Kiva is expanding. Surprised? You shouldn’t be. Kiva has been expanding constantly, both from the perspective of size and the perspective of product diversity, since it was established in 2005. Still, Kiva’s expansion in the past year has been lightening fast – I went to Fellows Training in January and I already sometimes feel behind the times. In the past year Kiva has expanded into the fields of educational loans, loans for water systems, green energy loans, and many more, not to mention the huge development that is Kiva Zip. But you know what? Even given all of these awesome new Kiva products, I still like the good ol’ Kiva small business loan – administered by a local microfinance institution (MFI) – the best.
Why is that? Well, to be honest this blog is a bit of a cop out – In a way, I already wrote this post during my last Fellowship. But what I’d like to do differently this time is not just discuss why MFIs are awesome, but also focus on a particular service that is key in helping owners of micro, small and medium enterprises lift themselves out of poverty: money management.
I know what you’re thinking – most Kiva borrowers have little money to manage, right? Well, the other side of that coin is that it is specifically because there has never been much money around that Kiva borrowers are so unfamiliar with how to manage the little they have. In my 6 months as a Fellow I have interacted with all kinds of borrowers, ranging from those who set aside 10% of their income for a rainy day fund to those who would sooner buy a Wii than a roof for their chicken coop. While the reflex to invest is natural for some, it simply isn’t in the psyche of others (as each and every one of you surely has seen in at least one member of your friends or extended family.)
While MFIs vary greatly, there is one thing they all have in common – they all want to get their money back. If a borrower takes her loan and buys a Wii, well, that money is gone for good. Thus, all MFIs have a strong incentive to help their clients learn how to make wise investments and manage their money. From explaining the concept of over-indebtedness to teaching clients the difference between investment and consumption, the use of the loan is consistently an item of discussion between loan officers and borrowers.
Don’t get me wrong, the importance of financing education, clean water, etc cannot be denied. Obviously, basic needs need to be covered before borrowers can even begin to think about money management. Furthermore, these products do also require involvement from the financing institution, whether in the form of technical training or in the form of post-education placement support. However, what small business loans offer that these loans don’t offer is the basic conceptual training on how to spend and save money. You’ve all heard the stories about the sports stars that have blown millions of dollars of savings within a few years of retiring – clearly this knowledge is often more valuable than the money itself!
And lest we forget the new and exciting Kiva Zip - lending at 0% interest to a client that pays 0% interest on their loan – so awesome. However, when excitedly making your first Kiva Zip loans (which all of you should do when you can) don’t forget about the importance of a comprehensive product. Loans don’t make borrowers better off, it’s the use of the loan that can make the borrower better off, and as a general rule Kiva’s MFI partners provide this advice as part of their product.
In short, if you feel that poverty can be defined at least in part as “lack of resources,” it serves to reason that it can be alleviated not only by increasing the resources available but also by using those available more efficiently. Kiva’s original product – loans to entrepreneurs administered through local microfinance institutions – is the best way to ensure that the loan you’re financing is used as wisely as possible. And that is why it’s still my favorite.
David Gorgani is currently serving his second Fellowship in Guatemala, working with FAPE and ASDIR to help them maximize their relationships with Kiva. David’s previous Fellowship was in the Dominican Republic, helping ASPIRE get started as a Kiva Field Partner and helping Esperanza International with borrower verifications.