Tuesday, April 13, 2010

Kiva and High Interest Rates for the Poor

Several years ago, when I first heard about Kiva, I read their website thoroughly and was disappointed that there were no safeguards to control the interest rate at which the poor were charged. I wrote Kiva directly to ask about this and this was confirmed.

This is why I don't use Kiva. More in today's NY Times about the entire industry of microloans.

"Unwitting individuals, who can make donations of $20 or more through Web sites like Kiva or Microplace, may also end up participating in practices some consider exploitative. These Web sites admit that they cannot guarantee every interest rate they quote. Indeed, the real rate can prove to be markedly higher than advertised."

And more:

"At Kiva, which promises on its Web site that it “will not partner with an organization that charges exorbitant interest rates,” the interest rate and fees for LAPO was recently advertised as 57 percent, the average rate from 2007. After The Times called to inquire, Kiva changed it to 83 percent.

Premal Shah, Kiva’s president, said it was a question of outdated information rather than deception. “I would argue that the information is stale as opposed to misleading,” he said. “It could have been a tad better.”

"A tad better." Please. Kiva was off by 26% - that's a huge amount in interest rates. That's 46% more than the rate they were advertising. And given LAPO's practices, it's probably higher than the now quoted 83%.