Sitting on my patio, drink in hand, I scroll through a series of loan “applications” from the Philippines on Kiva, as I pretend to be a big-time lender – you know, the way most people spend their afternoons. I pause on a specific loan application. It reveals a photo of a petite, middle-aged Filipina in Tacloban City, Leyte. She’s standing on a dirt floor home among unlabeled jugs of brown liquid. The woman’s name is Myrna and she’s seeking a loan of $300 to purchase containers of tuba (coconut wine), along with other supplies for her vending business. As a homebrewer, I felt a ping of exhilaration – This is a business I’d love to support by investing in it.
While I’m no economist (I’m a content marketer and graphic designer), I have been dabbling in finance through Kiva, a 501(c)3. The organization allows private lenders, like me, to pick a borrower, back a loan, and get repaid (hopefully). Kiva nor any lender collects interest on the loan. But if you’re looking to gain lending experience while also making the world a better place, this is one extremely accessible way to make it happen.
Becoming a micro-lender on Kiva
You don’t have to be a deep-pocketed investor to participate. Literally, for nearly the price of a burrito bowl with extra guac and a drink ($25), you can become a micro-lender for underbanked persons. It’s that simple. But if you want to increase your chance of getting repaid and maximize your impact, you’ll want to choose your borrower carefully.
Choosing a borrower
I exclusively lend to female entrepreneurs outside the U.S. because they’re least likely to have access to conventional banks. Perhaps you’ll choose to fund Indian farmers in need of seed money (pun intended) as part of your own lending criteria.
Next, you’ll want to evaluate the default risk of your investment. No, Kiva doesn’t share the expense and profit reports of each borrower, but there are metrics you can review. You can calculate the approximate total monthly repayment schedule, calculate the average loan amount to income ratio based on average household income, and the field partner risk rating. Secondly, you may want to take the advice from the successful investor Warren Buffet who says, “Never invest in a business you cannot understand.” Myrna’s business in fermented drinks is a model I’m familiar with. And with further research, I discovered tuba has existed before the 1500s and is consumed in the Philippines with national pride (It survived multiple colonizing forces). With such a long-standing history, I don’t see it falling out of favor anytime soon. And since Myrna has been in business for 10 years already, I see no reason she can’t grow further.
Make the loan
Once you feel confident in financially backing your borrower, click the button “Lend now.” When the requested amount achieves full funding from other micro-lenders, the balance in your account is withdrawn. Repeat the above steps to build an entire portfolio, but remember, this is real money you’re using, so be smart about it.
With my own portfolio, I took $25 and funded Norah, a shopkeeper in Kenya. She paid the full balance in a short span, allowing me to use the same funds to loan to Myra from the Philippines, and now this same cash balance is with Nelia, a shop owner in Haiti. I’m overjoyed to report an average default rate of 0.00% with no currency loss. I’d say this is a pretty respectable portfolio, albeit, small.
Collect your interest
No, you won’t be making a single cent on any of your loans through Kiva––this is a charitable organization. But you will receive valuable interest from a deeper understanding of making financial decisions involving risks, repayment schedules, and more––all of what will benefit the resume of a finance student. And if you can boast about having a successful portfolio in an interview, even better. But even if you’re not seeking a career in economics, you’re always guaranteed a powerful connection with someone seeking the trust of a stranger, who believes they will make good on your loan, and perhaps, access a more secure future as a result.
About the Author | Thomas Guzowski has over 10 years of professional experience working in the nonprofit sector. Currently, he is a content creator as a writer and graphic designer. When he’s out of the office, you’ll find him slumped over a book about the most epic heist in the U.S. or tuning into talk radio to be soothed by the voices of NPR.
