I lend money through Kiva. I like the idea of P2P lending, not so much because traditional finance might not be available to the borrower, but because traditional finance is nothing short of legalized crime.
This said, I see a financial hole in my Kiva account:
Do you see it too?
If you don’t know how Kiva works, you make a deposit to create a balance, and then make loans from your balance. As people repay their loans, it falls back into your balance and you can re-lend the money. Kiva recommend a $3.75/$25 donation to them, but I wind that to zero, and usually just donate my left-over balance at the end of the year.
So, I’ve injected $275 of deposits. In theory, my total outstanding loans, plus balance, plus donations should equal $275. Any difference should be due to defaulted (unpaid) loans.
My outstanding loans total $209.91. My balance is $0.15. My donations are not explicitly stated, but $1,450 / $25 gives 58, which at $0.90/$25 means I’ve donated a total of $52.20.
$275 minus $209.91 minus $0.15 minus $52.20 should therefore equal zero.
But it doesn’t. $12.74 is missing.
Ah yes! Defaulted loans! These are third-world borrowers to whom normal financial institutions don’t lend. A 4.6% default rate sounds low even! Except I have no defaulted loans.
The answer turns out to be due to currency fluctuations, whereby Kiva essentially deduct the interim difference between the loan going out of $US to some other currency, and when it is paid back (and converted back to $US). And this annoys me greatly (though not as much as having to pay a traditional bank a fee to make a $US payment into Kiva in the first place!):
This alternative account summary shows the currency loss, but also compares me to other lenders.
I’ve made 45 loans with a total value 4 times that of the average lender. I have a zero delinquency rate compared to almost 9% for the average lender, and a zero default rate compared to 1.37% on average. So, if I’m out performing the lending market so well, why the hell am I losing 2.5x more to currency loss?!
(Yes, I realise this is about only $13, but that’s half of a loan to somebody!)
Maybe the “average” loan goes to a US (or $US borrower) more often (mine never do since they have access to traditional finance); but if so, then those delinquency and default rates suggest those with access to traditional finance are worse borrowers who I want to avoid.
It seems no matter what, you’ll lose money along the way: 0.9% in my case to currency fluctuations, and 1.4% on average to bad borrowers.
That must be why a bank charges 19.9% APR. Oh wait! That doesn’t add up either…