The Big Payback

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My whole life I have secretly admired the profession of the loan shark. You know the guy I am talking about right? The big knuckled, leather jacket wearing thug in the movies that walks softly, carries a BIG ASS stick, and every so often utters phrases like:

You’d piss your pants if you saw me come calling for my money

“B*tch, you better give me my money”

or

‘Da f*ck you mean you ain’t got my money yet? muthaf*cka you best be comin’ up wit’ my cash or else you know what I’m sayin?… [Link]

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p>Admit it. Even the nice guys/gals among our SM readers have wondered at least once in their lives what it would be like to collect on debts as part of their daily routine, to have people scared out of their minds and start to stutter when you came a calling for yo’ money.

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p>In truth, despite the fact that my wallet does have the words “bad ass motherf*cker” embroidered on it, I am a sweet and non-violent guy. I just don’t have the disposition to be a loan shark, nor do I own a gun with which I can pistol whip anyone…not even some annoying commenters. 🙂

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p>What I can do however is help to change the world one loan at a time. Sitting behind my computer I can provide loans…without being a shark. There is a great new service that has been started by former Paypal employee Premal Shah and others, called Kiva. Kiva allows people like you and I to make loans directly to small business owners in the developing world. By loaning them money you will be helping them to take care of themselves and their family through sustainable means. If the working class entrepreneur that you lend money to succeeds, then it is likely that the economic impact of their business will propagate to some extent throughout their community. At the end of loan period it is likely that you will get your money re-paid in full without having to break anyone’s arm.

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p>Here is how the Kiva model works:

We let you loan to the working poor

Kiva lets you connect with and loan money to unique small businesses in the developing world. By choosing a business on Kiva.org, you can “sponsor a business” and help the world’s working poor make great strides towards economic independence. Throughout the course of the loan (usually 6-12 months), you can receive email journal updates from the business you’ve sponsored. As loans are repaid, you get your loan money back.

We partner with organizations all over the world

Kiva partners with existing microfinance institutions. In doing so, we gain access to outstanding entrepreneurs from impoverished communities world-wide. Our partners are experts in choosing qualified borrowers. That said, they are usually short on funds. Through Kiva.org, our partners upload their borrower profiles directly to the site so you can lend to them.

We show you where your money goes

Kiva provides a data-rich, transparent lending platform for the poor. We are constantly working to make the system more transparent to show how money flows throughout the entire cycle. The below diagram shows briefly how money gets from you to a third-world borrower, and back!

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p>I have first-hand experience with this concept of microfinance. The NGO I worked for in Delhi used to make small loans to women from the slums who showed initiative and had good business ideas. They found that it was better in this particular environment/area to give loans to women because the men might end up drinking or drugging it away but the women made shrewd and effective money managers. I went into the newly opened chai stand of one of these women and the pride in her face was visible. Underprivileged people in all parts of the world want to work and they want to succeed. Instead of charity, if you can give them a loan under reasonable terms, they work all the harder. I don’t think Kiva has extended its services to countries in South Asia yet but I am sure it is just a matter of time.

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p>Got more questions? They have a pretty comprehensive FAQ.

12 What percentage of my loan goes to the entrepreneur?

100%.

13 When I pay through PayPal, is PayPal taking a fee?

No. Kiva is the first organization PayPal is supporting by providing free payment processing.

14 What happens after I make the loan?

You will receive emails throughout the loan updating you on the progress of the business, and letting you know each time a repayment is made. You may comment on the updates by going to the business page on the website and entering a comment below the journal entry.

When the loan has been repaid in full, your account will be credited for your portion of the loan. You can then reloan or withdraw these funds.

A few weeks from now my buddies and I will pay some money to join a fantasy football league and then proceed to draft some players. Every week we will check the stats of our “fictitious” team(s), invest in better players, and then track their progress throughout the season, all for a shot at some prize money if we win. On the other hand I could find a real person on the Kiva page who’s idea I like and who just needs a break in life. I can invest in them and hope that they succeed and are able to better their lives. I win from the start and get my boomerang back to throw out again.

Spread the word Mutiny.

11 thoughts on “The Big Payback”

  2. So the key question in how ethical this would be is to find out how much interest Kiva’s partners – the microfinance institutions – charge. The FAQ’s suggest this information isn’t available yet.

  3. isn’t it always like that? seems that everyone wants you to front them cash for their hairbrained schemes but the one or two who actually have a credible business plan are forced to wait in line with all the wackos.. oh well, that’s the way the papadam crumbles

    ps: Abhi, you is wicked mad as Jules. No one would expect such a candid smile from the man sent to kill you, “WHAT does Marsellus Wallace LOOK like?!”

  6. Sub Rosa Mutineer Robin Sloan has talked about Kiva before–the alum (via internship) of Grameen Bank guessed some of its success is due to good local liasions, made a loan to merchant in Tanzania, and talked about the portfolio display feature (which should provide some gratification to fantasy moguls like Abhi) and linked to the founder’s blog.

    Here’s an old BBC article about Kiva which quotes my friend Ethan Zuckerman, an expert on using technology to promote development. Some peer-to-peer variations on the microfinance theme: the more general Zopa, and prosper.com. Of course, the most famous one is Grameen whose founder was featured as one of the “50 who Matter Now” on a, um, cough, cough, fun little business magazine recently. 🙂
    f.

  7. yeah the key point is ‘reasonable terms’ – and that would depend on the interest rate – no?

    I don’t know what the interest rates are, I assume they fluctuate w/ the market, but I do know that the repayment rate for microloans in India and Bangladesh is around 95% (which is higher than regular commercial lending) and that should tell you everything you need to know, if you’re worried about predatory lending.

    Don’t worry about the ethics. Do it for the money. Lenders and Borrowers are making money together, it’s not a zero sum game. And by concentrating on ethics youÂ’re missing the whole point. Your clients are not charity cases, they are people empowered enough to make their own decisions.

    Of course there’s also a human level to this, as Billionaire VC Vinod Khosla puts it:

    More importantly, if you go there and talk to these people they’re empowered. Most of the lending is to women, well in excess of 98 percent in this case, and what was surprising to me when I was there is I could look at a women who had borrowed and tell you how long she had been borrowing for, because anyone who had been borrowing for more than three years looked me straight in the face, eye-to-eye. People who were first-time borrowers were always looking down, their head covered with a sari, they were not empowered. But a few years of this of this not only changed their financial status, but also changed their mental attitude. To those of you who have lived here in the Valley, entrepreneurship is all about self-confidence. I have no doubt in my mind that this will have all kinds of other consequences. What was shocking was that almost all their children were going to school and that was their highest priority. Many of them, even though they didn’t have food, were taking income to get private tutors because the government schools weren’t good enough. But this can be done at a larger scale; it’s not just 100,000 to 300,000 to a million. Professor Yunus, shown here [shows slide], had the bank with three and a half million borrowers, a total of a little more then 4 million dollars lent over the course of the history of the bank. Much more importantly, studies prove that 120,000 Grameen Bank families overcome poverty each year. Now that’s powerful.

  8. So there is interest paid as well? I think this would increase my interest because my amount loaned would increase with each successful loan. Also, I used to work for ACCION and the interest rates are fairly high. But, the collections process is extremely forgiving and fair. Often the loans are extended or credits are given to make the payments easier.

  9. So there is interest paid as well?

    Yes and No. My post 7 is incorrect. The microlender (bank) charges interest to the borrower (entrepreneur)but this is not passed on to you, the kiva lender. I guess kiva itself is a non-profit, although the mico lenders themselves are not, so do it out of charity. A bit ironic.