Back in 2005, Kiva was launched. It was the first microloan organization to get mass publicity, and many people signed up and participated — including me.
Unfortunately, in 2009 it emerged that Kiva was being dishonest — while they encouraged lenders to browse the site, pick businesses and allocate funds, none of that made any difference at all. All the lending was already carried out before the businesses in question ever appeared on the site. Before long, the story was in the New York Times.
Some people argued that it didn’t matter. After all, the fictional stories were getting people to lend, so the ends justified the means, right? Personally I didn’t buy that. I was angry that Kiva had deliberately wasted my time and lied to me, and deleted my account after the last loan was paid off.
People also started to examine Kiva’s other working methods more carefully. Yes, their loan repayment rates were high, but that was partly because a team of middlemen were involved. That, in turn, meant that the borrowers were paying over 30% interest rates. The middlemen involved meant that Kiva was very inefficient compared to conventional charity or even other microfinance funds.
But in 2012, Zidisha was launched, to try and be the peer-to-peer microfinance organization Kiva had pretended to be. Two years on, they continue to stress their differences from Kiva.
The thing is, it’s 2014 now, and most people in developing nations have mobile phones. They might not be smartphones, but they can handle Internet access and run apps, like my T68i did back in 2002. There are Internet cafés where African farmers can check their e-mail after they’ve visited the market. And as the whole world becomes electronically connected, it becomes possible to do true peer-to-peer lending. This allows for much lower interest rates. Zidisha’s FAQ says:
The total cost to the borrower for each loan is 5% of the loan per year the loan is held, plus the weighted average flat interest rate bid by lenders financing the loan.
Will it work? Well, it’s not completely clear that microfinance really ends up helping the poor. However, I’m a lot more prepared to give it a try when the borrowers end up paying 7%, rather than 37%.
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