Introduction

Hello everyone, thanks for coming to the official blog of Debbie and Derek wedding favor, a microcredit loan through Kiva. I know this may seem a bit unusual, but read on...I think you'll see what we're getting at.

Rather than traditional wedding favors like trinkets and those bubble things, Debbie and I decided to opt for a charitable donation. Unfortunately, the disagreement came when it was time to decide which charity to donate to. Getting a libertarian criminal justice student and a self-identified "moderate" (who just graduated from the 1) University of Michigan 2) School of Social Work...just saying) to agree on what constitutes a worthy cause is a fool's errand. She suggested charities such as Help the Poor, Pandas, and Puppies and The Human Fund (see above), while I suggested my own two charities, Down with Dance Marathons and The Derek Cohen Food Pantry (all proceeds going directly to stocking the kitchen with nutritious Hot 'n Ready pizzas, crispy fish fillets, and Keystones Light). Needless to say, a consensus could not be reached.

However, back in 2006 I remember catching a news story on Muhammad Yunus, whose Grameen Bank (and subsequent lending project, the Grameen Foundation) pioneered the ideology of microcredit as a free-market intervention into poverty. Dr. Yunus, along with the bank, had just been awarded the Nobel Peace Prize "for advancing economic and social opportunities for the poor, especially women, through their pioneering microcredit work." I was floored by the concept...not only in its altruism but in its simplicity.

I brought up the possibility of rather than donating to a typical charity, we could put the donation money into an account at one of these institutions. Although she and I had spoke of giving to a charity like this at some time in the future, it was never really at the forefront of our thoughts. Now, we had not only the means (as scant as they may be) but the motivation to donate as well. It is our hope that you, through our experience, might also be motivated to make a similar loan. Leading up to the wedding, I will be covering the [very] basics of microcredit, walk you through our rationale of choosing a borrower (or borrowers), and sharing any success stories that will be send via the lending institution.

Speaking of which, the chronology of the blog will be as follows:

1. Introduction: This post. I'll include a very brief explanation and FAQ for this whole shindig.
   
2. Confirmation of the deposit being made with Kiva. Currently, we are planning to use $100-$200.
3. Sharing information about the borrower. I'll have to check into specifics as to what's all permissible, but at the very least will contain the location, purpose, and amount of the loan.
4. Sharing updates as they become available.
5. Hopefully, at the end, declaring that the loan has been successfully repaid.

Not-yet-asked [but you were probably thinking about it] Questions

"What is microcredit?"
-Microcredit is, very simply put, localized small, short-term loans made to the poorest of the world's poor. These loans are extended to these folks through a lending institution specializing in this sort of finance. Oftentimes, monies loaned through microcredit are spent on entrepreneurial business expenses such as patching a fishing net or maintenance of boat. A borrower may be in almost any sector, including commercial. In regards to the loan itself, the institution offers competitive terms and mentorship to enable better rates of repayment.

What happens if and when a microcredit loan is paid off?
-To be honest, it's not really that big an "if." Kiva's default rate is something around 2.5%, [economy reference deleted]. When a loan is granted, the borrower is held to payment schedule with interest much like in a loan coming through a commercial bank. Economists attribute the high success rate of these loans to their relatively small size, the informality and proximity of the local economy and institutions, and the industrious drive of those who seek out these loans. Once a loan is repaid in full, the money will be added back to our account on Kiva.org. At this point, we can re-lend it, donate it to Kiva for operating expenses, or withdraw the money and be remunerated. In the spirit of this venture, the last option is off the table. As for the other two options, it will depend on the life of our first loan. If it is repaid in full and fairly quickly, we will gladly reinvest it. If we only recover part (Kiva has minimums) or it takes too long (comps in late summer before the wedding), we'll probably just donate it to Kiva.

Isn't there a service charge to move money like this?
-Nope, at least none to us. Kiva's partnered with Paypal and other key business to move our money. 1) We pay Kiva via Paypal 2) they pay the institution 3) the institution lends it to who we chose 4) they pay back the institution 5) the institution pays Kiva via Paypal. The lending institution is paid for their service through the interest on the loan and [in practice] has no claim to the actual principle.

So, really, why a microcredit loan?
-Aside from getting me out of having to pick out table favors? Wait, the irony is that in the time it took me to do all these websites, blogs, etc, I could've done that. But in all serious, both Debbie and I feel strongly about this process. Those of you who know me will remember my epic Dance Marathon dissents from undergrad. There, my complaint was three-fold: 1) access, 2) effectiveness, and 3) mindlessness. First, only a small segment of the US's "sick kid" population would benefit from Children's Miracle Network (there are some class debates to made here too, but that's not my style). Second, the massive overhead involved in running a Dance Marathon means less money to said sick kids. Think if all the "in-kind" donations could've be monetized for DM more efficiently? Finally, there are the dancers, morale captains, and the list goes on. During my time I met a handful of genuinely caring individuals (albeit misguided), but the grand majority were the people doing it socially, or for their fraternity/sorority, or as a resume item due to its immense scope. Half of the people didn't even know how CMN's funds were processed. Dance Marathon was, by all definitions, indoctrination. The minority dissent was labeled sick kid haters.

