I’ve written about Kiva before – They allows individuals to make loans starting at $25 to low-income entrepreneurs in the developing world, also known as microcredit. By doing so, you can provide affordable working capital for the poor (money to buy a sewing machine, livestock, etc.), hopefully empowering them to earn their way out of poverty.

However, Kiva may not work exactly like it suggests on their website. You’ll notice that they post up pictures and stories of people needing loans, and you get to pick the exact person you want to lend to. Back in 2007, I thought I loaned $25 to Vitolina:

Vitolina owns a set of beach fales that she rents out to back-packers or picnickers passing through the village and works hard to keep the structures in good condition. Fales are simple, small open huts with thatched roofs built in the style of the traditional Samoan house. Vitolina?s fales are situated on a white sandy beach on the Samoan coast. She readily welcomes guests and provides them with a simple roof, unbeatable views, and home-cooked meals. She will use the loan to renovate the beach fales.

However, chances are that the person you clicked on already got the loan months ago. Your money is simply going to the microfinance institution (MFI) who already lent to that person, and will use that money to lend to another future person or general project. The direct “person-to-person” link does not exist like it does, for example, at LendingClub.

There is a lot of recent discussion on the web on this issue. Thanks to the commenter who made me aware of it. Check out this NY Times article and the blog post by David Roodman that started it all.

After reading the posts and several follow-ups, it does make practical sense that Kiva can’t actually match a lender to a specific borrower – it would take too long for the borrower to get the loan. However, it does show that “good stories” do matter. Remember those “Save The Children” commercials where you’d get a letter from the child you helped? Same deal. Your money goes to the general organization, not any specific child.

As a result, Kiva has changed how it explains their loans and their homepage tagline went from “Kiva lets you lend to a specific entrepreneur, empowering them to lift themselves out of poverty.” to the more generalized “Kiva connects people through lending to alleviate poverty.”

The other common variable that is somewhat hidden away to new visitors is that while you loan money at 0%, the actual MFI will likely go on to loan money to the entrepreneur at around 30% APR. The difference pays the operational expenses of the MFI and may partially subsidize defaults in order to maintain the advertised tiny 0-2% default rates.

None of this means Kiva or microcredit is bad. Sure, it’d be nice if I could lend at 0% instantly to a borrower in Cambodia who could pay 0% interest too, but right now that’s not possible. I still plan on lending at both Kiva, but will no longer get the “warm fuzzy connection” feeling from Kiva and may direct more funds towards Microplace or Grameen Foundation.

I saw some ads for Microplace today (probably targeted due to my internet browsing habits) and decided to check on my Microlending portfolio. If you’re not familiar, microlending tries to alleviate global poverty by offering small loans to entrepreneurs in developing countries who would otherwise not have access to credit.

MicroPlace
Microplace is actually a for-profit site owned by eBay that packages microloans into investments with varying risks, focuses, and returns. Some people think that “for-profit” equates to evil, but I don’t agree. Here’s a link to a recent newscast done by CBS News.

I currently have $1,200 invested there, ranging from a 100% liquid note paying 1.75% interest to a 3-year note paying 5% interest. Payments are made quarterly, and I haven’t gotten my first interest payment yet. You can even fund using your credit card via PayPal.

Here are my previous posts on Microplace.

Kiva
Kiva is a non-profit site where you can match up your contributions to a specific individual, starting with as little as $25. The entrepreneur is still charged a certain interest rate, but you don’t get any interest. I have lent out $350 to 14 loans, and all have paid back my principal so far except for one which paid back 92% total. Still, my overall default rate is only 1.32%.

Here are my previous posts on Kiva.

I am still very intrigued by the idea of setting up a pseudo-“foundation” to which I can contribute money and have it perpetually reinvest the principal and any interest earned into future microloans. It would be really cool to have something like $100,000 constantly being lent out to entrepreneurs around the globe.

I received this intriguing e-mail yesterday from reader Ryan:

I am a 6th grade teacher who wants to do a month long lesson on financial education. I was wondering if you have any thoughts and/or ideas as to what you think should be stressed at such a young age? I have broken my lesson down into income, savings, and investing. I hear a lot of people say it is important to teach financial education but I find hardly anyone doing anything about it. Do you have any tips or could you ask your readers to send in their thoughts? Anything would be appreciated.

It’s very true. I am one of those people that think it’s crazy that our kids have to leave school knowing the date the Pilgrims landed but not understanding compound interest. But at the same time, how do you cleverly teach a six-grader something lasting about money?

Your thoughts? I have an elaborate idea for a money game that is either stupid or brilliant (I’ll share tomorrow), but I’d like to hear what you have to say first. Help him out!

