What I Love about Kiva.org
Kiva.org is the on-line microlending network that allows anyone to lend $25 or more to individual low-income borrowers around the world for micro-enterprise and housing. Kiva is an entirely different way of thinking about credit and financial intermediation. While it may be small, it is an example of the real utopias described by Erik Olin Wright in his 2012 presidential address to the American Sociology Association.
Through kiva’s web site, anyone wishing to make a loan can browse the descriptions of borrower projects. For example, a woman in Central America has applied for $350 to buy bricks, cement, wire, sand, gravel and iron to build on to her house, and proposes to repay over 15 months. NGOs prepare the loan descriptions, disburse and collect loans and provide support services to borrowers.
The interest paid by the borrower covers the costs of payment transfers, underwriting and supervision of the loans and the administration of the program. Lenders receive no interest. Those of us with some surplus wealth can put it to productive use without insisting on enriching ourselves as a reward for being (at least relatively) wealthy. This is especially painless at the moment when interest rates for savers in the conventional retail banking sector are low, but it can also give us an opportunity to reflect on the deep capture of contemporary economic thinking by the idea that capital is entitled to, and must always, earn interest for being put to use.
With its capacity to connect thousands of individual lenders with thousands of individual borrowers, kiva also points one way to solving to the maturity mismatch that creates so much risk for conventional banks. An individual lender/saver can browse a list of thousands of potential loans of varying maturities, and match his or her own cash needs with the borrower’s. There are no 30-year mortgages on kiva (yet) but the possibility is there.
Whether microlending and microfinance generally are a net welfare benefit for poor borrowers is a complex and controversial question, to which there are a variety of empirical and theoretical responses. Other peer-to-peer lending and crowdfuding experiments without the social mission have raised a host of problems, including high default rates. I can say, though, that I experience more happiness browsing my kiva.org portfolio (see picture) than any of my other account statements.