The ninth episode in the Beyond Good Intentions series will likely be one of the more controversial ones because it not only takes a critical look at the realities of micro-lending (which seems to have gained saintly status in the development field in recent years), but it does so by questioning the impact of one of the world’s favorite organizations: Kiva. I should start by prefacing my comments with the fact that I have total respect and admiration for the hard work and passion that the entire Kiva team has invested in their work. There are undoubtedly numerous success stories. But what I saw in the field in both Cambodia and Mozambique left much to be desired.
I embarked on my filmmaking expedition feeling quite excited about the sudden explosion of micro-lending opportunities around the world. What could be bad about people having the chance to pull themselves out of poverty by taking out loans and starting their own initiatives? It definitely sounded like a step up from the charity model in the way it embraced the power of entrepreneurship and gave recipients a sense of control and dignity in the process.
However, I soon discovered that micro-lending is not the panacea to poverty that the world wants to believe. I met with countless Kiva loan recipients in Cambodia and Mozambique and while several of them had been able to successfully repay their loans, none of them had succeeded at pulling themselves out of poverty. Some of the reasons for this fact (which I discuss in Episode 9) include:
1) The High Interest Rates Being Charged
* Most of Kiva’s non-profit micro-lending field partners that I met with were charging recipients 30-55% interest on their loans each year.
* The lower the loan amount, the higher the interest rate (I was told by a Kiva field partner in Cambodia that this is because the poorer clients generally live far away so there are overhead costs associated with going to collect the money each month)
2) Inadequate Economic Opportunities
* In extremely poor areas of Cambodia and Mozambique, there simply weren’t enough economic opportunities for loan recipients to capitalize on. It was very difficult for recipients to come up with profitable business models given these constraints.
3) A Lack of Business Skills/Entrepreneurial Talent
* Due to the high level of competition between micro-lending organizations in the field and an eagerness to get more clients, the entrepreneurial bar had been set quite low. One Kiva loan recipient had even taken out a loan to pay off a bribe (although I assume that wasn’t the story in her online profile, haha).
* Several Kiva loan recipients I met with had failed in their businesses because they attempted to join an already saturated market (one woman in Mozambique started a vegetable stand… right next to the other 5 identical stands in town. The market was over-saturated and none of the women could make much of a profit. A little business training probably could have prevented this from happening).
* None of the micro-lending organizations I met with were providing any type of formal business skills training to their recipients. There was an assumption that all loan recipients were entrepreneurs and that they understood how to succeed in business… This was not always the case.
4) Over-burdened Loan Officers
* I never encountered a Kiva partner in the field that had loan officers with caseloads of less than 100 clients. In fact, one of Kiva’s field partners in Mozambique had 300 loans per loan officer! Loan officers spend most of their time traveling long distances to remote villages to collect loan payments. However, with the additional requirement of having to take photos and stories for Kiva’s website, loan officers complained that they didn’t have any time left over to counsel their clients on their businesses.
* Kiva funds came in so quickly for the organizations I met with (thanks to Kiva’s dedicated community of online lenders) that their portfolios expanded more quickly than they should have. Loan officers were struggling to keep up with the sudden increase in clients.
5) Lack of Sustainability
* According to a UN study, only 10% of micro-lending organizations are self-sufficient. The majority (including the Kiva partners I met with) rely on donations and subsidies to stay in business. While Kiva’s network of online donors allows for a significant increase in the number of loan recipients (due to an increase in capital available to lend), this endangers the long-term viability of the organizations.
[However, I also recognize that to be sustainable, micro-lending organizations generally have to increase their interest rates, take less risks, and lend to fewer people…which generally would prevent lending opportunities for the poorest of the poor. So, while it may be unsustainable and quite risky, the donor-subsidized model allows these organizations to reach out to poor clients]
I found it amusing that most of the Kiva loan recipients I interviewed had never heard of Kiva. Most replied, “Kiva who?” While it’s probably a good thing that the loan recipients were unaware that their loan opportunity had been provided by donors in the developed world, it may be disappointing for on-line lenders to hear that there wasn’t a direct connection with recipients. In fact, Kiva’s partner in Mozambique explained to me that the profiles they put on Kiva’s website were recipients that the local organization had already planned on funding. By providing their stories and pictures to Kiva, the organization was merely able to increase their general pool of capital in order to provide loans for more people later on. Kiva is quite honest about this, I’m told, but this dynamic isn’t exactly clear on the website and may be surprising to some donors.
I was a little bit nervous for Episode 9 (and this blog entry) to come out because I am well-aware that I am questioning a beloved organization and a highly popular development initiative. However, I feel that I need to be honest about what I witnessed in the field and, most importantly, I need to encourage a meaningful dialogue about the realities of micro-lending. After witnessing micro-lending programs on three different continents, I came to the conclusion that in most cases the poor don’t need loans, they need jobs. From what I saw, micro-lending isn’t pulling the poorest of the poor out of poverty. But I want to hear what you think! Watch Episode 9 of the Beyond Good Intentions series and add your thoughts to the discussion boards.