Why I’m no longer using Kiva to earn points and miles

Kiva has long been a popular manufactured spending tool. With a 97% repayment rate, lots of travel hackers use the platform to meet credit card spending requirements while doing something good for the world.

Last year, I generated $2,000 worth of credit card spending via Kiva. That was before I learned about some of their field partners’ predatory lending tactics, sky-high interest fees, and the organization’s outright lie about how it operates.

Below are some reasons why I’m not using Kiva anymore:

The myth of peer-to-peer lending

What compels most people to lend via Kiva is that it portrays itself as a peer-to-peer lending organization. You go to the website, “shop” for a person to support, read a brief bio describing the impact your $50 donation could have, and feel good knowing you touched another person’s life in a positive way.

Except it’s all a farce. According to the Center for Global Development, over 95% of Kiva’s loans are already disbursed before they’re even listed on Kiva’s website.

Kiva Partners’ Sky High-Interest Fees

You might be wondering, “Huh”? Well, it turns out the money you’re “lending” is really just going to banks who have already disbursed these loans. Not only that – some of these banks charge interest rates of up to 100%.

That’s right: Your interest-free loan isn’t going directly to the entrepreneur you think you’re helping out of poverty. It’s bailing out the banks who are skinning these already impoverished people with insanely high-interest fees.

In reality, Kiva isn’t helping economically disadvantaged people so much as it’s helping banks take advantage of them. 

The Myth of Kiva’s 97% Repayment Rate

One of the most impressive stats Kiva likes to boast about is their 97% repayment rate. That’s a nice number, but like so many other things Kiva tells users, it’s not entirely true. After all, when the banks are charging borrowers up to 100% interest, there has got to be a higher default rate.

There is. The reason you don’t hear about it? In order to keep their high rating with Kiva, the banks will sometimes cover these losses by repaying Kiva lenders out of pocket. But it all makes financial sense because they make their money back from the borrowers who do pay back their loans with (insanely high) interest.

Kiva Lending Inefficiencies

Let’s say we’ve made peace with the 100% interest rates and dishonest lending practices. Now we have to reckon with Kiva’s lending inefficiencies. According to NextBillion, Kiva spent $14 million dollars in 2012 to lend $111 million.

The amount Kiva spends on lending the money you give to aspiring businesses is 6 – 7 times what is typical in the microfinance industry. So basically, Kiva is an inefficient middleman. Kind of defeats that whole “direct lending” premise, doesn’t it?

Kiva’s Response

Kiva’s response to all this criticism has been lackluster at best. They offer excuses like, “It’s more expensive to offer loans in the Developing World than in the West” to justify an average 36% interest rate. Sorry, that’s not an excuse.

When you claim to be passing on “100%” of loans to economically disadvantaged people in developing countries, it’s absurd to hide the fact that these loans carry interest rates of up to 100%.

Imagine a Bangladeshi farmer who has to take out a $250 loan to buy fertilizer. If he’s already struggling to come up with $250, imagine how much harder it’s going to be to repay twice that amount. 

The excuses Kiva has outlined on their website are completely insufficient in addressing these predatory interest rates and transparency issues.

I don’t care that Kiva’s Field Partners are “barely breaking even.” Or that only a small percentage of their partners charge 100% interest. I don’t care how much their Comms team pretties up the language to make us all think we’re teaching men how to fish.

The fact is, Kiva misrepresents itself as a peer-to-peer lending organization that takes money, interest-free, and disperses it to people who repay it 97% of the time. And that simply isn’t true.

Alternatives to Kiva

After all this controversy erupted a few years ago, Kiva created Kiva Zip, an actual 0% interest peer-to-peer lending program. That program doesn’t appear to exist anymore, with the URL redirecting to a Norwegian website.

I can’t vouch for any other alternatives, but I have read good things about Zidisha. This platform is great if you want to contribute 100% interest-free loans. However, with a significantly lower repayment rate, it’s not going to be ideal for those who want a free way to earn points and miles. 

Final Thoughts

I think it’s important to be socially responsible. Supporting a platform that contributes to the exploitation of disadvantaged people and creates an uphill battle for them to escape their poverty is not conducive to that.

Nowadays, we’re constantly being manipulated to buy or do things that could harm us or society as a whole. Dishonesty has become the norm. When I learned of the massive disparity between what we think Kiva does vs. reality, I had to stop lending.

It’s not just about the fact that my funds are being used to bail out banks with predatory interest rates. Nor is it the fact that this information isn’t freely disclosed by Kiva. It’s that my loans could actually harm people by pushing them further into debt.

There are other ways to meet credit card spending requirements and help those in need.

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