Using Kiva to manufacture spend

Old Nov 17, 2012, 11:45 am
  #31  
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Originally Posted by neuron
While its a good way to earn miles, it is not an investment. The loans an individual makes are interest free and intended to help an entrepreneur in developing nations. Traditional local microfinance has been around for ages, and its growth can be attributed to Muhammad Yunus who founded the Grameen bank in 1976 that helped people (primarily women and rural poor) in Bangledesh. 30 yrs later he won a Nobel Peace Prize for his efforts.
It may not be an investment in the traditional sense, but it sure acts like one. The mechanics of Kiva is no different from a 0% interest bond. The loan may be interest free, but they still need to pay for:
1) Hiring people and infrastructure (even non-profit still need some money for running cost).
2) Fees lost to incoming payments, outgoing loans
3) Probably fees to other countries bureaucracy for compliance, etc...

The nice story about microfinance is irrelevant to our discussion here.

Originally Posted by neuron
Kiva was founded 7 years ago with the goal of using crowdsourcing/funding via the internet to enable microfinance loans. They are not 'owned' by anyone and operate independently. They are not a financial organization, but rather a 501(3)(c) charity . They do however work with microfinance groups in over 60 countries and do perform due diligence on operations to ensure the organizations are credible. As onthego15 has noted, their default rates are 1%. In truth, in the last few yrs, that rate is probably <0.5%.
They are not "owned" by anyone? Where's the proof that there is no central HQ controlling this operation? They may be a charity, but their loans are investment-like in nature. You claim that their default rates is 1%, making them a AA rated company. Has anyone (Moody, S&P, etc..) independently verified their credit rating? Has any 3rd party even verified this default rate? Do you believe that a bunch of 3rd-world people have a combined default rate of 1%? Have you considered that Kiva may be propping down the default rate, by paying from their own pocket to yours in order to maintain the illusion that default rate is low?

Originally Posted by neuron
How it works?
You make a loan to Kiva to help support a microfinance organizations loan to a lender who is featured. The borrower has received the funds and your $25 increment loan is used to support the MF. This loan is repaid over time (dependent on the loan size, type of loan...) and this appears in your account, usually on or after the 15th of each month. Unless you put all your funds into one MF and they happen to default on everything, you are unlikely to lose all your funds.
Stop cut and pasting the Kiva story. The truth is that they loan money out first, and use people to make stories to raise fund to issue new loans.

Originally Posted by neuron
Kiva itself has a top rating at Charity Navigator indicative of their mandate. Their operations include individuals from all aspects of business, including finance team which is responsible for maintaining the high quality of loans. Kiva provides stats for their field partner operations, as well as social ratings to identify which vulnerable groups the FP works with or specializes in.
And who comes up with this rating? At this point the only rating anyone should trust are credit ratings issued by S&P, Moody and Fitch. And even if Kiva has an A rating from all 3 organizations, I would be extremely hesitant to put all my eggs in one basket. I would not even purchase a $10k A-rated bond... what makes you think I would purchase a $10k Kiva loan?
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Old Nov 17, 2012, 11:49 am
  #32  
 
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Originally Posted by Rommie2k6
More food for thought... while Kiva has been around and paying for many years, with a low default rate, it does not mean that will always be the case. The fact that Kiva is a "well-behaved" company, is not sufficient to condition to think that they are as safe as your FDIC insured deposits.

From a legislative viewpoint, mainstream investment products like mutual funds are protected by laws that we have in place. That's why we don't have cases of mutual fund fraud popping out every week. The last major one was Madoff, and that was a Hedge Fund (less restrictive regulations on what they are allowed to invest in). Mutual funds are also supposed to keep records on what their client's money is invested in, there are audits, separation between the fund manager and the trustee, etc... basically safeguards are there. I'm not saying the system is foolproof, but it's a well thought out system to minimize fraud. Other financial products like your saving accounts and CDs are backed by FDIC which is backed by the US government.

So coming back to Kiva loans, what legislation applies? Who is regulating them? It's even a known fact that the loans you give out are not really loans at all. Google around and you'll find that what Kiva does is to loan out stuff first, take pictures of the poor people, use that to sell a story to get fresh money, which they loan out in the next "cycle". Are they being audited? Is there a separation of the people who manage this loan business and the trustee of the money?
Yes. http://www.kiva.org/about/finances

We all know that all mileage-earning opportunities come with risk.
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Old Nov 17, 2012, 11:53 am
  #33  
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Originally Posted by Rommie2k6
I have nothing against Kiva personally, nor have I done my due diligence about this company.
My suggestion to you is to do some research on Kiva as you admit that you have not done your due diligence before your PSA.

Start here: www.kiva.org
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Old Nov 17, 2012, 11:57 am
  #34  
 
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ahem, no cut and paste here, all original text I wrote. Kiva is not a financial institution - they are a charity. Charity Navigator provides solid rating categories for many 501(3)(c).

