You may have heard about Kiva already. It is a micro-credit lending organization. I am all up for it, in terms of helping people to rise above poverty by lending them money to kick start their business, to help them earn their livelyhood. It is a great concept and it will definitely work better then free money given to people.
What I do not like about Kiva, is that it keeps money with itself before it returns to the lenders.
Here is an example:
Say, a farmer in Indonesia needs to buy a water pump and he needs $100 for it. Using Kiva's model, it will take about 4 donors giving $25 each. Assuming that on a donor sign up every workday, and say it starts on 1st January 20008. This is how money piles up.
Date | Money | Money Contributed till date | Money with Kiva/Day | Event |
1-Jan-2008 | $25 | $25 | 0 | 1st Donor contributes |
2-Jan-2008 | $25 | $50 | $25 | 2nd Donor contributes |
3-Jan-2008 | $25 | $75 | $75 | 3rd Donor Contributes |
4-Jan-2008 | $25 | $100 | $150 | 4th Donor Contributes |
5-Jan-2008 | 0 | $100 | $250 | Saturdays |
6-Jan-2008 | 0 | $100 | $350 | Sunday |
7-Jan-2008 | 0 | $100 | $450 | Money Disbursed to Lender |
That way, Kiva would have held money and would have earned interest for $450 for one day (by totaling up daily balances)
Now assuming that the farmer pays back the money from 1st March 2008 on a monthly basis, following scenario occurs at Kiva.
Date | Money | Money Returned Till date | Money with Farmer/Month | Money with Kiva/Month | Event |
7-Jan-2008 | 0 | 0 | 0 | 0 | Money lent to farmer |
1-Feb-2008 | 0 | 0 | $100 (charged for full month for simplified calculation) | 0 | No payment for first month |
1-March-2008 | $25 | $25 | $200 | 0 | 1st Installment |
1-April-2008 | $25 | $50 | $275 | $25 | 2nd Installment |
1-May-2008 | $25 | $75 | $325 | $75 | 3rd Installment |
1-Jun-2008 | $25 | $100 | $450 | $150 | 4th Installment |
As per above table, the farmer would have received the credit for $450 in total. The $150 that Kiva had in its balance may be allowing Kiva to sustain. But I think the model that Kiva has, should remain lean and sustain with money/interest from first table. There are too many poor people who need help, that $150 credit will go a long way to help another person.
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