Foreign Policy Blogs – You too can be a microfinancier

This weekend the FT wrote a nice article (registration required, but free) about Kiva is an exciting tool that allows regular people to make micro-loans (generally under $500) to entrpreneurs in developing countries. In minutes you can go online, find the entrepreneur you want to work with, and make your loan. Then you can use Kiva to track your loan portfolio and the entrepreneur's success. Kiva works through pre-existing microfinance institutions, which is another nice touch and is much preferable to them setting up their own field offices everywhere.

These are loans, and lenders are paid back (unless something goes wrong. They currently have a 0.2% default rate).  One thing that may bother some lenders is the interest charged by microfinance institutions.

People receiving microloans usually pay much higher interest than Americans have seen in a long time – 15% or higher seems to be pretty common. The reason for this is that every loan carries administrative costs for the lending institution. These costs aren't directly related to the size of loan. A $100 loan may require as much administrative time as a $1,000 loan, for example.

High interest is just part of making microfinance services available to poor communities. But some lenders may be uncomfortable that their philanthropy is being given out with such a heavy interest burden, and may want to consider giving to a more traditional charity.



Kevin Dean

Kevin Dean is a graduate student pursuing a master's degree in international conflict management and humanitarian emergencies at Georgetown University. Before returning to school in Fall 2006, he spent six years working in the former Soviet Union - most of that time spent in Central Asia. He has managed a diverse range of international development programs for the US State Department and USAID. He has also consulted for several UN agencies and international NGOs, and is fluent in Russian. Kevin is originally from Des Moines, Iowa and studied Russian, East European, and Eurasian Studies at the University of Iowa.