Be a banker to the poor
hippiemom
Posts: 3,326
You, Too, Can Be a Banker to the Poor
The New York Times
By NICHOLAS D. KRISTOF
Published: March 27, 2007
For those readers who ask me what they can do to help fight poverty, one option is to sit down at your computer and become a microfinancier.
That’s what I did recently. From my laptop in New York, I lent $25 each to the owner of a TV repair shop in Afghanistan, a baker in Afghanistan, and a single mother running a clothing shop in the Dominican Republic. I did this through www.kiva.org, a Web site that provides information about entrepreneurs in poor countries — their photos, loan proposals and credit history — and allows people to make direct loans to them.
So on my arrival here in Afghanistan, I visited my new business partners to see how they were doing.
On a muddy street in Kabul, Abdul Satar, a bushy-bearded man of 64, was sitting in the window of his bakery selling loaves for 12 cents each. He was astonished when I introduced myself as his banker, but he allowed me to analyze his business plan by sampling his bread: It was delicious.
Mr. Abdul Satar had borrowed a total of $425 from a variety of lenders on Kiva.org, who besides me included Nathan in San Francisco, David in Rochester, N.Y., Sarah in Waltham, Mass., Nate in Fort Collins, Colo.; Cindy in Houston, and “Emily’s family” in Santa Barbara, Calif.
With the loan, Mr. Abdul Satar opened a second bakery nearby, with four employees, and he now benefits from economies of scale when he buys flour and firewood for his oven. “If you come back in 10 years, maybe I will have six more bakeries,” he said.
Mr. Abdul Satar said he didn’t know what the Internet was, and he had certainly never been online. But Kiva works with a local lender affiliated with Mercy Corps, and that group finds borrowers and vets them.
The local group, Ariana Financial Services, has only Afghan employees and is run by Storai Sadat, a dynamic young woman who was in her second year of medical school when the Taliban came to power and ended education for women. She ended up working for Mercy Corps and becoming a first-rate financier; some day she may take over Citigroup.
“Being a finance person is better than being a doctor,” Ms. Sadat said. “You can cure the whole family, not just one person. And it’s good medicine — you can see them get better day by day.”
Small loans to entrepreneurs are now widely recognized as an important tool against poverty. Muhammad Yunus won the Nobel Peace Prize last year for his pioneering work with microfinance in Bangladesh.
In poor countries, commercial money lenders routinely charge interest rates of several hundred percent per year. Thus people tend to borrow for health emergencies rather than to finance a new business. And partly because poor people tend to have no access to banks, they also often can’t save money securely.
Microfinance institutions typically focusing on lending to women, to give them more status and more opportunities. Ms. Sadat’s group does lend mostly to women, but it’s been difficult to connect some female borrowers with donors on Kiva — because many Afghans would be horrified at the thought of taking a woman’s photograph, let alone posting on the Internet.
My other partner in Kabul is Abdul Saboor, who runs a small TV repair business. He used the loan to open a second shop, employing two people, and to increase his inventory of spare parts. “I used to have to go to the market every day to buy parts,” he said, adding that it was a two-and-a-half-hour round trip. “Now I go once every two weeks.”
Web sites like Kiva are useful partly because they connect the donor directly to the beneficiary, without going through a bureaucratic and expensive layer of aid groups in between. Another terrific Web site in this area is www.globalgiving.com, which connects donors to would-be recipients. The main difference is that GlobalGiving is for donations, while Kiva is for loans.
A young American couple, Matthew and Jessica Flannery, founded Kiva after they worked in Africa and realized that a major impediment to economic development was the unavailability of credit at any reasonable cost.
“I believe the real solutions to poverty alleviation hinge on bringing capitalism and business to areas where there wasn’t business or where it wasn’t efficient,” Mr. Flannery said. He added: “This doesn’t have to be charity. You can partner with someone who’s halfway around the world.”
The New York Times
By NICHOLAS D. KRISTOF
Published: March 27, 2007
For those readers who ask me what they can do to help fight poverty, one option is to sit down at your computer and become a microfinancier.
That’s what I did recently. From my laptop in New York, I lent $25 each to the owner of a TV repair shop in Afghanistan, a baker in Afghanistan, and a single mother running a clothing shop in the Dominican Republic. I did this through www.kiva.org, a Web site that provides information about entrepreneurs in poor countries — their photos, loan proposals and credit history — and allows people to make direct loans to them.
