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Kiva Frowns but we Smile when Microloans Default

For every sweatshop-free t-shirt we sell at Skreened, we set aside a dollar to donate to some form of economic development for the poor people living overseas. Initially, we participated in microloans under the Kiva system, thinking that the non-profit’s loans must be generously giving people a hand up to a better life. But then we found out that Kiva imposes back-breaking interest and fees on almost all of its borrowers, and that most Kiva borrowers do not typically emerge from microloans with a small stake of wealth from which they can build capital. Rather, they end up in a cycle of borrowing so dire that a self-questioning Kiva intern notes: “some clients I have spoken to can’t even remember how many loans cycles they have had, many having had upwards of 20 loans.”

The Kiva organization has been defensive about its situation. It’s saying that the microfinance industry has no choice but to charge more than 50% in annual interest and fees to poor people in poor countries, and on occasion to harass its borrowers to collect repayments — sparking “No Pago” riots among the desperately poor. Kiva says that logistics and remoteness raise the cost levels so high that Kiva and its partners and its partners’ partners just can’t operate a microloan enterprise without these huge interest-and-fee packages.

It may or may not be true that usury and stalking borrowers is necessary for the microfinance industry to survive. But our goal in giving at Irregular Times is not to sustain the microfinance industry. Our goal is to help people, and there are ways to help people — like micro-grants without any interest or fees — that don’t involve usurious loans. We won’t get money back from from micro-grant institutions, but that’s alright with us. In fact, it’s preferable — and so we’ve shifted our international giving to other less ethically-conflicted institutions like Village Enterprise.

The thing is, we still had some of that original money invested in Kiva microloans, and as we were paid back we ended up with some funds to reinvest. As a way of handling this system, we sent those funds back to new borrowers through Kiva’s only zero-interest, no fee lender, the Nicaraguan institution ADEPHCA. ADEPHCA invests in poor and remote Creole communities along Nicaragua’s coast and has consistently refused to convert itself into a repo agency when its borrowers couldn’t pay back their loans. When hard times came to the Nicaraguan coast and push came to shove, ADEPHCA collected back just $984 in repayments out of its last round of $27,056 in loans. Some funds from Irregular Times were included in this latter amount.

Kiva, aggrieved that ADEPHCA hasn’t collected monies from its poor clients, has refused to work with ADEPHCA any more, declaring that “Kiva’s partnership with ADEPHCA is now closed” and sending Irregular Times an e-mail message apologizing for ADEPHCA’s compassion and imploring us to give Kiva another chance: “We hope that you realize that this default is a true exception to the norm and that you will give lending to the working poor another chance on our site.”

I wish the default weren’t an exception to the norm at Kiva, which is why with the default of these last microloans and our Kiva balance down $0, our relationship with Kiva is finally at an end.

We’ll continue to devote money from our shirt sales to helping poor people overseas, working through gifts and grants rather than loans. If you know of a non-profit doing good work to develop poor people’s economic independence without dragging them into debt, please leave a comment here with a link to that organization. We’ll take a look — and we’ll keep letting you know where our money goes in our donations thread.

2 thoughts on “Kiva Frowns but we Smile when Microloans Default”

  1. Tom says:

    There are poor people here too.

    Any time you go through a 3rd party (or more) to attempt a microloan your funds get divvied up so that this same 3rd party MAKES MONEY ON YOUR GIFT! i freaking HATE that shit so much that i don’t give anything to anybody i can’t see directly. The goddamn bell-ringin’ so-called Christian usurers known as the Salvation Army (what a metaphor in that name for what’s wrong with it on so many levels) not the least known of these (i think the Red Cross, Unicef, and other big name organizations designed to help are all mired in money problems, but i’d have to research it a bit more).

    The micro-grant idea sounds promising. It may be inherently true that anything having to do with money is just by nature subject to problems having to do with the frailty of our humanness – one of our many design flaws (violence being another well-known weakness of humanity). You can’t be faulted for trying, especially if what you risk (like going to a casino) is not going to hurt you if you lose it. You should be commended for your generosity, whereas i’m a selfish jerk in that area.
    i try to help people around here in my own community – giving freely from my garden, my time (volunteering), and my heart (i care about my community, to some extent), but it’s never enough. i feel inadequate, beat myself up for only going “so far” (ie. i’m not giving away the farm or having everyone move in with me), but realize we all have to do what we can and lay off the criticism of whatever others are or are not doing in that regard. It’s so connected to everything else about our lives – mostly to do with time – that being generous, helpful, courteous, caring has to be each moment, whatever you’re doing.

  2. Lissette says:

    Thank you for highlighting how essential skepticism is. One must really do their research before giving money to an organization that ends up doing more harm than good with the aid they receive. As someone from Nicaragua (my father, incidentally, is from Bluefields, where ADEPHCA works), who has grown up seeing desperate poverty firsthand, I can’t tell you how angering it is to learn of yet another organization taking advantage of those least able to defend themselves.

    I’d recommend looking into Oxfam America – which partners with local organizations in developing countries. They’re all about ownership – the super-radical idea that people in developing countries (smallholder farmers, fisherfolk, civil society) know what’s best for their community; they just need a partner.

    Having good intentions does not usually translate into long, sustainable development. But supporting organizations that are already doing amazing work in their own communities is good place to start.

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