MICROCAPITAL STORY: Tori Hogan’s Ninth Episode (Entitled “Micro-lending”) of the Ten-Part Film Series “Beyond Good Intentions” Takes a Critical Look at the Realities of Micro-Lending by Questioning the Impact of the Kiva Model

Director Tori Hogan’s Ninth Episode (entitled “Micro-lending”) of a ten-part film series “Beyond Good Intentions” takes a critical look at the realities of micro-lending by questioning the impact of one of the world’s respected and favorite microfinance organization: Kiva.org (Kiva). Ms. Hogan openly debates that while she has total respect and admiration for the numerous successful work performed by the Kiva organization and the team, her experiences and research in the microfinance field, specifically in both Cambodia and Mozambique, left much to be desired. Outside of the interviews and assessments, Ms. Hogan does not reference the vast amount of material currently available to the public that is critical of microfinance.

While Ms. Hogan strongly believes that microloans are a step up from the charity model in the way that they embraced the power of entrepreneurship and gave recipients a sense of control and dignity in the process, she recognizes that “micro-lending may not be the panacea to poverty that the world wants to believe.” Micro-lenders are aware that there is no conclusive proof that microfinance undoes poverty. In support of this argument is a common theme that Ms. Hogan hears from her interviews: “in the absence of solid economic opportunities, micro-lending does not seem to be effective for the poorest of the poor.” Through her meeting with many Kiva loan recipients (in Cambodia and Mozambique), she learns that while several of them had been able to successfully repay their loans, none of them have succeeded at pulling themselves out of poverty.

Ms. Hogan provides key points and openly debates why she believes that none of the Kiva supported loan recipients have been successful at pulling themselves out of poverty:

High interest rates being charged – Hluvuku-Adsema (founded by Director Bernardo Luis Tembe), a local non-profit micro-lending organization in Mozambique, lacked sufficient capital to expand their services in the country. They were approached by Kiva who partnered with Hluvuku-Adsema in Mozambique. According to Mr. Tembe, Kiva provided the necessary capital to finance the non-profit’s portfolios of 75 clients, estimated at USD 60,000. However, Tori Hogan notes that most of Kiva’s non-profit micro-lending partners she met with (specifically Hluvuku-Adsema) were charging recipients 30-55 percent each year on their respective loans. According to Franca Chilengue (a Kiva loan recipient), the loan is assisting his farming business, but it is not enough for sustainability.
Insufficient economic opportunities – In extremely poor areas of Cambodia and Mozambique, Ms. Hogan learns that there simply were not enough economic opportunities for loan recipients to capitalize. It was also very difficult for recipients to come up with profitable business models given these constraints. Thus she believes that with minimal business skills or market knowledge, many initiatives unfortunately fail.
Lack of business skills/entrepreneurial talent – Due to the high level of competition between micro-lending organizations in the field and an eagerness to get more clients, Ms. Hogan believes that the entrepreneurial bar had been set quite low. She references several Kiva loan recipients she met with who failed in their businesses because they attempted to join an already saturated market. For example, she references one woman in Mozambique who started a vegetable stand that was immediately next to 5 other identical stands in town. Unfortunately, the market was over-saturated and none of the women could make much of a profit. On a positive note, the respective Mozambique woman later did borrow from Kiva and is presently trying to achieve greater success as an egg vendor.
Overburdened loan officers – Loan officers are spread thin with the sudden influx of capital from Kiva online lenders and the rapid increase in the local client base. According to Ernesu Zerongu (Loan Officer at Hluvuku-Adseme) their challenge is 300 loans per officer. She notes that there is little time for loan officers from Hluvuku-Adseme to provide additional financial guidance since they are busy providing pictures and stories of each Kiva loan recipient to promote on the website.
Lack of sustainability – Tori Hogan references a UN study that states only 10 percent of micro-lending organizations are self-sufficient. While Ms. Hogan does not provide the exact title of the study, she learns that the majority (including the Kiva partners she met with) of clients rely on donations and subsidies to stay in business. She further states that “while Kiva’s network of online donors allows for a significant increase in the number of loan recipients (due to an increase in capital available to lend), this endangers the long-term viability of the organizations.”

Note: Ms. Hogan acknowledges to the viewer that “to be sustainable, micro-lending organizations generally have to increase their interest rates, take less risks, and lend to fewer people…which generally would prevent lending opportunities for the poorest of the poor. So, while it may be unsustainable and quite risky, the donor-subsidized model allows these organizations to reach out to poor client.”

Interestingly enough Ms. Hogan also references Majorie Marasigan, Technical Advisors, of Credit (Cambodia). Majorie Marasigan also believes that in the long run micro-lenders will not be able to help the poor if sustainability is not taken into consideration when lending. Lending for productive and not consumption usage is key.

Tori Hogan appears to be a bit torn; she wonders if the current Kiva model hurt or helps local micro-lending organizations in their attempts gain self-sufficiency.

A 2004 undergraduate of Duke University (A.B. in Global Health and Human Development), Tori Hogan later completed her Masters in Education in 2008 at Harvard University’s Graduate School of Education (HGSE), International Education Program (IEP) as a Reynolds Fellow in social entrepreneurship. In 2006, Ms. Hogan founded Beyond Good Intentions, a nonprofit organization that explores different strategies being used in humanitarian aid today. Beyond Good Intentions largest project to date is the production of a documentary film that shares its name. For the film, Hogan spent one year travelling to aid organizations in 10 countries, interviewing community members, social entrepreneurs, volunteers, and donor groups. She shot 193 hours of footage for the film, which was released in fall 2008. The documentary highlights 63 organizations in Colombia, Peru, Argentina, India, Cambodia, Laos, Indonesia, Madagascar, Mozambique, and South Africa. Tori Hogan also worked for various aid organizations in Africa and study as a Fulbright Scholar in Egypt prior to her attending HGSE. No additional information is provided.

Kiva.org, a San Francisco-based online microfinance brokerage was incorporated in 2005. Till date, it has partnered with 94 microfinance institutions (MFIs) spread across 41 countries and has facilitated the transfer of over USD 55 million in loans from over 418,537 Kiva.org users to over 80,000 entrepreneurs in the developing world. The average repayment rate among all partners is 97.15 percent, the average default rate 2.85 percent and the average loan size is USD 436.34. The minimum lending amount is USD 25. Microcapital has provided extensive coverage on Kiva’s launch, growth and operations as a non-governmental organization (NGO).