So on my arrival here in Afghanistan, I visited my new business partners to see how they were doing.
On a muddy street in Kabul, Abdul Satar, a bushy-bearded man of 64, was sitting in the window of his bakery selling loaves for 12 cents each. He was astonished when I introduced myself as his banker, but he allowed me to analyze his business plan by sampling his bread: It was delicious.
Mr. Abdul Satar had borrowed a total of $425 from a variety of lenders on Kiva.org, who besides me included Nathan in San Francisco, David in Rochester, N.Y., Sarah in Waltham, Mass., Nate in Fort Collins, Colo.; Cindy in Houston, and “Emily’s family” in Santa Barbara, Calif.
With the loan, Mr. Abdul Satar opened a second bakery nearby, with four employees, and he now benefits from economies of scale when he buys flour and firewood for his oven. “If you come back in 10 years, maybe I will have six more bakeries,” he said.
Mr. Abdul Satar said he didn’t know what the Internet was, and he had certainly never been online. But Kiva works with a local lender affiliated with Mercy Corps, and that group finds borrowers and vets them.
The local group, Ariana Financial Services, has only Afghan employees and is run by Storai Sadat, a dynamic young woman who was in her second year of medical school when the Taliban came to power and ended education for women. She ended up working for Mercy Corps and becoming a first-rate financier; some day she may take over Citigroup.
“Being a finance person is better than being a doctor,” Ms. Sadat said. “You can cure the whole family, not just one person. And it’s good medicine — you can see them get better day by day.”
Small loans to entrepreneurs are now widely recognized as an important tool against poverty. Muhammad Yunus won the Nobel Peace Prize last year for his pioneering work with microfinance in Bangladesh.
In poor countries, commercial money lenders routinely charge interest rates of several hundred percent per year. Thus people tend to borrow for health emergencies rather than to finance a new business. And partly because poor people tend to have no access to banks, they also often can’t save money securely.
Microfinance institutions typically focusing on lending to women, to give them more status and more opportunities. Ms. Sadat’s group does lend mostly to women, but it’s been difficult to connect some female borrowers with donors on Kiva — because many Afghans would be horrified at the thought of taking a woman’s photograph, let alone posting on the Internet.
My other partner in Kabul is Abdul Saboor, who runs a small TV repair business. He used the loan to open a second shop, employing two people, and to increase his inventory of spare parts. “I used to have to go to the market every day to buy parts,” he said, adding that it was a two-and-a-half-hour round trip. “Now I go once every two weeks.”
Web sites like Kiva are useful partly because they connect the donor directly to the beneficiary, without going through a bureaucratic and expensive layer of aid groups in between. Another terrific Web site in this area is www.globalgiving.com, which connects donors to would-be recipients. The main difference is that GlobalGiving is for donations, while Kiva is for loans.
A young American couple, Matthew and Jessica Flannery, founded Kiva after they worked in Africa and realized that a major impediment to economic development was the unavailability of credit at any reasonable cost.
“I believe the real solutions to poverty alleviation hinge on bringing capitalism and business to areas where there wasn’t business or where it wasn’t efficient,” Mr. Flannery said. He added: “This doesn’t have to be charity. You can partner with someone who’s halfway around the world.”
"Nothing in the world is more dangerous than sincere ignorance and conscientious stupidity." ~ MLK, 1963
Post edited by Unknown User on
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Comments
EDIT: I rushed through that section and misread it. 97% of microfinance loans worldwide are repaid in full. Currently, 100% of Kiva's loans have been repaid.
I'm definitely going to do this. Instead of a charitable contribution that I would otherwise make, I can put the same amount of money here and keep using it over and over again.
I was thinking that too... maybe just set aside a hundred bucks or so, and just keep re-investing it when it it repaid.
I also think that it's cool that Paypal is waiving any commission so that 100% goes to the borrower.
was like a picture
of a sunny day
“We can complain because rose bushes have thorns, or rejoice because thorn bushes have roses.”
― Abraham Lincoln
No return on the investment??? Shit, I'm going to use this site to raise money myself
Yeah, it's definitely a cool thing. I'm going to do this too.
Totally agree with this part..
“I believe the real solutions to poverty alleviation hinge on bringing capitalism and business to areas where there wasn’t business or where it wasn’t efficient,” Mr. Flannery said. He added: “This doesn’t have to be charity. You can partner with someone who’s halfway around the world."
