Kiva, What I like and What I Don't

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.