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October 2, 2009

Kiva Is Not Quite What It Seems

Posted by David Roodman in Uncategorized Tags: ,

[Update: Matt Flannery, CEO and Co-Founder of Kiva, replied to this post as a guest blogger. Kiva has also changed its site, and I have blogged more.]

This post is so long it needs an:

Executive Summary/Long Story Short
Kiva is the path-breaking, fast-growing person-to-person microlending site. It works this way: Kiva posts pictures and stories of people needing loans. You give your money to Kiva. Kiva sends it to a microlender. The lender makes the loan to a person you choose. He or she ordinarily repays. You get your money back with no interest. It’s like eBay for microcredit.

You knew that, right? Well guess what: you’re wrong, and so is Kiva’s diagram. Less that 5% of Kiva loans are disbursed after they are listed and funded on Kiva’s site. Just today, for example, Kiva listed a loan for Phong Mut in Cambodia and at this writing only $25 of the needed $800 has been raised. But you needn’t worry about whether Phong Mut will get the loan because it was disbursed last month. And if she defaults, you might not hear about it: the intermediating microlender MAXIMA might cover for her in order to keep its Kiva-listed repayment rate high.

In short, the person-to-person donor-to-borrower connections created by Kiva are partly fictional. I suspect that most Kiva users do not realize this. Yet Kiva prides itself on transparency.

I hasten to temper this criticism. What Kiva does behind the scenes is what it should do. Imagine if Kiva actually worked the way people think it does. Phong Mut approaches a MAXIMA loan officer and clears all the approval hurdles, making the case that she has a good plan for the loan, has good references, etc. The MAXIMA officer says, “I think you deserve a loan, and MAXIMA has the capital to make it. But instead of giving you one, I’m going to take your picture, write down your story, get it translated and posted on an American web site, and then we’ll see over the next month whether the Americans think you should get a loan. Check back with me from time to time.” That would be inefficient, which is to say, immorally wasteful of charitable dollars. And it would be demeaning for Phong Mut. So instead MAXIMA took her picture and story, gave her the loan, and then uploaded the information to Kiva. MAXIMA will lend the money it gets from Kiva to someone else, who may never appear on kiva.org.
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September 20, 2009

Boston Globe on Microfinance Impact Studies

Posted by David Roodman in Uncategorized Tags: ,

The Boston Globe has an article today on what the latest impact studies tell us about microfinance. I really do think this article is well-done—clear-eyed and clearly written. But maybe I’m biased by being quoted in it.

Coverage like this raises an old question for those who promote charities: How far is it wise to go in, well, accentuating the positive in order to raise funds for good works? At what point does going beyond the evidence risk too much backlash and disappointment? Ponder such sites as ACCION’s lendtoendpoverty.org and the Grameen Foundation’s stoppovertynow.org. I do not mean to insinuate through my indirectness that I have the whole answer.

Update: The Globe published a letter from Elisabeth Rhyne, head of ACCION’s Center for Financial Inclusion.

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July 22, 2009

Hammer Blows or Pinpricks? Stories vs. Statistics in Microfinance

Posted by David Roodman in Uncategorized Tags: ,

It’s been a tough season for the proposition that “microfinance is a proven and cost-effective tool to help the very poor lift themselves out of poverty and improve the lives of their families.” In May came a randomized trial of microcredit in Hyderabad finding no impacts on poverty 15–18 months out. In June came a paper challenging the leading older-generation studies that seemed to show that microcredit had cut poverty in Bangladesh in the 1990s. Now in July we have another randomized trial, of microcredit in Manila, also finding no impact on bottom-line measures of household welfare.

A couple of people, including Tim Ogden, have raised a good question with me in the last few days: What does this mean for microfinance? Has a myth been debunked? Is the whole movement about to implode in a ball of fire? More precisely, will this research perturb the dominant narrative about microfinance in the public mind, about microenterprise as a reliable ladder out of poverty?

I’m reminded of two Mark Twain saws—the one about lies, damned lies, and statistics; and the one about the reports of his death being greatly exaggerated.

Reasons this isn’t quite a David (ahem) and Goliath story:
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