22 Is my loan tax-deductible?
No – because it is a loan not a donation, and there is an expectation of repayment.
23 Will I get my money back?
Your loan is not guaranteed, therefore there is a chance that you will not get your money back. However, just as there are different levels of risk in stocks or mutual funds, there are also different levels in risk in funding a loan.
Your Kiva.org loan is a low-risk loan. Microfinance loans worldwide are generating repayment rates of 97% (UNCDF: Basic Facts About Microfinance). To date, Kiva.org’s repayment rate is 100%.
If you are still concerned about repayment, minimize your risk by diversifying – loan $25 to a number of businesses rather $100 (or more!) to one business.
24 Do I need to report my loans to the IRS on my tax return?
No. As Kiva.org currently does not provide interest to lenders, there is no way to make a profit on your loan. You do not need to report to the IRS loans which cannot earn you a profit.
25 If my loan defaults, can I then claim it as a tax-deductible donation?
No, because it was intended as a loan, not a donation. However you can claim it as a capital loss.
Thank you hippiemom.
it is a great idea and think i will give it a whirl... i just hope the afghan TV repair man isnt affiliated with al-queda so i wont be labeled a terrorist sympathizer, and the secret police kick in my door with the patriot act in hand
I've already lent out the repaid funds to new borrowers, so it just keeps on giving
I'll have to organize myself and get on board! And good to hear from someone that has tried it. Thank you.
*~You're IT Bert!~*
Hold on to the thread
The currents will shift
1. I think it sucks that they only accept "loans" in the form of CREDIT CARDS.
It fucks the lender, by forcing them to MAKE INTEREST PAYMENTS on a loan, of which they receive NO INTEREST.
2. I think it is funny that YOU can not make any money, but the guy who is running this gets a salary. Infact, everyone on staff is getting paid, i imagine.
3. I think they would get a LOT more lenders if they would just charge even some token interest to these people. Say 3%
4. I think this system errodes the free market on some level.
If you think about it, for every person out there on this site getting a 100% subsidised NO INTEREST loan, there is another guy out there somewhere who didn't get on this site, who is trying his damnedest to get a loan like every other honest joe in this world, and HE IS NOW AT A SEVERE DISADVANTAGE because YOU gave the OTHER guy a FREE LOAN!
Just think about it.
Is THAT fair?
I dunno.
:(
If I opened it now would you not understand?
Even if you are paying off your card in full, you are still losing the "Time Value" of your money.
I hear you, it's great to make a difference.
See #4 in my ammended post.
Lending to someone at 0% is fucking over someone else who is not privy to this subsidised way below market rate loan. You have just put someone else at an infinte disadvantage as far as operating costs. Literally, infinite. Person A has loan costs of ZERO dollars. Person B has loan costs of ANYTHING OVER ZERO.
:(
Who wins in the longrun? Maybe not a sure thing, but even if person B runs a more efficient business, they are still running against the odds, since Person A has an artificialy low operating cost for their loan.
:(
If I opened it now would you not understand?
When the US Government created the FHA and subsidized home loans to the "poor" in America, it drove up housing prices for the entire middle class.
:(
I'm just saying, i agree with lending a hand, but it would be prudent for these people to be charging interest ... (come on, WTF is interest on $100 anyhow? sheesh) ... hell, compound it anualy instead of continuosly if you feel so bad ... but charge some interest so you aren't destroying the free market system.
If this really does "catch on" it could truly have a cataclysmic effect on the local markets in which the loans are operating.
By randomly choosing certain businesses to dole out 0% interest loans to, you are unraveling the fabric of a system which is supposed to be issuing loans at varying rates based on some rating system of risk.
It is unhealthy for business as a whole in the long run.
If 5000 incompetent twits get free money and go on to put out-of-business 500 great minds who just happened not to get a free loan, then the entire country in which those 5000 twits operate suffer for it. You have just promoted the expansion of bad business, to the detriment of everyone who relies on that business. Your motives may be 100% genuine altruistic greatness, but it does not get around the fact that you sidestepped the checks-&-balances of the free market system.
It may not be that bad, but it certainly could be.
I probably wouldn't be ranting this hard if i wasn't knee deep in the middle of The Creature From Jekyll Island, which deals with this issue on a MUCH higher level. It is about The Federal Reserve, and how by government interference and the creation of this Reserve entity, America has destroyed the free market and promoted the growth of poorly run banks and directly disadvantaged smaller, better managed banks.
