Laura Occasionally Blogs

When I first learned about Kiva, it blew my mind:

(1) The idea that $25, a trivial amount here, can be a life-changing amount to a struggling shopkeeper or farmer in many parts of Africa, Asia, and the Middle East
(2) The idea of having repeated impact by lending (not giving), enabling you to start with a couple hundred dollars and, over the years, help hundreds of people
(3) The idea of choosing exactly what people and businesses and communities to support with your loan

Of course, (3) isn't strictly true. For many years, I assumed Kiva worked as follows:

(1) Marija in Croatia needs a new goat so she applies for a loan.
(2) Kiva's local field partner approves her loan, takes her picture, and posts her story on Kiva.
(3) I choose to contribute to the loan, interest-free.
(4) When the loan is fully funded, it's disbursed to to Marija, who buys her goat.
(5) Marija pays back the loan over time and I get the money back.

This is how Kiva implies it works--why else with the pictures and the stories?--but if you read the site carefully, you'll see it works like this in real life:

(1) Marija in Croatia needs a new goat so she applies for a loan.
(2) Kiva's local field partner approves her loan, disburses her loan, takes her picture, posts her story on Kiva.
(3) I choose to contribute to the loan on Kiva, interest-free. What I'm really doing, because Marija's loan has already been completed, is contributing to the field partner's working capital, which they can then use to loan to someone else. Marija isn't the person I'm currently funding - she is an example of the kind of person that this field partner loans to typically. Also, the field partner charged Marija interest and whoever they loan this money to will get charged interest too.

This is not as appealing as the way it seems to work. It's fun to make a connection with a particular person, and the "voting with your dollar" aspect (i.e. supporting yarn crafts or vegetable-only farming due to your own affinities or principles) is fictitious. And it especially seems shady that the field partners can charge poor Marija interest--35% on average!--when I, the investor, wished to lend interest-free.

I've known about these details for awhile and I've excused them. After all, maybe it's not the best for Marija's loan fulfillment to depend on Americans liking her profile. Anyone approved by the lending partner is probably deserving, and so what if it's all back in time a little? As for the interest, Kiva claims that the interest its field partners charge is less than other local options, and it costs money to do business in third-world countries. It's not like most of these lenders can pay online; people physically go to their villages to handle financial transactions. And, anyway, maybe it's not perfect, but it's not like there's any other way to loan to entrepreneurs in the developing world.

Except today I found out that there is!

Zidisha appears to be ACTUAL peer-to-peer microfinance. That is, its structure really is like what I imagined Kiva to be. You choose a person/project and enter how much you are willing to loan. If your bid is accepted, you loan the money, and that person pays you back over time. You can choose to charge interest--any amount up to the maximum the person has said they are willing to pay, which is usually around 3-5% but sometimes up to 10%. So, you can do interest-free loans like on Kiva, and the borrower will genuinely not have to pay interest (at least on the portion of the loan that you funded). Or you can treat it like investments and charge interest, and the amount you charge will not only be way less than what a Kiva field partner would charge, it will be more than what you could likely get in a savings account, CD, or even most mutual funds.

Now, I can see some potential downsides to this. Because it relies on borrowers posting their own stories, it could be less quality-controlled than Kiva (I honestly have no idea), and you could be reaching a less needy segment of the population--since it's all people with access to Internet cafes, libraries, or Internet-accessing phones. But tons of people have phones these days, even, especially, in the developing world (since it's a relatively inexpensive alternative to a computer).

I'm a longtime Kiva diehard, but it might be time to make the switch. Zidisha's feels like a better way of doing things: more honest, efficient, and inexpensive to the lender. You're cutting out the middlemen and passing the savings on to Marija and her goat.

My lender page (Let me know if you want me to send you an invite!)
My new team (Join me! The competition on here is so much less, you guys)