Borek said:
Obviously Greg thinks it needs to be stickied. And I must say - while I have my doubts - I like the idea and I am thinking about putting few bucks in. Not for the profit.
You, as the initial lender, Borek, don't receive a profit at all. The intent is that you get your $25.00 repaid without interest. What we're exploring is the possibility that other people are earning interest off of your money and you're just trying to help out small entrepreneurs.
There's an interesting article and subsequent discussion on this page at Kiva's site.
http://fellowsblog.kiva.org/2010/01/07/bad-roads-interest-rates-and-mfi-sustainability/"
There are certainly valid arguments on both sides. Some people are disillusioned because they feel duped thinking they were providing interest-free loans. Other people are okay with the rationale that micro-loans are expensive to do (and that's certainly true of lending institutions here -- they'd as soon lend you hundreds of thousands of dollars rather than hundreds because the effort and overhead involved is the same) and the local institutions who are administering the are also employing local people. And some people can't easily reach their lending institution so the loans representative comes to them, and in a lot of places, the person travels out weekly. And that improves repayment. I understand that too. It's easier to come up with $5.00 a week than $20.00 a month.
36% sounds like a lot of interest (the percentage is certainly high) but if it's a $100.00 loan over six months, that's, what? $18.00? Is that a whole bunch of money to ask for someone to drive out to see you, sign up the paperwork, keep track of your repayments, drive out every week (and we're not talking across town in some places, here) to see you so you can make a payment? Doesn't seem that way.
And, no, most established financial institutions have no interest whatsoever in these types of loans. These people wouldn't ever have access to this kind of opportunity.
Then other people argue that they'd gladly have the admin fees tacked onto their loan amount rather than have interest charged to the borrower. Then other people argue that the local small lender (MIF) needs to learn to be a sustainable business interest too. If they know how to control their costs and maintain a working business and employ local people, they'll become self-sustaining too and continue to (in principle) support the local economy but on their own initiative.
The arguments are decent ones.
It seems that most people seem upset because they thought that they were specifically loaning Asbar money with which to purchase a goat when in fact they're funding a local lender who in turn loans to Asbar or someone else.
That's what seems to be upsetting most of the people who posted in the very lucid discussion.
Thanks Greg! I know people who have lent money through the Kiva.org. I personally think Kiva.org has extraordinarily moved in a direction that has helped save small businesses. Smithsonian Magazine had a wonderful three page article from 2007, Software engineer Matt Flannery pioneers Internet microloans to the world's poor. Naturally, I'm all for helping those in need. I donate to my time and money to help the poor and encourage others to do so too. 
