Sunday, November 15, 2009

Kiva's method isn't that bad

I wanted to follow-up on Friday's post. While I think Kiva misleading their donors about how they actually operate is problematic, their mode of operation is not cause for alarm. When you make a loan to an entrepreneur on Kiva's site, your money most likely isn't going to that specific entrepreneur, but to his or her microfinance institution for a future loan. Instead of supporting an individual, you are supporting an organization.

This "fungibility" of resources is used in all person to person connection organizations, like Heifer International or Save the Children.  While person to person connections might increase donations, ultimately they are costly and inefficient to maintain. Because of this cost,  donations seemingly marked for an individual are used for greater support of an organization, sometimes causing ethical and procedural concerns. (An organization close to my heart, the Social Entrepreneurs of Grinnell, is currently dealing with some of these concerns.)

In theory, this fungibility should not be a problem. If the organization you are supporting is compentent and effective, they will know how to use your money better than you do. That is why you give it to them. In practice, fungibility becomes a problem when the recipient organization is not competent or ineffective and wastes the money earmarked by you for another purpose.

That it is why it is your job, as a social investor, to make sure your donations are being put to good use. Even if they aren't going to a street vendor in Cambodia like you thought, as long as it is still making real change in someone's life, it doesn't matter. But it is up to you to figure out where your money goes and what impact it has. You can start with some online resources (GuideStar, GiveWell or Charity Navigator) and then look more into the organization's internal documents.

Aside from its method, determining if Kiva and microfinance in general are actually an effective use of resources will take a lot more work.

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