in countries with little or no financial infrastructure, is expensive. Even so, I was surprised to see figures of over 50%.
I looked for alternatives and came across www.lendwithcare.org. It seems to be doing good work, and unlike Kiva, everything’s in pounds not dollars. Both work through local Partners (Kiva language)/Microfinance Institutions or MFIs (lendwithcare language) who actually make the loans. But lendwithcare currently has a few drawbacks compared to Kiva:
Firstly, there’s no information on its website on the yields the MFIs enjoy on the loans – i.e. the interest rates. In Kiva it takes a bit of digging, but it’s there, along with national comparisons.
Secondly, it only works in 6 countries (Benin, Bosnia-Herzegovina, Cambodia, Ecuador, Philippines and Togo), with one Partner/MFI in each, compared to over 60 countries services by Kiva.
Finally, as an individual lender to lendwithcare.org, the process is that you put in some money, then select one or more people to lend it to, then wait as their repayments go into your account then select the next person. By contrast, Kiva has an Auto-Lend tool whereby you can set the criteria for loans, using a range of parameters – including country, risk level, gender of borrower, sector and Partner – and then forget about it. As soon as you have more than $27 in repayments, the system puts it into another loan, so your funds are always being used. And, once you’ve decided your criteria, you’re spared the agony of deciding which of the hundreds of deserving applications to select.
I then looked into the nine Kiva Partners that the “Irregular Times” web page had cited as charging 60% or more. Over the past 12 months (to Aug 2012), most of them had reduced their yields and are in line with the going rate for the country as a whole. And the outliers at the top end are working in exceptionally challenging conditions. For example, BRAC South Sudan (no.1 on the list with 88%, now down to 69%) is in the world’s newest country, which is a war zone part of the time. Credituyo in Mexico (no.2 on the list, was 86% still 83% compared to the Mexico average of 74%) works in the area of Mexico close to the Texan border, which suffers from narco-wars. In all cases, Kiva had examined the Partner in detail over the past year and reviewed their risk ratings (some up some down).
Anything involving money and poor countries carries the risk of abuse. But overall my conclusion was that Kiva are doing a pretty good job. I could have eliminated the high % Partners from my criteria. But I decided not to second guess the Kiva experts.
I’ve also made a loan to lendwithcare.org to see how it compares in practice.