Kiva has long been a popular manufactured spending tool. With a 97% repayment rate, lots of travel hackers use the platform to meet credit card spending requirements while doing something good for the world.
Last year, I generated $2,000 worth of credit card spending via Kiva. That was before I learned about some of their field partners’ predatory lending tactics, sky-high interest fees, and the organization’s outright lie about how it operates.
Below are some reasons why I’m not using Kiva anymore:
The myth of peer-to-peer lending
What compels most people to lend via Kiva is that it portrays itself as a peer-to-peer lending organization. You go to the website, “shop” for a person to support, read a brief bio describing the impact your $50 donation could have, and feel good knowing you touched another person’s life in a positive way.
Except it’s all a farce. According to the Center for Global Development, over 95% of Kiva’s loans are already disbursed before they’re even listed on Kiva’s website.
Kiva partners’ sky-high interest fees
You might be wondering, “Huh”? Well, it turns out the money you’re “lending” is really just going to banks who have already disbursed these loans. Not only that – some of these banks charge interest rates of up to 100%.
That’s right: Your interest-free loan isn’t going directly to the entrepreneur you think you’re helping out of poverty. It’s bailing out the banks who are skinning these already impoverished people with insanely high interest fees.
In reality, Kiva isn’t helping economically disadvantaged people so much as it’s helping banks take advantage of them.
The myth of Kiva’s 97% repayment rate
One of the most impressive stats Kiva likes to boast about is their 97% repayment rate. That’s a nice number, but like so many other things Kiva tells users, it’s not entirely true. After all, when the banks are charging borrowers up to 100% interest, there has got to be a higher default rate.
There is. The reason you don’t hear about it? In order to keep their high rating with Kiva, the banks will sometimes cover these losses by repaying Kiva lenders out of pocket. But it all makes financial sense because they make their money back from the borrowers who do pay back their loans with (insanely high) interest.
Kiva’s lending inefficiencies
Let’s say we’ve made peace with the 100% interest rates and dishonest lending practices. Now we have to reckon with Kiva’s lending inefficiencies. According to NextBillion, Kiva spent $14 million dollars in 2012 to lend $111 million.
The amount Kiva spends on lending the money you give to aspiring businesses is 6 – 7 times what is typical in the microfinance industry. So basically, Kiva is an inefficient middleman. Kind of defeats that whole “direct lending” premise, doesn’t it?
Kiva’s response
Kiva’s response to all this criticism has been lackluster at best. They offer excuses like, “It’s more expensive to offer loans in the Developing World than in the West” to justify an average 36% interest rate. Sorry, that’s not an excuse.
When you claim to be passing on “100%” of loans to economically disadvantaged people in developing countries, it’s absurd to hide the fact that these loans carry interest rates of up to 100%.
Imagine a Bangladeshi farmer who has to take out a $250 loan to buy fertilizer. If he’s already struggling to come up with $250, imagine how much harder it’s going to be to repay twice that amount.
The excuses Kiva outlines on its website are completely insufficient to address these predatory interest rates and transparency issues.
I don’t care that Kiva’s Field Partners are “barely breaking even.” Or that only a small percentage of their partners charge 100% interest. I don’t care how much their Comms team pretties up the language to make us all think we’re teaching men how to fish.
The fact is, Kiva misrepresents itself as a peer-to-peer lending organization that takes money interest-free and disperses it to people who repay it 97% of the time. And that simply isn’t true.
Alternatives to Kiva
After all this controversy erupted a few years ago, Kiva created Kiva Zip, an actual 0% interest peer-to-peer lending program. That program doesn’t appear to exist anymore, with the URL redirecting to a Norwegian website.
I can’t vouch for any other alternatives, but I have read good things about Zidisha. This platform is great if you want to contribute 100% interest-free loans. However, with a significantly lower repayment rate, it’s not going to be ideal for those who want a free way to earn points and miles.
Bottom line
I think it’s important to be socially responsible. Supporting a platform that contributes to the exploitation of disadvantaged people and creates an uphill battle for them to escape their poverty is not conducive to that.
Nowadays, we’re constantly being manipulated to buy or do things that could harm us or society as a whole. Dishonesty has become the norm. When I learned of the massive disparity between what we think Kiva does vs. reality, I had to stop lending.
It’s not just about the fact that my funds are being used to bail out banks with predatory interest rates. Nor is it the fact that this information isn’t freely disclosed by Kiva. It’s that my loans could actually harm people by pushing them further into debt.
There are other ways to meet credit card spending requirements and help those in need.