It appears you are confused about the operations and goals of Kiva. There are no shareholders, no parent companies.

Kiva runs a very lean operation, generously supported by lenders who also have the option of donating to run the operations. they also have a dedicated and trained group of volunteers (that outnumber the staff) who support all their operations. Kiva has also had many corporations and generous benefactors who have provided significant support as they believe in the cause.

You are also incorrect re: the lending process, but you are correct, no one should put all their eggs in one basket. AKAIK, no one has lost their shirt by lending to borrowers via Kiva.

I will agree with the last 2 lines in your original post. Your loans are interest free and any individual should only contribute what they feel they can lose (in the very unlikely possibility of more than a handful of defaults in repayment.

As for the nice story. Well, Kiva is about making a poor situation better. As people who live in developed nations and have also seen many in less fortunate circumstances, it is relevant to why we lend. Individual stats are also germane to support the confidence of lenders to the process and unlike your accusations are true datapoints to what Kiva does.


Originally Posted by Rommie2k6
It may not be an investment in the traditional sense, but it sure acts like one. The mechanics of Kiva is no different from a 0% interest bond. The loan may be interest free, but they still need to pay for:
1) Hiring people and infrastructure (even non-profit still need some money for running cost).
2) Fees lost to incoming payments, outgoing loans
3) Probably fees to other countries bureaucracy for compliance, etc...

The nice story about microfinance is irrelevant to our discussion here.



They are not "owned" by anyone? Where's the proof that there is no central HQ controlling this operation? They may be a charity, but their loans are investment-like in nature. You claim that their default rates is 1%, making them a AA rated company. Has anyone (Moody, S&P, etc..) independently verified their credit rating? Has any 3rd party even verified this default rate? Do you believe that a bunch of 3rd-world people have a combined default rate of 1%? Have you considered that Kiva may be propping down the default rate, by paying from their own pocket to yours in order to maintain the illusion that default rate is low?



Stop cut and pasting the Kiva story. The truth is that they loan money out first, and use people to make stories to raise fund to issue new loans.



And how comes up with this rating? At this point the only rating anyone should trust are credit ratings issued by S&P, Moody and Fitch. And even if Kiva has an A rating from all 3 organizations, I would be extremely hesitant to put all my eggs in one basket. I would not even purchase a $10k A-rated bond... what makes you think I would purchase a $10k Kiva loan?
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Old Nov 17, 2012, 12:04 pm
  #35  
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Here is my last contribution at this discussion.

Take a peek at the Kiva lending teams.

www.kiva.org/community
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Old Nov 17, 2012, 12:34 pm
  #36  
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Originally Posted by onthego15
Indeed. Kiva's default rate has been dropping steadily in the past two years. I remember that it was over 1.2% when I started paying attention to it two years ago, and it is now at 1.00%.
While my lending cannot be taken as representative of any others, my loss rate (defaults + currency loss) is about 0.1% on 6 figures worth of loans. My outstanding balance is in 4 figures, so even in the extremely unlikely event I lost it all I would only end up with about 2% loss rate.
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Old Nov 17, 2012, 12:39 pm
  #37  
 
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Hi,

Just wanted to add my voice as one of those who do use KIVA.

1. Yes, they are being audited, and the annual audit report is available online at:

http://cms.kiva.org.s3.amazonaws.com...20FS_FINAL.pdf

2. Loan funds are maintained in a separate structure (KIVA User Funds) from the KIVA operating expenses structure. There is a clear record of creditors to the KIVA User Fund in the record of our loans.

3. Yes, some people are taking a risk using money they don't necessarily have to churn. This is their choice and has nothing to do with KIVA's model. I have chosen to use a part of my assets that I could afford to miss to fund loans.

4. Yes, the per-disbursement of loans is clearly documented by KIVA. They are being very transparent about it, not only in each individual loan (by indicating the disbursement date), but also at:

http://www.kiva.org/about/how/even-more

5. Indeed, KIVA may not be everyone's cup of tea, but does not warrant the kind of warnings that the OP and some of the responders provided.

In full disclosure, my KIVA stats are:
  • First loan on July 31, 2007
  • 400 loans to date, with 200 repaid in full with no loss, 13 ended with some loss
  • Funded $10,075 of loans to date
  • $1.86 (or 0.02%) in currency exchange losses
  • $19.30 (out of $5375.00 of ended loans) in defaults representing 0.36%

So yes, I lost a total of $21.16 to date, which I consider insignificant for the amount of good that microlending can do.

Now, I do not churn, so KIVA and Paypal have no issue with me. I've recently done my first few withdrawals, and have always received my money within days.

Overall, I do like KIVA's transparency. I've read their annnual reports, and the audit of accounts, and do not feel that I am risking my money. Do I agree with everything KIVA does, no, but then, are there many companies that you fully agree with?

