Kiva is an international non-profit organization that facilitates “microlending” for the purpose of its mission, alleviating poverty across the world. The organization allows those who wish to contribute to lend money in small amounts to entrepreneurs in the developing world. Kiva’s website lets you browse entrepreneurs’ profiles to select the recipient of your micro-loan and allows you to make that loan. The terms of the loan are generally 6 to 12 months. Kiva claims that repayment rates are 99.7%, so there is very little risk of default.
Even with the potential for earning interest as a lender, I’d be careful about including microlending as an important part of an investment portfolio. It might be best to lend money only with amounts you don’t mind losing. Despite success stories — Endless Gibberish is “addicted” to Kiva and has lent over $20,000 — there is always a risk.
For anyone who finds Kiva to be a valuable resource, the Kiva BusinessCard, a credit card offered by Advanta, is an excellent choice. This is the only credit card I’ve encountered that is geared towards philanthropy. The Kiva BusinessCard matches your Kiva contribution (when placed on the credit card) dollar for dollar, up to $200 each month. Your contribution has twice the power. This match is considered a grant, however, and not part of your microloan. When the loan is repaid, you will only receive the amount of your contribution, not including the match. The matching portion will be paid back to Advanta.
Additionally, the card offers an 5% cash back rebate in the form of a statement credit for grants to Kiva, charitable donations, and some expense categories, up to $1,200 in charges to the card. Beyond that $1,200 limit, and in other expense categories, the program offers a cash back rebate of up to 1% on all other purchases. The total cash back you receive is unlimited. The cash back incentive for charitable donations is an excellent idea; to loan $100 to Kiva or donate $100 to your favorite non-profit, it will only cost you $95 (after you receive your credit).
That same $95 you spent on a $100 microloan provides the recipient with $200, thanks to Advanta’s matching grant.
Like other business credit cards, you don’t have to be a business in order to apply and be approved for this credit card.
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I love Kiva! I’ve been lending for a couple of years and had a great experience. Right now my default rate is at only 0.40% and my loan delinquency rate is at 1.8%, which is probably way better than most credit organizations.
Wow, I’m actually in the middle of writing a post about Kiva. I wouldn’t include it in an investment portfolio at all, even in an experimental way. After all, you don’t earn any money, unlike Prosper. At best, you’ll get all your money back in the end without any growth. At the worst, you’ve hopefully made some positive differences in peoples’ lives even if they weren’t able to fully repay it.
I see it as a way to invest in your charitable giving—you can keep doing good with the same money (or add more every year and do even more good). Which is awesome!
Having read the quintessential book on microlending (Banker to the Poor, by Yunnus) and learned about the usual system* in place for lending to poor entrepreneurs, I’m not sure I support the way that Kiva circumvents that system.
* http://www.grameen-info.org/index.php?option=com_content&task=view&id=24&Itemid=127
Thanks for the mention. The risk is there, but I’ll accept a < 2% default risk in return for nothing but the thought of helping others out.
75% of my net worth is sitting in Kiva.org. I’m young, in college… the point in life where one feels the most altruistic. ;)