Whoa, this blew my mind, Eric.

Does Kiva work? In terms of poverty-alleviation using microcredit, Kiva’s apparent aim, the answer is no. Despite many years of trying, independent academics have been unable to find any convincing data confirming an overall positive impact on poverty reduction achieved by indebting the poor. David Roodman at the Center for Global Development summarized its impact most succinctly: “zero.” With interest rates often exceeding 100 percent, it is not hard to see how microcredit can progressively increase rather than decrease poverty, as demonstrated poignantly by crises in Andhra Pradesh and elsewhere. But let’s ignore these details for a moment and assume microcredit does retain some useful function – is Kiva an effective mechanism to achieve this?

The facts do not support Kiva. In 2012 Kiva spent $14 million to loan $111 million. Despite most staff being volunteers, Kiva managed to spend $0.13 for every $1 loaned. Typical specialized microfinance funds will make a modest return with a 2 percent annual management fee from which to cover all costs – making them 6 or 7 times more efficient than Kiva in getting money from investor to poor person. The main difference is that such funds don’t provide pretty photos and heart-warming stories to their investors.

Kiva lends via the very same microfinance banks as other microfinance funds. Entrepreneurs engaged in coca production or cock-fighting are all equally free to apply for a loan, as are those that employ child labor. In practice there is not even a requirement that the ultimate businesses financed need to be legal. Kiva spouts lovely stories backed up with photos, but fails to discuss the interest rate that the poor are forced to pay. And for fair-skinned, attractive and thin African women, the money appears to pour into Kiva all the quicker. The perk to the banks is that money raised on Kiva is interest free, while they can charge the poor whatever they like and pocket the interest. But even this is insufficient to keep the banks interested, as many are now deserting Kiva (as shown by their high number of inactive partners). We are potentially witnessing a dangerous race to the bottom, whereby decent MFIs prefer to work with professional funds and avoid the hassle of drumming up endless photos and promotional stories, while those that can’t tap such funding remain with Kiva.

The entire Kiva mechanism is not even particularly efficient at getting money out of California – according to the 2012 financial statements $82 million is sitting in a U.S. bank account, and guess who earns the interest on this tidy “buffer”?

I had to re-read that three times.

tl;dr : Specialized microfinance funds are 6-7x more efficient than Kiva at getting money from investors to poor people. Wow.

I've seen the best minds of my generation deceived into thinking that clicking LIKE on social media actually makes a difference.

Does it work? Who cares? This is the genius of Kiva – it doesn’t need to work. It feeds an “ideology of entrepreneurial charity,” as marketing researcher Domen Bajde puts it, and ideologies don’t need proof. It is an illusion, a façade and the public face of a broader agenda – the financialization of the poor. As Phil Mader phrased it, it allows the general public “to consume the feeling of charity without financial loss,” and it perks up the reputation of microfinance in their imaginations. Indeed, Kiva has started lending in the U.S, charging Americans perhaps 10 percent interest, while those south of the Rio Grande pay up to 10 times this. But while Kiva may be the general public’s principal interface with microcredit, Kiva is merely the tip of a very large iceberg. It has pumped out $500 million since 2005. Peru alone has nearly $11 billion in outstanding microfinance loans today.

Are we going to solve poverty with such mechanisms? If we mobilized the vast sums of capital deployed in microfinance – much of which is useless – in a more effective manner we could contribute substantially. Institutions such as Zidisha may be a step in the right direction, actually doing what Kiva claims to do. Banks such as ProCredit, targeting the smaller companies in the tier above the traditional microfinance target group, are actually generating employment (but without heart-warming stories and photos of women with goats). And let’s not forget the old-fashioned “aid” areas – a vaccine can have a far greater impact than a $50 loan costing 80 percent per year.

By fooling people – especially young people – into thinking that poverty can be eliminated simply and easily through microloans, Kiva plays an important role in undermining the wider global struggle against poverty, deprivation and inequality. Kiva is a scam, and if we are to contribute to the welfare of the poor and restore any faith in the integrity of the U.S. financial sector, such players should be regulated immediately.

