2017 was a crazy year. We left Hawaii, road tripped the US, traveled to India, Nepal, Borneo, and the Philippines. Jennifer flew home in July, while I started a six-month Fellowship with Kiva.org in Tajikistan and Georgia. In a week I’ll fly home to face real life again.
Well, I guess it’s 2018 now. A whole year ahead of us to start new lives. To find jobs, a place to live, probably some furniture. Everything, really. We sold our possessions before we left to travel, and now everything we own fits in a 5’X5’ box in storage somewhere. What’s next? Seriously, tell me what’s next, because I sure as hell haven’t a clue.
Jennifer has taken the time I’ve been with Kiva to explore some of her non-corporate interests. She started volunteering at an organic farm and just recently started working there part time as an employee. She’s done some Uber and Lyft for spending cash, and she’s even applied to Starbucks in hopes of getting subsidized healthcare. She took a software coding course, and just recently she signed up for some horticulture courses.
What about Kiva, you ask, how did that work out? Well, good question. I love Kiva as an organization, and I really do feel like it does good work. I genuinely believe it helps relieve poverty, although how much is hard to quantify. Harder than I thought when I joined. It turns out it’s highly debated in the nonprofit community. Let me give you some context.
One of the major problems is interest. Microfinance institutions (MFIs) are the organizations in every country that physically give the loans to people, and they work pretty much like other lending institutions. They have loan officers that go out to meet borrowers, get them signed up, and sometimes distribute loans and collect repayments. Those loan officers need a salary. They also work at the MFI office that employs management and secretaries, and the office must pay for rent and electricity.
The MFIs have similar operations to regular banking/lending institutions, with one big difference: MFIs make significantly smaller loans. The same interest rate on a smaller loan will provide less absolute dollars than on a larger loan. Thus, even nonprofit MFIs must charge higher interest rates to cover their basic expenses. In general, interest rates below 20% are somewhat rare (closer to 30% is more likely).
“But wait!”, you sputter with wide-eyed indignance, “Kiva loans are zero percent!” Well, yes, Kiva gives zero-percent loans to the MFI. That allows the MFI to use a cheaper cost of capital (free money, essentially) than many alternatives for capital, but the MFI must still make money to cover their expenses as noted above.
The question is, can a poor person improve her economic situation with a 30% interest rate loan? Sometimes yes, sometimes no, sometimes it’s difficult to tell. In the simplest example, a person buys a cow with the loan, sells the milk until the loan is repaid with the proceeds, and continues to sell the milk for years to come.
That’s a pretty clear win, but it’s not always that easy. What if they bought extra seed to plant? Does the extra income from one season’s increased yield really justify the increased interest payments? Sometimes. What if there’s a drought that year, or if grain prices fall? Even in the best case the farmer must achieve at least a 30% profit margin on the increased grain yield to justify the loan. Hard to do, I imagine.
What about the cases where the loan is used to repair the roof or install a toilet? Nobody would argue that poor people should be denied toilets and functional roofs, but how do you measure those necessities vs. their increased debt burden? Hard to say.
From my first-hand experience, most borrowers were overjoyed with their loans. They told me so. I can only imagine that means they thought their loans were a good idea, either economically or otherwise. Isn’t that alone a measure of success? It felt like it to me when I got to see their beaming faces. It was a truly rewarding experience to hear how much they appreciated getting a loan and using the money to do their best to improve their lives.
And rest assured, from the studies I have read, microfinance has been shown in general to decrease poverty to some extent. As such, I do think the industry is good for the world and should definitely be supported. After all, what’s the alternative? Not allowing the poor access to loans? I think we can all agree that would be a bad idea.
Anyway, I’ve digressed quite a bit. This is all about me, of course. Now that I’ve had this amazing experience learning about microfinance and traveling the world, what will I do with it? Good question. Former Kiva Fellows have joined MFIs, joined or started other social impact organizations, become part of the impact investing industry, or gone back to the mainstream finance community.
Personally, I like the idea of impact investing. In general, that means researching and investing in companies that have a positive social impact on the world. My career has been more accounting related so far, and I’d like to change things up a bit. Although I took finance courses in college, I haven’t directly worked in the industry. I’d like to get a job as an investment analyst for a social impact oriented firm. Of course, that might be a stretch for an old guy like me with little experience in the field to point to. Without your help to allow me to have this Kiva experience, however, I would have no chance at all.
One way in might be to work in a developing country. I’ve seen a few openings in Cambodia to work as an analyst in a smaller company. Perhaps with my international Kiva experience I might be a good fit. I must admit that more travel at this point does not seem optimal since I haven’t even made it home yet. After a few months to rest up stateside, maybe it will look more attractive.
Right now, I long for friends and family, good food, speaking English, and a warmer climate. Although I hear most of the US is longing for a warmer climate these days, but we don’t have such worries in San Diego. A veritable utopia, as long as we can keep the fires at bay.
Jennifer and I are also keeping our eyes open for entrepreneurial ideas as well, so you never know. We have the time now to explore and try new things. It’s not often one gets that kind of opportunity. Hopefully, we’ll make the most of it. We resolve to. Wish us luck…
Oh, one last thing. To those of you that supported my Kiva endeavor: Thank You!!!! I couldn’t have done it without you, and it has been a life-altering experience. You guys rock. Here are two thankful borrowers: