Kiva Microfinance: Catalytic impact with a side of controversy

Kiva Microfinance: Catalytic impact with a side of controversy

September 21, 2012  |  Articles, Featured

Microfinance and microcredit have been big names in philanthropy ever since it burst onto the scene in 2006 with Muhammad Yunus’ Nobel Peace Prize lighting the way. In that same time period, Matt Flannery and Jessica Jackley start working on making “Person-to-Person” microfinance feasible across geographical borders and cultural boundries. In January 2007, Kiva fully funds its first entrepreneur in Afghanistan and then the microloans really started to flow.


Since it’s founding in 2005, Kiva has lent over $330 million dollars in loans and has a repayment rate of 98.99 percent. It lends 100 percent of the money its users designate as microloans and is funded instead by optional donations, grants, corporate sponsorships and foundations.1 Kiva is not just a success story in philanthropy, it has become a catalyst for making change. However, like most great successes, there is always some controversy.

It would not be right to tell the Kiva story without addressing some of the transparency issues unleashed by David Roodman (@davidroodman) in a blog post titled “Kiva Is Not Quite What It Seems.” In his article, Mr. Roodman stated that the Kiva loans were not direct; the person you see on your screen when deciding to donate has already been funded and a Kiva fund really supports a more general fund the local microlender uses to support its future lending. He continued to write that “In short, the person-to-person donor-to-borrower connections created by Kiva are partly fictional. I suspect that most Kiva users do not realize this. Yet Kiva prides itself on transparency.”

In short, the person-to-person donor-to-borrower connections created by Kiva are partly fictional. I suspect that most Kiva users do not realize this. Yet Kiva prides itself on transparency.

Sounds damning, but Mr. Roodman was quick to temper his criticism. He goes on to state that this is what Kiva should be doing and that if Kiva really worked in the way people thought it did, the microlending process would be inefficient and “immorally wasteful of charitable dollars.”

Even so, Matt Flannery (@mattflannery) responded with a blog post of his own. I’ll save you the details, but Mr. Flannery and Kiva updated their “How Kiva Works” page with a much more transparent description of the process. However, some trust was broken and the debate continued. ( offers a great guide to the whole debate)

Here’s Kiva’s current video on how it works. Is it transparent enough?



Tumenbayar is a 53 year old mother of three children. Her Kiva description tells me she is a good wife and she supports her family by writing and selling books.

She requested a loan of $1,550 in order to publish 326 copies of a book about a Mongolian queen titled “Golden Coin of Queen Durgunu.”

This looked like a great chance to support a entrepreneur and had all the markings of a great way to make an impact. I made the loan easily and felt great. But then I saw that the loan was pre-disbursed a full two days before the actual loan request was listed and remembered the whole issue with Kiva’s process now that it was in the open.

You see, it does detract from the personal impact when I realized that this Tumenbayar’s loan was already granted before I read over her profile. She was probably already putting pen to paper and cranking out an awesome kid’s tale as I watched her “loan request” get fulfilled. It’s undeniable that Kiva relies upon the personal connection between lender and recipient to draw in funds. It would be a fool not to do so.


This disconnect between the true recipient of my funds bothered me for a while. Even after the microlender posted an update stating that the loan was successfully paid off and that Tumenbayar’s books were successfully published, I still felt a sense of being separated from the impact Kiva was telling me I created.

However, the more one thinks about the situation, the more I think the realist in one’s self takes over. This is the way Kiva must do it for the process to work smoothly. The idea of causality can be jarring, but you are creating social change. Instead of directly loaning to the beneficiary, you are enabling the microlender to do its work, which includes the pre-disbursement for the very loan you supported.

Regardless of if you are directly loaning, or indirectly backfilling those loans, farms get expanded, small businesses are saved and yes, 326 copies of “Golden Coin of Queen Durgunu” are read in Mongolian schools.


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