I am sure that the people who offer loans through Kiva have the best of intentions, but wow.

I am genuinely curious to see if Kiva responds to this.

Uber disturbing.  

Well, it basically suggests that some people give to charity for reasons other than efficient use of funds.

Some people give to charity to feel good about themselves. Kiva has clearly tapped into that.

And perhaps Kiva's response to this is that they become more efficient as they scale, but everyone needs to start somewhere.

What a good example of the structural problems facing all participants in the industry of creating social goods and positive impacts for our world--exposing the challenges of our third-party payer system, i.e.,

Someone pays Kiva to help a poor African get a net positive financial gain.  

This simple chain of events presents a universal challenge to everyone hoping to help someone else for a couple reasons. 

First, there is little to no transactional feedback from end-users as beneficiaries and customers.  This means inherent vulnerabilities to product design abuse and misaligned, if not competing, intentions for driving results.  

We can take any socially minded group to task by how well they target and deliver verifiable gains to the people they claim to help, as most groups that can pitch a good marketing campaign still can't fill in the blanks at a level of operational clarity that is objectively measurable and verifiable regarding their targeted impacts at scale:

We pay _________________ to help __________________ get a net positive __________________ gain.

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Second, regardless whether we are talking about Kiva microcredit or any other type of social goods, there are just three types of third-party payers available by which such intermediary groups can earn revenue:

I. Givers -- emotionally motivated and driven by personal exposition (impulses)

II. Funders -- compliance motivated and driven by formal processes (applications)

III. Investors -- return motivated and driven by market opportunity (deals)

Kiva has created a nice niche product that appeals to the Givers.  Yet Kiva didn't think through the implications of being exposed about having a verifiable impact at a competitive cost, and with a bright light being shined on their industry Kiva is not so pretty anymore.  We can reveal the same unflattering warts when we look clearly at most social good organizations that rely on third-party payers, with their chief ugliness being: 

--inability to target verifiable gains for people and then get them to actually achieve them

--inability to fully allocate costs and price discover the value of those targeted gains when achieved by a person they have helped

--lack of legible transparency on the fully allocated cost for achieving targeted results against current baselines

This is true of probably 98% of all social good organizations, both charitable and for profit.  If you don't believe me, simply ask any of your favorite socially committed organizations the following three questions:

1. how many people did you make better off last year?

2. what exactly did you intend those people to gain (that they wouldn't have gained without your organization) that they did indeed then gain?

3. what is your average cost of delivering that gain for each individual that you helped?

.

So like most marketing campaigns, groups continue to sell the sizzle of photogenic anecdotes rather than demonstrate verifiable value of human gains against objective, baseline externalities.  And it is the people that are supposed to be helped that are suffering because our third-party payer system is extremely efficient at promoting ineffective intermediaries outside of a real market structure. 

These failing are not because people who give to social good organizations are bad or incompetent, or that the organizations themselves are malfeasant or manipulative--most all desire to do good and are passionate about helping others.

It is because we all face a lack of transactional validation on social good products and make more without feedback from paying customers as end users. Whenever someone else is paying some or all of the costs for whatever products intermediaries are making with an intention for others to consume it the natural organizational tendency is to then evolve design and delivery to whatever standards the people who are paying want.  Not the end users--the supposed beneficiaries. 

To create value in a product that is then recognized, demanded and consumed with high satisfaction is an incredibly hard thing to do in a real market with paying customers.  It's near impossible to do in a third-party payer system.  

What it is easy to do is employ more people, and as far as I can say with the documented facts year over year, that's the most comprehensive evidence we have about the entire social good sector's impact in creating better lives for others--it has created jobs for liberal arts majors and idiot relatives of wealthy people.  Maybe not the ideal demographic for the people you were hoping to help, but at least somebody is verifiably better off... last count was about 15 million employed people in the US alone at an annual industry expense of $1.4 trillion dollars.

And as long as people want to help others through a charitable or for-profit business, I'll never run out of work...