This week I will have been making loans via Kiva for five years. I love the direct connection you feel with an entrepreneur thousands of miles away trying to make business work in a developing country. I have made 25 small loans, but this year for the first time someone defaulted on one of my loans (i.e. didn’t repay all of what was due) .
I was so pleased.
I was pleased because I was beginning to wonder if Kiva and its partners were playing it too safe. They were lending to people who could actually afford to repay the loans. Perhaps they weren’t the poorest entrepreneurs after all. And so when one of my loans in Liberia went into default, it made me more confident that actually Kiva was taking (sensible) risks to work with partners and entrepreneurs who were not always a sure fire bet for success.
Indicators like default and delinquency rate can often be a poor measures of developmental success. Sure if you work as a loan officer for HSBC or Santander then you should be looking for a very low loan failure rate, but if, like Kiva, you have a mission to reach those who can’t be reached by traditional capital and who live on the edge of poverty, then a modest failure rate shows that you are reaching the right people. You are reaching the people who actually need your help and don’t have the resources to cover the loan if things don’t go according to plan.
This was a challenge that was faced by the Princes Trust in the UK during 1990s. It works with the poor and the marginalised in the UK to help people set up in business. It had targeted business success as one of its key indicators that it was doing well with the funds that it had given to the people it worked with. However, year by year the success rate increased with more people succeeding at creating new businesses. Then the senior team began to wonder if they were being too successful? Were they working with people who were more likely succeed, and therefore less in need of the Princes Trust, just to make sure that the indicators improved every year? Were they still working with the poor and the marginalised or were they playing it safe? The Princes Trust re-assessed how it reported on success and gave a greater focus to making sure that the poorest potential entrepreneurs were being reached. And that meant that business success fell – and they were happy.
So while I feel slightly miffed about losing $4.69 in Liberia, I feel very thankful that organsiations like Kiva and its partners are constantly looking for ways not to play it safe. Ways to make sure that the poorest are being reached. And for that reason I will continue to support even when my loans don’t get repaid.