Relevant to My Interest

LiveMint had a comment about the main microfinance issue of the day: interest rates.

Microfinance proponents such as Grameen Bank founder Muhammad Yunus have objected to these high rates. But Yunus’ formula of a less than 10% interest rate spread for an MFI to be in the green zone of socioeconomic acceptability has had few takers other than Grameen itself. Mexico’s Banco Compartamos, for instance, has made its fortunes charging rates in excess of 85%.

85%!  You can see why some people have an issue with this.  I'm not talking about dumb guys like "Vincent Van Noir" from the other day, because I don't care what they think.  More like this guy, who's not dumb.

In fact, Yunus’ formula loses out for its poor practicality. Large numbers of very small loans demand high rates, and artificially lowering rates may disincentivize MFIs from expanding their reach to the very poor.

This analysis pretty much matches where I think I'm at on this issue.  Microfinance institutions are charging high interest because they need to make money.  When you have small-dollar, short-term loans, high rates are the only way to do that.  A lot of the opposition to this system seems to come from people who have a reflexive distrust of the profit motive.  I don't.

Here's an opposing view.

Vittana

You know what they say: Failure is an orphan, but success has a million websites that look just like it.

The Kiva model has been adopted lock, stock, and leaf-bearing logo by an outfit called Vittana (hat-tip to TechCrunch).  It's exactly the same thing, except that instead of helping various categories of entrepreneur, it helps students.

It's actually kind of disorienting - you really need to concentrate to make sure you're on the site you think you're on.  Observe:

• Kiva has a green color scheme.  Vittana has a slightly darker green color scheme.
• Kiva has a branch and leaves cleverly arranged to make the K in its logo.  Vittana has a couple leaves somewhat less artfully dotting the I.
• They both have a one-word name that means something important in a foreign language.  Kiva is Swahili for "unity."  Vittana means "seed" (I don't know in what language - they say it's "Indian."  India's as big as the world, so that seems kind of vague).  If I ever start one of these things, I'm going to call it "Crapula."  It'll lend booze money to indigent college students.  Together we can really make a difference.
• The format and guarantees are the same.  $25 default loan amount, assurance that every dime goes to the recipient and not the organization, PayPal; the whole megillah.

It's probably a great idea, and the more the Kiva model catches on, the better.  It's easy to use and satisfying in a number of ways.  It would seem that the repayment timelines are a little more elongated out of necessity, but who doesn't like education?  Nobody, that's who.

So here goes twenty-five bucks to Jose Maria Muños Vera, a Paraguayan going to school in order to be a teacher.  Why this guy?  I like teachers and I like Paraguay, but that's got very little to do with it.  Check out that shirt!

 

Maryland Orioles! I love those guys!  Is this a bizarre knock-off of a major league shirt, or is Mr. Teacher Muños a fan of the Cal Ripken Sr. Summer Collegiate Baseball League?  Either way, that's right in my wheelhouse, so he gets the loan.

At the time of this writing, he still needs 230 clams, and Vittana is still pretty obscure, so these loans don't fill up real fast.  If you're fan of education and possibly imaginary baseball teams, think about helping him out.

Fun

Why Kiva?  Here's why I picked it, and please note that the emphasis on my personal convenience and amusement means I'm being honest:

• Microloans work better than charity.  That's what they tell me, anyway.  I seem to recall doing some research back when I signed up, but I don't remember specifics.  Maybe I should redo that research.  And then blog about it!
• Kiva is really easy to use. Like I said, I'm not charitably inclined, either by habit or genetics, so I'm not going to stick around when things get tough.  Or even, you know, slightly annoying.  Other than the hassles of PayPal, which I already have to deal with in order to buy myself things, it's the easiest thing in the world.  Checking my email is tougher.
• You get your money back!  Most of the time - something like 97%.  Once you can that money back, you can reinvest it, you can donate it to Kiva, or you can just stick it back in your PayPal and resume buying yourself trinkets on eBay.
• You know what's fun?  Fun, that's what.  And Kiva is fun.  Rather than handing your loot off to some organization and letting them decided what to do with it, you get to decide where it goes. And then you get to follow along!

I need to expand on that last point, because that's the main reason I'm doing this.  Every part of the process is fun, which is, as we already discussed, fun.  Picking your recipient, seeing who else has thrown in for the same cause, seeing the little loan bar fill up - it's like playing a very slow-paced video game!  And it's cheaper, as long as you only do it twice.

From there, it only gets better!  And by that, I basically mean that you get your money back.  Imagine that - you send your money out on a special mission to, say, buy cows for someone in Tajikistan.  It goes all the way to Central Asia, pays for part of a cow, and then returns to you, safe and sound.  Everyone wins!  Except the cow, I guess.

If it sounds like I'm joking, let me assure you that when I got my first installment of $6.25 from my initial loan, it felt like Christmas, my birthday, and another Christmas all rolled into one.  It wasn't the actual remuneration, it was the reassurance that the whole thing works.  My little contribution apparently helped out the good people at the Bancocomunal Nacer to the point that they could start sending out money to the complete strangers who'd sent money to the them a few months before.  And when I get the rest of my 25 bucks back, I can just plow that into some other worth endeavor.  Everyone wins!  Once again, except the cows.

An Explanation

After years of never doing nothin' for nobody - in fact, actually doing everything I could to make life worse for other people - I decided to change it up like Scrooge on Christmas morning and start buying geese for everyone.  Metaphorically.

In making a choice for my metaphorical goose-chute, I settled on Kiva, an organization that facilitates microloans to entrepreneurs in other countries.  I thought about describing the Spirit and Purpose of Kiva, but all I'd be doing is copy and pasting from their About section.  That's right here if you want to check it out for yourself.  Go ahead and skip the first part, which is 100% pablum, and go right to the nuts and bolts that start right afterward.  I settled on this method of goose disbursement for a few different reasons, which I'll outline later, unless I decide it's boring.

 

Above: Buckle up, entrepreneurs!  Here they come!  Metaphorically!

I'm going to use this space to talk about Kiva and microfinance in general and to describe my personal experiences as a Baron of Microfinance. Because if you don't talk about it on the internet, it's like it never happened.

I'm two loans at the moment now, and I'm planning to add to that regularly.  I'm extremely excited about this right now, both by the concept and the practice, but I'm going to try to remain objective.  I won't proselytize; at least not until I know more about the whole thing.  I don't want to wind up like some poor sucker who sent a bunch of money to Wyclef only to find out that about a nickel of it went to Haiti, and I extra don't want to wind up telling someone else to do it.

Next time: I explain what drew me to this particular method of goose-lending and why it's fun.