- By Annie LowreyAnnie Lowrey is assistant editor at FP.
On Sunday, the New York Times published an article exposing problems with the wildly popular microfinance organization Kiva, a person-to-person lending site whose virtues Oprah Winfrey and Nicholas Kristof have extolled.
Most people thought Kiva works like this: Entrepreneurs in poor countries explain their need for a small loan on the site. Then, donors select a project they support, give an amount of their choosing, and watch the donations tally up on the page. Kiva trumpeted that "the people you see on Kiva’s site are real individuals."
That was true. But it really works much differently, David Roodman of the Center for Global Development figured out. Kiva doesn’t take dollars from one person and send them directly to another. All of the recipients are vetted, approved, and given loans by another organization — then put on the site after the fact. Roodman wrote a meticulous (and ultimately complimentary) blog post debunking Kiva’s story of itself and touched a nerve, ginning up thousands of comments and spurring the start-up to respond.
The problem wasn’t just that Kiva misrepresented itself as a person-to-person microlender — but that Kiva misrepresented itself as a hypertransparent organization. The information about the financial pathways was on the site, sure, but you had to dig around to find it.
Kiva has responded by changing the language on its site and clarifying the loan process. I’m happy to see it becoming more accountable and transparent, particularly as it becomes a larger organization. (Just this month, it lent its one-hundred-millionth dollar.)
But, at the end of the day, a $10 donation backstopping a pre-existing loan to a Colombian farmer doesn’t seem so different to me than a $10 donation helping create a loan for that Colombian farmer. And if pooling the donated funds helps keep overhead costs down (high overhead being the main argument against person-to-person direct microlending), I’m all for that.