What I didn’t know about Kiva

Come to find out, Kiva isn’t quite what I assumed. It doesn’t work exactly the way I described it here. They can’t make you an angel investor in an hour.

Yes, they still let you loan money to entrepreneurs in developing countries. Yes, they still pay you back 98% of the time. Yes, they still make a huge difference.

But here’s the thing. When you loan money through their site, you’re not actually loaning money directly to the entrepreneurs, interest free.

The way it works, Kiva loans your money to separate, micro-finance agencies. These micro-finance agencies then loan your money out to a pool of developing entrepreneurs, not necessarily the one you saw on the Kiva site. Oh, and they charge the entrepreneurs interest.

I get the reasons for this, I really do. In order to guarantee 98% of the loans are repaid, which is a huge number, the agencies have to make some money on the entrepreneurs who pay their loans back so they can cover the costs of those who don’t. Also, all these agencies have operating costs to take care of.

So I get it.

My problem with all this is…

  • Kiva’s not clear on where your money goes. They do spell it all out in detail on their How Kiva Works – Long Version page, which I appreciate (although it takes like four clicks to reach this page from the home page). With all the individual profiles, though, they’re certainly making it seem like you’re donating to individual entrepreneurs, like you can actually choose specifically where your money goes. That’s not the case.
  • Kiva’s not clear on how much the entrepreneurs have to pay to get your money. They say you’re loaning your money interest free, which is accurate. You won’t make anything on the deal. But still, the entrepreneurs have to pay interest, quite a bit in fact.

So yeah, I still think Kiva is helping a lot of people. The entrepreneurs in developing countries would almost certainly have a harder time getting financed if Kiva weren’t around.

At the same time, I don’t appreciate Kiva misleading me. I understand why they do what they do, as far as the business model goes, but I don’t like how they do it.

If someone has to reexplain your story, the way I just did for Kiva, it’s probably bad for business. It definitely doesn’t juice up the trust meter.