I’ve always questioned Kiva’s business practice and it makes me sad to see how they take advantage of the less fortunate.
It’s infuriating. And the complete opposite of what they sell us on.
Thank you for bringing this to the attention of the public!
Glad to be writing about something that matters for once. 😉
Kind of like opposing pawn shops….they offer a service, and if people are using it that means there isn’t a better option available to them. Better to have some service, rather than none, no?
You’are setting the bar low. Nothing wrong about offering better options.
Not if Kiva is claiming that our interest-free loans are going directly to the people who need it. That’s why so many people lend them money – they think it’s helping and that it’s an interest-free loan. Instead, you’re lending the bank an interest-free loan while they jack up the interest fees up to 100%. Some people are desperate and have no choice, true. But this is pure exploitation and does not improve their lives.
There are plenty of people out there (as GoFundMe has demonstrated) who don’t mind giving money to those in need, with no expectation of return. What Kiva is doing is exploiting people’s generosity to enrich their field partners. Because at 100% interest, they’re the ones making financial progress, not the impoverished people they claim to serve.
I have never used Kiva, but I am not opposed to their practice. Banks, as well as “middlemen”, are in the business to make money, not distribute charity. Nobody forces us to use their services. If “up to 100%” interest on a risky investment is too high, just don’t sign up for this. You presumably want some return on your investment, otherwise you would just gift that “Bengali farmer” the $250 he needs and feel good about it.
I think you missed a point!
But that’s the problem, T. Kiva isn’t selling itself as a “business” – they’re claiming to be a charitable organization that helps impoverished people. It’s easy for us to say “if the interest is too high, just don’t sign up.” Some people are desperate and don’t have a choice. When I lend my money to these people, I’d rather accept a 0% chance of repayment than fund a bank’s attempt to exploit these people. What Kiva is doing – claiming the money is funding fledgling businesses and not banks – is an outright lie.
Kudos to you for a well-written, detailed, damning exposé. I do hope it reaches a wider audience.
Thanks George! I hope so too.
Well done. Thanks for pointing out their practices. It’s refreshing to see a post in the blogosphere that puts values ahead of blindly chasing miles
I try!
I came across this post after finding out that Kiva had automatically re-loaned my money. I knew the loans weren’t interest free for the recipient, but being born in Argentina I understand interest rates in developing countries are not the same as those we would see in developed economies (at 50% anual inflation a 35% interest rate is actually profitable for the recipient). Still I never liked the idea of finding micro-finance firms. A close friend ran one (not related to Kiva at all) and I know it is a stupidly profitable business that simply takes advantage of the least fortunate. Even then, I thought I’d may be doing some good. I even knew that the loans I was supporting had already been disbursed but thought my loan still kept a closer relationship to it that it what seems to be the reality. The loan Kiva picked for me and gave *my* money to I would have not supported myself. I’m still waiting on an answer for them as I never enabled auto-loans and I don’t it outrageous that this is the default option. Although it makes a lot more sense now that I have read this post. Kiva’s loan profiles, pictures and stories are just half of the story (at best). Bottom line is you don’t know who is actually getting your money and what for. The fisherman’s wife I’m now supporting already for her money in October. My money might as well be with someone dealing weapons… who knows. I’m going to find a direct lending option and try to find honest people on there.
They did the same thing to me once and I fought them on it. They ended up giving the money back. There’s so much wrong with the way Kiva does business – downright dishonest and predatory. I’m all for direct lending. And if I could verify that a real person is getting that money, I don’t even want it back.
If this is all true, and true losses/defaults are covered by the banking fees, how does Kiva decide on which loan to repay me in full or not. True defaults may be more like 10-20% rather than 3%.
Kiva doesn’t decide on loan repayment – the banks do. And because the banks want to keep those interest-free loans from you and me coming, that means they’ll sometimes pay back loans that are in default because they want to maintain their good standing with Kiva. It’s very twisted.
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Can you state your sources? And, if so, can you verify the information from those sources are true? Your column stated so many numbers and purported facts that accurate citations need to be included to validate the contents.
Like always there are two sides of a coin. Today FrequentMiler wrote a very nice post on kiva in response to Ariana’s post. This is quote from his post directly ” Ariana’s negative post about Kiva was based on a 10 year old blog post published by a site called the Center for Global Development, and a 5 year old blog post published on a site called Next Billion”. I think both these bloggers make very good points and it is up to us, the readers to chose and decide which way to go
I read through Greg’s most and it was indeed well written. I couldn’t find sources newer than 5-10 years on this topic. My problem isn’t with Kiva’s intentions or motives. It’s with the fact that they do not disperse the loans as people are led to believe: Interest-free. I read about the high cost of lending in impoverished countries and Kiva already has the solution: People who are willing to lend those funds interest-free. Why the loansharking, then?
