Kiva.org creates trend in online microlending

    At a school as concerned with public service and active citizenship as Tufts, students constantly search for new ways to help people in their own communities and around the world. Sometimes, however, issues prevent some socially conscious students from contributing as much as they would like to.
    Kiva.org, a nonprofit microlending Web site, seeks to address this obstacle by giving people the opportunity to make loans to entrepreneurs in 39 developing countries. During times of economic downturn, most people — especially students — are unable to raise the large amounts of money often required to make a difference or cannot afford short- or long-term service trips. Kiva allows anyone to make a donation as small as $25, and what may seem like a small loan in American dollars can make a huge difference to an entrepreneur in a developing country.
    The Web site also addresses a concern associated with making donations through organizations.
    "If you're giving a big donation, you don't really know where it's going. Not all of your proceeds go straight to the cause. Microloans are more effective because they go straight to individuals and you can track them and see where they go," sophomore Kexin Chen said.
    Once the loan is repaid, the money is returned to the donor's account and can be either withdrawn or reinvested in another endeavor. Contributors are also able to choose who receives the loan by browsing through a list of entrepreneurs, looking at their names, countries, fields of work, requested amounts, purposes for the loan and brief biographies. At the moment, there are over 460,000 lenders who have participated, lending over a cumulative $64 million since the program began in March 2005. By 2010, Kiva expects to have facilitated $100 million in loans.
    Jonathan Morduch, co-author of "The Economics of Microfinance" (2005), extended the impact of Kiva beyond the benefits to individual donors and recipients.
    "The great success of Kiva, and microfinance in general, is that it shows a series of success stories at a time when there's great pessimism around foreign aid and what official aid approaches are doing," he said on the Kiva.org Web site. "Kiva and the microfinance world are set up, not just as a better way to fight banking, but also an important way to rethink traditional modes of giving and global social justice."
    Still, there are concerns associated with microlending that do not escape some potential lenders. Junior Gene Kurtysh, a member of Tufts Financial Group, noted a couple of them.
    "[Microlending is] a risky thing to do because the chances of default are very high. [Recipients] might not use [the loans] for the reasons that will allow them to repay you," Kurtysh said. "But if they use it for education and for raising the human capital of the area and are constructive with it, then of course it's a great idea."
    Kiva, aided by microfinance institutions that approve the loan applications by the potential recipients, provides this assistance, leading to only a 2.2 percent default rate in over 90,000 total loans.
    Sophomore Julia Stimeck, who plans on working in microfinance upon graduation, believes the low default rate is the result of a well-designed system.
    "There are a lot of different methods that they use — like people working in groups or people who have already shown themselves to be reliable," Stimeck said.             "They know that if they don't repay it, it won't be an option anymore; that's pretty effective. It should be sustainable because that money will always be there, even when the economy is weak."
                                                                                Stimeck said that microfinancing organizations bring a needed economic change.
    "We've proven that the trickle-down theory doesn't work, so all of the things that people claim will be good for the economy end up helping the rich," she said. "The rich get richer, but there are more poor people and they're worse off."
    This philosophy is part of the reason why Stimeck has decided that she wants to pursue a career in microlending.
    "I've always wanted to do something for the world," she said. "I've always felt that I would never be satisfied unless I was actually being helpful."