Kiva: Loaning Money to Promote Business in the Third World

A lot of businesses in third world countries never make it off the ground because there is simply no capital for them to make use of to get started. It’s extremely difficult to open a business if you have no money to get started and you cannot borrow and money in order to get started, but a new non-profit organization might have an answer. A company called Kiva is allowing individuals to loan money to small-business owners in the third world to help them get started.

Kiva is hoping to fight global poverty by promoting economic expansion in third world countries, but they way they are doing this is rather unique. Kiva allows well off people to give small no interest loans to small businesses throughout the world. Essentially, “microfinance” companies can post the profiles of qualifying small business owners in well off countries, and anyone with a credit card can choose to help that small business owner out. Kiva takes all of the loan capital they get, and transfer it to small banks in their selected areas, and then disburse and administer the capital to the small business owners. As the entrepreneur pays back the loan, the person who gave the loan out can take their money out, or loan it out to another small business person.

PayPal doesn’t collect any fees on Kiva transactions, Kiva distributes all of the money to the entrepreneur. The lenders will not receive any sort of interest or other profit, so it is pretty much a charity. The field partner company collects the money from the entrepreneur and collects interest from the entrepreneur which pays to keep the company running. Borrowers are charged 16% interest to pay for the fees associated with running the organization.

Loaning money to a small business person across the world on Kiva is ridiculously easy. All you have to do is browse around Kiva, find an entrepreneur that you’d like to lend to, click a button, send money through PayPal, and Kiva takes it from there. If you’ve ever wanted to promote economic expansion in developing nations, this is the way to do it.

After you’ve extended a loan, you’ll receive updates in regards to the status of the loan that you’ve given out, and what the progress of the business that you’ve given the loan to. It’s really interesting to hear the stories of the small business person that you’re loaning to. After the entrepreneur pays the money back, you can take out your money or give it to another entrepreneur.

A very interesting tidbit about Kiva is that they’ve had a repayment rate of 100%, and an on-time repayment rate of 99%! Kiva requires that their partner meet what they call a “due diligence” standard. They do a very good job in qualifying borrowers, and making sure that the money they loan out just doesn’t disappear.

Kiva is a very interesting result of free market economics. It’s not economically rational to loan money out at 0%, but if you can let someone use some of your money for a period of time to start their small business in the third world, why not? You’re helping eliminate poverty in the third world, and you’ll get your money back anyway.

Caps on Student Loan Payments — an Idea Worth Having

President Obama has proposed capping federal student loan payments at no more than 10% of the borrower’s income. Is that a good idea? I think it is and let’s look at why.

I thought I was doing well in terms of higher education costs by earning my first bachelor’s degree from the United States Naval Academy. The cost of the education was around $120,000 but, as long as I served my 5-year obligation, then all would be forgiven. No one ever thinks they won’t finish out the 5 years, but, due to downsizing and other circumstances in 2004, after only 3 years, I left the navy. I was then informed that I needed to pay back the prorated portion of my education. About $40,000 at that point. Ouch. And since the Veteran’s Administration was paying for me to go back to school to get retrained (code for another degree in a different field) and I only worked part-time, I had to work out a deal so that I could afford the minimum payment each month.

As I decided to move on to graduate education, I began to take out student loans because that is what everyone does. I didn’t think about the payments because I assumed I was on my way to making more money and getting back to a respectable income. Well, after two graduate semesters, I still didn’t have a good paying job and I was not going to continue my course of study.

That would have been fine, except being in school kept me from having to payback my most recent loans. When I received the statements and found out that the loans were going to be another $400 or so each month, I knew there was no way I could afford that. At this point I was no longer a teacher and delivering pizza until I could get a higher paying job. Oh, what a mess. And while $400 may not seem like a lot of money, I also get disability from the VA and, well, I have other creditors.

Enough about me and back to the plan. The point in my story is that I ended up putting the loans in deferment because I went back to community college to get training in early childhood education (I paid out of pocket for that). I refused to take out more loans even though I have new educational goals. The bleeding has to stop. But, considering my current income, which is really down, like many Americans, I can see that a 10% cap would be a welcome policy for me. In deferment the interest continues to accrue, but it is next to impossible to get a deferment for any other reason than going back to school. And for that, more people are taking out more loans in the hopes that they can afford the repayment later.

Although some might argue that a lower payment would keep people like me in debt longer, remember that with any loan, you can pay more than the payment. If your situation changes and you can afford more and get the loans paid off earlier, then do it. I know that I will.

But, for now, as I juggle creditors and try to keep my head above water, it would be nice to know that at least my student loan payments would be capped according to my income. After all, if you end up with a low-paying job, how can you possibly afford a higher loan payment?If this plan goes through, and I hope it does, I may actually be able to afford paying back my student loans. That would be the one silver lining in a sea of debt.