Wednesday, July 21, 2010

one hand at a time

Felipe Zapata is a hard-nosed realist.

Even new readers of
The Zapata Tales quickly come to that conclusion.  He is the guy you go to if you want your answers straight up -- and accurate.

Like all labels, though, that one does not begin to describe the complexity of the Sage of Pátzcuaro.  Some may see him as a mixture of Andrew Jackson and Andy Rooney.  But there is a bit of Mother Theresa thrown in for leavening.

If you scroll down the right-hand column of his blog, you will run into information about Kiva -- an organization that makes micro loans to entrepreneurs throughout the world.

The process is very personal.  The borrower makes a pitch, and the donor chooses who gets the loan.  When the borrower repays the loan, it can be used for another loan -- or the lender can re-pocket it.

Felipe does far more than promote this worthy cause.  He has formed a
donor team to honor his son who died in infancy.  A very moving gesture to honor his son -- and to offer a hand to people who need just a little help.

His gesture touched me enough that I signed up almost a year and a half ago.  Since then, I have made 31 loans to small entrepreneurs in 17 countries on 5 continents.  All attempting to make a better life for themselves and their families.

Micro loans are turning out to be an incredibly effective phenomenon -- especially in underdeveloped economies.  They are a method to evade the restrictions of government-controlled economies -- the type of countries where the World Bank and the International Monetary Fund end up helping only the ruling elite.

And the micro loans work.  Small businesses grow.  Families see their stake in life improve.  Of the 31 loans I have made, none have resulted in default, and 13 have been paid in full.  In a world of restricted credit, those results are amazing -- and heartening.

So, here is the pitch.  Kiva is a great organization.  If you want to have a part in making a small piece of the world a better place for some people to live, join up.

And if you want to join Felipe's team, I am certain he would welcome you on board.


Croft said...

Thanks for the pitch Steve. Our friendly little kiva group has $3500 in loans out there right now and we are making a difference in the lives of many hard working families. These are the most satisfying investments I have ever made and like you, I have never had a default.

Judi said...

Thanks for the info, Steve. Kiva keeps popping up everywhere for me these days; must mean I need to do some serious invest(igation).


Laurie said...

Good post, amigo.

Anonymous said...

The problem I see with Kiva is that it charges the borrowers interest on the money. The interest goes to the 'Field Partners' to cover their costs. According to the account of others, that may be in the range of 20% interest. So you are making interest-free loans to someone who is charging a lot for the use of the money. Kathe

Steve Cotton said...

Croft -- And thank you for the inspiration for this post. I notice you keep your readers up-to-date on your loans.

Judi -- It is a good solution for people in countries where small loans are non-existent.

Laurie -- Thanks.

Kathe -- You make a good point. Kiva's field partners charge interest -- and that rate varies widely from country to country. But these are business loans, not charity. In most of the countries where Kiva operates, banks are for the wealthy. The only way small entrepeneurs can get a loan is from a Kiva partner, a loan shark who charges far higher interest, or to do without. Because it is a cost of doing business, the interest becomes part of the borrower's overhead. Without the loan, the borrowers would find that getting ahead is that much more difficult. Perfect? No. But it is utilitarian.

Calypso said...

I checked this out a while back:

[According to its web site, Kiva quotes interest rates as the "self reported average rate charged by the Field Partner to the entrepreneur."As of January 7, 2010 35.21% is the Average Interest Rate and Fees Borrowers Pay (Portfolio Yield) to All Kiva Field Partners."]

Seems like a lot of interest to me; makes those credit card fees look like a bargain ;-)

Steve Cotton said...

Calypso -- I agree. It does seem high. And my libertarian instincts cause me to wish the rates were lower. But I also wish that most countries did not have a top-down economy that punishes the poor. Maybe the world will be freer in the future. For now, we are stuck with less than perfect circumstances. And I would rather deal with the good we have than the perfect we will never attain.

Calypso said...

Steve - Ever the diplomat.

Like Felipe I am a hard nosed realist (your words). Providing micro-loans to poor people with loan shark interest rates simply doesn't get it for me - soft peddle it however you like.

From the New York Times:

"Premal Shah, Kiva’s president, said The uproar has proven beneficial in an unexpected way. “If anything, it has drawn more people into the nuance and beauty of this model of microfinance,” said Mr. Shah, who joined Kiva from eBay. “It’s highly imperfect, but it’s like a 3 1/2-year-old child: it has a lot of potential.”


Highly imperfect is the key there.

Felipe said...

Thanks for the Kiva plug, Señor Cotton. If anyone wants to join our team, it´s called Ian Lee´s Team, and I imagine just going to the Kiva site and doing a team search will lead you to us. I hope so.

And what you wrote about the interest payment was perfect. I don´t sweat the small stuff. It´s an excellent organization.

Croft said...

I too am surprised by the interest rates charged but interest rates across the board are higher in Latin America. A Mexican friend (well off retired lawyer) tells me that even with his preferred credit rating the rates he would have to pay on his credit card are very high - I think he said 25%. Fortunately for him, he pays his card off monthly.

Like Steve says, it is an imperfect system but if the "Field Partners" had to borrow the money they loan out to the small entrepreneurs, the rates would be higher yet.

To keep Kiva's costs down, PayPal has waived all fees as their contribution to the micro loan initiative.