Do microfinance Web sites like Kiva really help alleviate poverty?

Advice on how to make the world better.
Oct. 21 2009 7:01 AM

Brother, Can You Lend a Dime?

Do Web sites like Kiva really help alleviate poverty?

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But what about the high interest rates? Some, like you, are worried that microfinance lenders might take advantage of borrowers. A recent Wall Street Journal article caused quite a controversy when it highlighted the credit situation among the inhabitants of a small town in India, an area with a robust commercial microfinance industry. But though there will undoubtedly be lenders that care more about profit than development, there are groups doing their best to develop and implement standards for client protection. The Center for Financial Inclusion's Smart Campaign, which Kiva endorses, seeks to unite microfinance providers worldwide. It's like a trade association for microfinance, and though it isn't binding, it's possible to check to see which microfinance organizations have committed to uphold these standards in their own work before you lend through them.

So what do I think of sites like Kiva? Well, it depends. Kiva's mission is "to connect people through lending to alleviate poverty." Yet it also acknowledges that "microfinance is but one strategy battling an immense problem." It's a great tool, but just one of many.

Beyond the need to continue funding for more traditional forms of development aid (health, education, and so on), donors also need to invest in other forms of financial solutions for the poor, particularly savings programs. An interesting new Kiva-like nonprofit called SaveTogether launched recently—allowing individual donors to match the savings of low-wage workers. (Though the group is currently in the United States only, it hopes to expand internationally at some point.) It will take time to see whether this model works, but similar organizations will certainly continue to pop up. When they do, I hope we'll be just as excited about helping people save as we are about helping people spend.

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