The loansharking is because of the fatuous need to entice first-worlders to “lend money with 97% repayment rates” – it’s a great feel-good story that you can entice rubes into lending money so long as the worst that happens for their “good deeds” is lose a few percent. But in reality, it’s the poor who are subsidizing that 97% repayment rate with worse-than-loan shark rates. The notion that default rates of the poorest of the poor are only 3%, is hysterical nonsense of the highest order – that’s better than what lenders face in the first world, from people with steady jobs and assets for collateral.
Ariana, good for you for ripping on the scumbags who use Kiva to earn points off the back of the world’s least fortunate.
All the sources are linked in the post. I also linked to Kiva’s response and you can evaluate that for yourself. I don’t find it a sufficient defense at all.
I would highly recommend that the reader look into this story. It is only partially true. It is too bad that the writer has to badmouth an organization with half-truths.
Which part of this isn’t true? Please enlighten us Joe. I didn’t “badmouth” anyone – these are facts and if they’re inconvenient for you, then that’s too bad.
Ariana, kudos for ripping on Kiva – been a pet peeve of mine for years to read people advocate using KIVA to earn points and – supposedly – doing a ‘good thing’ or a mitzvah. It’s a scam and anyone who uses Kiva to earn points off the back of the neediest people on the planet is a sleazebag.
If you really want to help with microlending (really micro-giving), use portals like Zidisha that are upfront about the obscene (60%-100%) interest rates being charged – and provide all-in loans for 5% (donors can bid to receive zero interest, keeping fees vastly lower than the outrageous worse-than-loan shark- rippoff rates Kiva charges).
Thanks Ron. I don’t think most people are aware of how Kiva actually works. I will gladly lend my money at 0% interest and feel ok if it doesn’t get repaid instead of enabling this loansharking industry. Unfortunately there are no perfect alternatives out there, but that doesn’t mean we should settle for this kind of dishonesty. It’s not good enough.
Hi ariana I am new to your page I was wondering do you have an email I would like to run a few ideas by you on Manufactured spending I really don’t want to go the MO and GC route to easy to be shut down thanks for your time.
EJ
I do: It’s Ariana @ pointchaser.com
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This is based on a profound misunderstanding about microfinance. I worked in the industry for 5 years and kiva is not doing anything predatory. Maybe they are inefficient and I think there’s a great debate to be had about their marketing practices (as there is every non-profit), but they are in no way sleezy. Read Mohammad Yunus if you want to get a picture of how microfinance works and what the banking reality is for the majority of the world. Or better yet, go to one of these “banks” that you are critiquing and see how they operate and talk to their customers. I think you will find they are much less malicious than you think they are.
Call me crazy, but I don’t think charging impoverished people 100% interest is right. I don’t care that some economist sanctioned it. My biggest issue with Kiva is that they misrepresent their operation. Transparency should not be an anomaly.
Look, I don’t want to get into a massive debate about it because it is literally a whole conversation within the industry. If you want to learn more read Chuck Waterfield in the WSJ (https://financingthefuture.wsj.com/article/SB10171014995452453472504581163731575525412). He’s a great guy who is very passionate about this subject.
My point is that there’s a lot more nuance to it and making a value judgement based off one sensational number is wrong. The vast majority of microfiance loans are not 100% and there are situations (like extremely short term loans for high margin inventory) where 100% is an appropriate ARP. I am worried you will sway people away from using Kiva which does a lot of good. I’ve personally worked with organizations who are doing fantastic work and helping a lot of people for the right reasons. They use Kiva as a source of loan capital and would not be able to serve as many people if Kiva suddenly dried up. To your point around transparency: if you, a blogger, is putting out a researched article and still missing the point, how likely is it that someone who goes to Kiva for 5 minutes is going to understand the nuance of loan rates? No one expects the average consumer to understand the complexity of ethical supply chain management. That’s why we have certifications like FairTrade. There have been efforts to do this same type of thing (Chuck was trying to do that with microfinance transparency) and I think that would honestly be an awesome step for Kiva to take. But that’s different than boycotting them because they fund organizations which issue some loans with a high APR. Thanks for engaging on this point. I just honestly don’t want to see good organizations taking an undeserved hit on their reputation.