Last year I lent $25 to a woman in Peru so that she could buy a cow. Cows, of course, cost a lot more than that but I wasn’t the only one contributing—Alex from New York pitched in, as did Ivan from Zagreb, along with 16 other people. None of us have ever met; we all heard about the cow and lent the money through the website Kiva.
Kiva, which is four years old today, bills itself as “the world’s first person-to-person micro-lending website.” In partnership with existing microcredit institutions, it posts profiles of people in the developing world seeking small loans. Anyone can browse the profiles, narrowing them down by country, gender, business sector and so on, and then choose an amount of money to lend. Photos of the borrowers—Kiva calls them all entrepreneurs—give the process a Facebook-style intimacy. It’s a model so popular that the site often runs out of people to lend to.
Along with the similar website Microplace—which is owned by eBay and only available to Americans—Kiva has taken online the vision of the economist Muhammed Yunus, who pioneered microfinance in Bangladesh in the 1970s. The idea of microcredit took hold and is now implemented all over the developing world; Yunus’s work won him the Nobel peace prize in 2006. (Prospect‘s interview with Yunus is here.)
But with its increasingly high profile, a microfinance backlash of some sort was inevitable. Critics have always argued that it encourages poor people to take on debt for the profit of others (Kiva does not charge interest but their field partners do). Moreover, the sums of money involved may be too small to have much impact on poverty. More recently, I’ve come across worrying stories that microfinance loans achieve their extremely high payback rates by pressure or even coercion, rather than by the success of their business ventures. An August Wall Street Journal article about microfinance in India (where Kiva does not currently operate) claims some neighbourhoods are “carpet bombed with loans” and predicts a microcredit crisis.
The openness of Kiva’s model offers some protection against the more disturbing anecdotes. For instance, lenders often receive email updates from their borrowers—my Spanish wasn’t quite up to the one I received, but apparently milk and cheese production was going well. But it’s possible that my attempts to help people in developing countries could actually make things worse for them—hardly the first time that has happened in the history of the world, but troubling nonetheless. I suppose that, as always in life, it’s worth taking the chance. My fellow lenders and I have been paid back for the cow; Kiva suggests that I re-lend the $25 to someone else. And there’s a taxi driver in Tajikistan looking to expand his business…