It is the same principal, and it STINKS!
Regardless of what the "intent" may be.
Sorry.
:(
PS - and i'm really glad you are "making a difference" some how.
I wish i could subscribe to this. I was all over it until i realized it was 0 interest. Not even for my own benefit, but as i described. I recognize the injustice of it. Makes me want to start my own site that DOES charge interest. Of course, it couldn't be non-profit for that reason, lol. But i bet it would get MORE lenders!
If I opened it now would you not understand?
ugh.
This is not free market.
This is freedom to do what you want to do.
But it isn't free market.
Its people handing out free loans through a non-profit,
decidedly not free-market.
When Habitat For Humanity builds someone a house and just gives it to them, is it "Free Market"? It's not the government, so, going by your singular critera of "it's not the government" it must be.
I'm telling you, we do LOTS of things in the US and in "capitalist" societies around the world that aren't 100% "free market", and this is 100% NOT in the spirit of such an idea.
But i agree with you SOMEWHAT.
I'll take the people over the government ANYDAY.
If I opened it now would you not understand?
Wow - I wonder if I can apply for the no interest loan!
(it does sound like an intriguing idea, though)
...are those who've helped us.
Right 'round the corner could be bigger than ourselves.
Verona??? it's all surmountable
Dublin 23.08.06 "The beauty of Ireland, right there!"
Wembley? We all believe!
Copenhagen?? your light made us stars
Chicago 07? And love
What a different life
Had I not found this love with you
also why are they all in azerbaijan?
Verona??? it's all surmountable
Dublin 23.08.06 "The beauty of Ireland, right there!"
Wembley? We all believe!
Copenhagen?? your light made us stars
Chicago 07? And love
What a different life
Had I not found this love with you
wow what a great website. thanks for posting this. I do not see Iraq or Afghanistan as choices though. I will keep an eye out for those because I definitely want to help people in those countries...Add to favorite......thanks laura
Verona??? it's all surmountable
Dublin 23.08.06 "The beauty of Ireland, right there!"
Wembley? We all believe!
Copenhagen?? your light made us stars
Chicago 07? And love
What a different life
Had I not found this love with you
thanks
http://www.kiva.org/app.php?page=about&action=aboutPartner&id=30
'The self reported average, annualized, flat interest rate in real terms charged by the Field Partner to the enterpreneur. Note that Kiva.org does not currently take a cut of the interest rate charged by Field Partners and instead relies on an optional lender fees/donations to help pay for running our website (small core staff, rent, servers, etc).
If the Field Partner interest rate seems high, consider the following:
Field Partner interest rates are a highly affordable alternative to the local money lender
Local money lenders - often the only option for poor entrepreneurs to get a loan - charge interest rates ranging from 60% to 800% annualized.
A poor entrepreneur can generate greater benefits from additional units of capital than can a highly capitalized business, because she or he begins with so little.
According to the World Bank, studies covering India, Kenya, and the Philippines found that the average annual return on investments by microbusinesses ranged from 117 to 847 percent.
The costs of making a micro-loan in the developing world are higher versus larger loans in the West.
Cost of screening - Field Partners must screen entrepreneurs who commonly have no credit history, no collateral, are frequently illiterate, and often live in remote areas. To responsibly assess the credit worthiness of each entrepreneur, the cost is higher than the West where most everyone has a credit score and screening / loan application can be done electronically.
Cost of in person collections - Field Partner staff typically travel to each entrepreneur on a monthly basis to make collections. Compared to the West, where mail and internet repayments are standard, the costs are higher.
Cost as a size of the loan - If the Field Partner's actual cost per loan is $25, the percentage cost is 0.25 percent for a $10,000 loan, but 25 percent for a $100 loan.
Field Partners must charge an interest rate that allows them to pursue their social impact agenda sustainably.
In order for Field Partners to reach more of the poor with relatively low interest loans (vs. local money lender), they need to cover their costs.
Given the higher costs of microloans discussed above, Field Partners must charge a sufficient interest rate.
Kiva aspires to provide transparency around the social impact and relative Field Partner interest rates in order to ensure to reward Field Partner that successfully create social value while lowering their costs to do so. '
Verona??? it's all surmountable
Dublin 23.08.06 "The beauty of Ireland, right there!"
Wembley? We all believe!
Copenhagen?? your light made us stars
Chicago 07? And love
What a different life
Had I not found this love with you