Monday, February 11, 2008

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.

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