You are here: Home » Family & Home » Kiva – Microloans for Entrepreneurs

Kiva – Microloans for Entrepreneurs

by

I have written about peer to peer lending on several occasions, most notably from the perspective of funding P2P loans as a source of alternative income. When you make a P2P loan with a company such as Prosper or Lending Club, you can “be the bank,” and make loans to others. In return, you can receive interest on your loans.

Kiva is another P2P lending organization, but the idea behind Kiva is not for lenders to make money. Kiva’s goal is to help eliminate poverty by giving small non-profit loans to entrepreneurs in developing countries. These entrepreneurs usually can’t go to a bank for a loan because they don’t have enough money to make a deposit or have any collateral for the loan.

How does Kiva work?

Kiva collects microloans from individuals and organizations and distributes them via field partners to entrepreneurs in developing countries. Some field partners offer training or other support to the entrepreneurs. Loan repayment and other updates are posted on Kiva and emailed to lenders who wish to receive them.

It is important to note that while neither lenders or Kiva receive interest payments on the loans, Kiva’s field partners are middlemen who often charge interest to the loan recipients, sometimes at high rates, but usually better than the prevailing rates entrepreneurs would be able to get elsewhere. (Kiva loans are generally a safer loan option, as the entrepreneurs other options are local loan sharks who sometimes use violence or other methods of retrieving their loan).

To make a loan with Kiva

Kiva has a list of entrepreneur’s on their website who are searching for loans to improve their operations. Lenders can scroll through the list of entrepreneurs and make a selection based on the person they wish to lend money. Loans are made via credit card or PayPal. When loans are repaid, lenders have the option or lending money to another entrepreneur, or withdrawing their money. You can make a loan with as little as $25.

Pros and Cons of lending with Kiva

Even though you are lending money for a good cause, when you make a loan with Kiva you are not giving a donation, so your loans are not tax deductible. These loans are also not guaranteed, so there is the chance that you can lose money if the loan is not repaid. If this happens, you should be able to claim the loss against your taxes.

So why lend with Kiva if you can’t claim it on your taxes, and you may not even get repaid? Because you have the chance to help someone improve their life and community, which is a noble action on your end. At a minimum loan of $25, the risk is small.

My thoughts on Kiva and microlending

I look at making a loan through Kiva as an opportunity to help improve someone’s life at very little risk on my end. Though the money is technically a loan, I look at is as a donation and would not lend out any more money than I could afford to give to any other charitable organization I believed in.

The difference between Kiva and a charity is the money for the Kiva loan is not tax deductible as it is for a charitable donation. But then again, with charity wouldn’t return the money to you and give you the opportunity to give it again. So a Kiva loan has the potential to be a gift given many times over. And that is pretty cool.

Here are some other articles about microlending and Kiva:

Have you used Kiva? If so, what are your thoughts?


Published or updated March 20, 2014.
Print or e-mail this article:
Print Friendly

{ 4 comments… read them below or add one }

1 John Hunter

Kiva is great. The chance to provide opportunities that can change others lives just by loaning a few dollars is great. Another great micro-ledning charity I support is Trickle Up.

Reply

2 MoneyMateKate

I’ve been lending through Kiva for about 10 months now, and I *love* the ability to make such a personal choice (unlike most other microlending organizations, where you can barely pick the country – forget the individual borrower).

Kiva used to fund their own expenses with the interest on partially repaid loans, by not giving you back your $25 chunk until the entire loan was repaid in full. I thought this was brilliant! However, they now credit you the bits and pieces of repayments, so you can relend the money faster (I think a lot of people were avoiding longer loan terms because of this).

I’ve made about 15 loans so far, and only half of one went into some form of default – in Ecuador, where there was some kind of weather problem that killed crops and such. When Kenya went nuts after their election earlier this year, I believe they had loan repayment issues too – but most of the chatter on kivafriends.org and in the comment sections under the individual loans showed that lenders were more concerned about the safety of their borrower than their money. Others comment how it opens their eyes and minds to world events by having a connection to someone in Peru, Mali, Cambodia, etc. I’ve mentioned Kiva in my other, non-PF blog, http://www.cheapcharity.blogspot.com, in case you’re curious about who I invested in and why.

Reply

3 Ryan

Kate: I too, like the ability to choose where your loans go. It makes you feel like you have a tangible affect on someone’s life. To be able to do that from so far away for such a little cost is an amazing feeling. Thanks or sharing!

John: I hadn’t heard of TrickleUp before, so I’ll be sure to check that out. Thanks for sharing!

Reply

4 Mrs. Micah

I find Kiva a pretty exciting opportunity to give. It’s great to give people a hand up and use the same money over and over for it. That’s even more exciting than a one-time gift.

I’ve heard people call it investing, but I don’t think that’s quite accurate. There aren’t guarantees in either, but with Kiva you’re guaranteed not to get a return of more than your investment.

Reply

Leave a Comment

Previous post:

Next post:

.