I choose my loans to reduce exposure, just like I select the mutual funds in which I invest, or the banks in which I deposit my money. That's just my due diligence.

Anyway, just another side of the story, we all have to make our own decision on such matters.

Cheers,

GenevaFlyer
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Old Nov 17, 2012, 12:40 pm
  #38  
 
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Rommie2k6 is incredibly misinformed and ignorant as he admits having not done any due diligence. This is a most unfortunate thread of accusations and cautionary tales without basis.
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Old Nov 17, 2012, 12:43 pm
  #39  
 
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Originally Posted by ma91pmh
I commend the positive aim. I really don't see how you can do any real due diligence though. In deal terms, the seller is always providing you with due diligence materials. That is a recipe for abuse. Easy enough for a small time drug runner to post some pictures of some lady in the village making mats claiming she needs the money to feed her starving children.
Interestingly cynical view of Kiva, but an eye-opening analysis. I think it could (is) be(ing) done on a much larger scale than small time drug dealers. Why wouldn't large drug dealers/cartels set up seemingly legitimate microlending organizations and then funnel as much money thru Kiva as possible? Get dozens of locals who want quick cash for showing up to get their pics taken to dupe gullible rich do-gooders into laundering money on a big scale?

I've loaned money via Kiva for 5+ years, but am amazed at the supposedly minuscule default rates (less than 1%) for people with no regular income. Try doing that in the US and you'd be lucky to see less that 5% default rates...so how can nearly destitute 3rd world people have vastly higher repayment rates? Doesn't make sense, unless there is a desire to ensure do-gooders keep comig back and lending ever-increasing amounts of money thanks to cartels ensuring full and prompt repayment(and to them, the more that gets laundered, er, "repaid", the better)

As for manufacturing spend, I see the real risk is with Paypal. Kiva only works because they absorb the fees. If Paypal stops subsidizing Kiva, then it becomes a much less attractive method of generating spend.
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Old Nov 17, 2012, 12:48 pm
  #40  
 
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I think the OP has the wrong complaint about Kiva: the problem with Kiva is half their lenders are horrifically usurious. Several of them have 40%+ interest on the loans. THAT IS A LOT.

There are some moral issues to charging that much interest for the loans.
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Old Nov 17, 2012, 12:59 pm
  #41  
 
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This thread should be closed. It is of no value as the OP is simply making accusations while admitting that he/she has done no research.

I have made 1,010 loans through Kiva with one default ($18.69). Most of us lend to make the world just a little better and understand that loans in third world countries and to individuals in extreme economic distress carry substantial risk.

What shocks me is that the Kiva loans average default rate is just 1%. I had quite a few loans to borrowers in the part of the Philippines hit by tidal waves and devastating storms. I expected most to default. None did.

In any event, I urge closing this thread.
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Old Nov 17, 2012, 3:25 pm
  #42  
 
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I hope you guys are NOT supporting terrorists here. And they will take your airplanes down so they don't have to pay you.
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Old Nov 17, 2012, 3:25 pm
  #43  
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Originally Posted by onthego15
Totally untrue. Kiva has been in business for 7+ years with a 99% repayment rate. Those are facts, not speculation.
I also suspect that your suspicions of fraud and criminal activity are baseless.
Madoff was in business for >30 years .......
Lehman Brothers was in the biz of loans and investing for >100 yrs ......

However, I have had no problems with Kiva, their aim is good and even if I lose the money I put in it is not going to kill me
These small acts of kindness are probably better for more people in daily lives than large world bank loans that line the pockets of dictators and terrorists ultimately

However, using Kiva alone to get spending up instead of the mint will likely turn out not so well.
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Old Nov 17, 2012, 3:56 pm
  #44  
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Originally Posted by Bttc
I think the OP has the wrong complaint about Kiva: the problem with Kiva is half their lenders are horrifically usurious. Several of them have 40%+ interest on the loans. THAT IS A LOT.

There are some moral issues to charging that much interest for the loans.
I work in international development, though not microfinance, but am aware that this can be a very legitimate problem. What's more, microfinance is being questioned in some quarters in that it sometimes drives people deeper into debt rather than helping alleviate their poverty, as they pay off one institution's loan with funds borrowed from another. Of course, many people also benefit. The question is where the prevalence of impact lies.

BUT are you sure the 40%+ interest rates apply to half of the Kiva lenders, as you claim? What is your source?

More generally, I value this discussion in that it has made me more aware of Kiva, including possibly contributing. If anyone can decently address the 40%+ allegation, I'd very much appreciate it.
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Old Nov 17, 2012, 3:59 pm
  #45  
 
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Originally Posted by chungfred
I hope you guys are NOT supporting terrorists here. And they will take your airplanes down so they don't have to pay you.
wow, are you serious? I can't tell without an emoticon.

I would welcome you to Flyertalk but, wow, what a first post!
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