Ever since Oprah decided to endorse it on her show, Kiva.org has become a huge hit. With some curiosity (not sponsored), I decided to check out the site and see what they're really all about.
What is Kiva.org?
They basically act as a medium for people to give non-profit loans to entrepreneurs in developing countries. Don't be fooled though, Kiva gives your donations to "middle men" called field partners which give micro loans to the entrepreneurs with interest (some are ridiculously high, like 54%).
How Does it Work?
The site layout looks a little like prosper.com, where you see a list of borrowers. The borrower includes a description of their business and a bit about their personal situation (single mom etc).
After you pick an entrepreneur/business that looks promising, donations/loans are made via credit card (PayPal). Upon placing the donation, the business will email you updates on a periodic basis. When your loan gets paid back, you have the option of withdrawing the money or re-loaning it.
How Does Kiva Make Money?
Seeing that Kiva doesn't charge a cent to their lenders, I expect that Kiva.org stays in business through kickbacks from their field partners.
I like the idea that you're helping a third world family/entrepreneur to sustain themselves. I would participate in this program solely in the fact that it would make a big difference in their lives.
If the borrower defaults on their loan, not all is lost as you can claim the default as a capital loss.
Contributions are not tax deductible as you are giving a loan not a donation. Also, some field partners charge exhorborant interest rates to their borrowers.
What do look out for?
Personally, I'm going to be very aware of the field partner that the business is listed under. If the field partner charges an above average interest rate, then I may look elsewhere.
In their field partner page, they list the field partner by risk rating, delinquency rate etc. The one field that they're missing is the interest rate charged to their borrowers. To find this information, you'll need to click on the field partner link and scroll down. To me, this piece of information is vital in determining where my money will go, kinda like registered charities and their MER's.
Seems that Kiva.org has got something here. The biggest appeal to me is that I can lend money directly to a business which will make a huge difference in someones life.
My biggest gripe about Kiva are the high interest rates that field partners charge to the borrowers. Another issue is that in their field partner listings, they don't include their interest charge as part of the specs.
Back to You
What do you guys think, should I use some of the "links for charity" money to donate to Kiva.org?
What are your thoughts on Kiva.org? Do you have any experience lending money through them?If you would like to read more articles like this, you can sign up for my free weekly money tips newsletter below (we will never spam you).