Kiva, and like institutions, are the polar opposite. Regarding access, it directly seeks to make these funds available to those who have the least access to conventional banking. Effectiveness? If a 97.5% success rate on all monies being repaid isn't success, then I don't know what is. Secondly, to facilitate this lending, Kiva must run a pretty lean ship. The vast majority of the money moving through Kiva doesn't benefit the organization at all, unless the lender decides to donate after it's been repaid. Very low overhead. Finally, to be a microlender, you can't just log on to Kiva and send $25 to the first person you see. Wait, strike that...you can. However, this is your money. Kiva makes available all the tools necessary to research both the borrower and the lending institution. You are ultimately responsible for who benefits from your charity, and have all the information you'd need to make a quality decision at your fingertips. There is no indoctrination.

Finally, we both like Kiva because, as I mentioned before, it is not a handout. It provides no more than the opportunity to succeed to the entrepeneur of your choosing. They still must use that money wisely and repay the loan. Sure, some loans go unpaid. These are unsecured loans, however, and Boris isn't going to go down to Osijek to take Natasha's sewing machine. The onus for success is on the individual.

"I heard that microcredit is usurious, exploitative of women, and doesn't do squat for the local economy. What say you?"
-I would say you're an ignorant hippie who fails to look at the big picture. I'll address these points individually, if you can pause your New Yorker podcast for me:

1. Usury - It is true that, compared to western terms, microcredit interest rates are fairly high. However, one must also consider the small size of the loan and all it takes to get the dollars from my Paypal account to the backwaters of Sierra Leone and into the hands of a borrower. Most interest rates are between 12% and 24% (1). However, this is still better than the alternative of the village money lender. Think Don Tattaglia from the Godfather.
   
2. Exploits women - Operationally, no. It has been found by watchdog organizations that handful of women loan applicants were used as fronts to procure microcredit for their husbands only to be excluded from the business process. This occured mostly in middle to north-eastern Africa, where women's rights aren't exactly inviolate. Do note that, although these loans are vetted for fraud, occaisonally an unscrupulous individual slips by. Conversely, women are the largest segment benefiting from these loans, oftentimes being required to contribute to supporting a family or sending children to school. (2)
3. Ineffective - Hold on there, Robert Martinson. Before you leap, do you think I would chose a modality on common sense and principle that wasn't effective? What do you think I am, a social worker (sorry honey, I love you!) or school administrator? Well, to be entirely honest, it very well might not be. Despite being conceptualized in the 70's, widespread microlending is a very recent phenomenon. Kiva itself was just founded in 2005. Therefore, macroeconomic studies of serviced areas are short-scoped and rare. I only found one that studied a village recieving a wopping total of three loans and followed up in a year. This, my friends, was the most empiracly rigorous study available. In time, microlending may prove to be a bust. As for right now, it produces excellent qualitative, anecdotal outcomes and (based on my incredibly limited knowledge of economics) stands to only benefit an area by brining in localized affluency. Only time will tell.

Makes sense, I guess. Why Kiva instead of Grameen, Unitus, etc?
-Kiva was the first organization I found back in '06 when I started looking into it. Kiva also has been made from the ground-up to include social networking capabilities. Is this a "Hey, look how good a person I am!" feature? I don't know. It does, however, make it incredibly easy to do stuff like this and share our progress with you folks. As for the others, well, to be honest I have minor misgivings. This is my personal opinion and is completely unsubstantiated by evidence and I would recommend if any of you wish to do the microcredit thing that you do your own research. Grameen has its roots as a commercial bank and I can't shake that the foundation, although the first of its kind, was more of an afterthought. Unitus I feel is too ideologically driven. Not that there's anything wrong with working hard for what you believe in, but I prefer an approach that is free of ideology and is primarily lender-driven.

So, honestly, does microcredit "really work?"
-Lack of empirical results notwithstanding, I would say it does. I'm not an economist, and to date have take only one graduate-level stats class. However, even if the accounts I read are the entirety of microlending successes, I would still believe that this is an effective method for alleviating poverty through others' endeavor. Worst-case scenario, we're giving a personal donation to someone who tried their hand at entrepeneurship and failed.

Read the first article in the references if you have lingering doubts...as LaVar Burton said, "don't take my word for it."

Gee, this sounds pretty gosh-darn swell! How can I get involved?
-Just go to Kiva.org. You can get stuck in with as little as $25, I believe. Currently, Debbie and I aren't in any lending teams, but that options available if you want to lend as a group according to religion, location, whatever. There are tons of these teams. Joining a team, to the best of my knowledge, doesn't obligate you or your money to any borrowers, locations, or market segments.

Wait, this is all tax-deductable, right?
-Um, I'm no tax specialist, but no. Remember, you can always pull your money out when a loan is repayed if it's a big deal. Further, you don't stand to make any capital gains, as the most that will be returned is the principle (and we're talking a couple hundred bucks, tops). Donating to Kiva is however, and has options for producing receipts for tax purposes.

In summation...

I hope that this been enlightening, and moreso I hope that you're on-board with us in our choice of wedding favors. If you have any questions, feel free to contact Debbie or I, and we'll answer to the best of our ability.

In the next post, we will confirm how much we put in and will keep you all in the loop as we start searching for a borrower! Stay tuned.

Refs (no guff on the style, please; all articles pulled off of UC's online database):

1. "The Microfinance Revolution: An Overview" R. Sengupta, et al. Federal Reserve Bank of St. Louis Journal
2. "A Breakthrough in Women's Bargaining Power: The Impact of Microcredit" Kahn Osmani, L. Journal of International Development