DonorsChoose.org is another way the internet is making giving back more transparent and easy to do. (Learn about Kiva and ModestNeeds as well.) On the site, teachers submit project proposals for materials or experiences that they feel will benefit their students, and donors can choose which specific project to fund.

Proposals range from “Magical Math Centers” ($200) to “Big Book Bonanza” ($320), to “Cooking Across the Curriculum” ($1,100). Any individual can search such proposals by areas of interest, learn about classroom needs, and choose to fund the project(s) they find most compelling. In completing a project, donors receive a feedback package of student photos and thank-you notes, and a teacher impact letter.

In proper ‘finance geek’ fashion, blogger OneBigMortarBoard has formed a special Topical Challenge that focuses on projects that promote financial literacy amongst kids. Sounds like a good idea to me! I also like the idea of funding local schools, or even schools that you went to.

If you are looking for another direction for your charitable money, definitely check it out.

Before we move, we are planning to donate a ton of extra things like clothing, kitchen appliances, and books. Since this might be the first year ever that we can deduct charitable donations from our taxes (yay!), I wanted to check in what documentation I needed to obtain. Apparently, the government thinks too many people have been inflating the values of their old sweaters and other creative deductions:

– In 1986 Arkansas governor Bill Clinton deducted $2 for a pair of used underwear he gave to Goodwill.
– As president, Richard Nixon underpaid his taxes by $445,000, based largely on a huge deduction he took for donating his papers. In response the IRS limited the value of “self-created” documents to the cost of the ink and paper.
– Ordained ministers who tried to deduct their incomes as a charitable donation to themselves!

So, now we have to deal with these tighter requirements from the IRS:

You cannot claim a deduction for clothing or household items you donate after August 17, 2006, unless the clothing or household items are in good used condition or better. However, a taxpayer may claim a deduction of more than $500 for any single item, regardless of its condition, if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances, and linens.

To prove your items were in “good used condition or better” in the event of an audit, the best bet is to get receipts whenever possible and to take digital photographs of everything. Another good suggestion from this CBS Marketwatch article:

Take your donations in during the day on a weekday, when the organization is not so busy. Create your own little form that says “These clothing and household items are in good condition, in compliance with IRS rules.” And have the person receiving the items sign and date the form.

As you can still only deduct the “fair market value” of each item, I also found this valuation guide from the Salvation Army to be very handy. Finally, there are even more appraisal requirements if you donate any item valued at over $5,000 or “a group of similar items”. (Nothing in my entire house is worth five grand, so I’m not really concerned about that.)

I’ve written about Kiva before, but since I loaned some more money out today I thought I’d bring it up again. Kiva.org allows individuals to make loans starting at $25 to low-income entrepreneurs in the developing world, also known as microcredit. By doing so, you can provide affordable working capital for the poor (money to buy a sewing machine, livestock, etc.), empowering them to earn their way out of poverty.

So far I’ve lent money to people in Samoa, Ecuador, Ukraine, and Azerbaijan. Now, even though I’m not earning any interest on the money I loan out, I’ve read that the borrowers do pay interest on the order of 10% or more. However, these rates are still much better than their alternatives from loan sharks, and the interest goes to fund the local operations. You can view the interest “lost” as charity if you’d like. I kind of just see it as lending money to a friend – no interest, but you’re hoping to create some positive change. Payments are handled through PayPal, and they have a 100% repayment rate so far.

Here’s my favorite loan so far:

Vitolina owns a set of beach fales that she rents out to back-packers or picnickers passing through the village and works hard to keep the structures in good condition. Fales are simple, small open huts with thatched roofs built in the style of the traditional Samoan house. Vitolina?s fales are situated on a white sandy beach on the Samoan coast. She readily welcomes guests and provides them with a simple roof, unbeatable views, and home-cooked meals. She will use the loan to renovate the beach fales.

I would certainly pay for that! Now imagine that she makes a profit, builds more huts, and hires other Samoans as employees. She’s now making a self-sustaining living for herself and several other people. I get my money back, and can lend it out again somewhere else across the globe. Beautiful.

One of the things I don’t like about some charities is the lack of specific impact. Where is the money really going? Here are two charities that use the internet to add transparency and interaction to your charitable giving. In addition, they offer a way to leverage your donation to create even better change.

ModestNeeds.org is a non-profit 501(c) charity, operating predominantly online, with a goal of helping people who live paycheck to paycheck survive past life?s unexpected speed-bumps and perhaps save them from a slippery slope to financial ruin or even homelessness. Most of their ?grants? are less than $300 and go for things like unexpected medical bills. You can see all the money requests, and even vote on which requests to fund. The neat thing is that it started with just one teacher giving 10% of his salary every month.
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Although we should be giving back throughout the year, I know I tend to give at the end of year. Thanks for all who responded to my charity suggestion post – my wife and I have decided where to give this year. We are giving at least $100 to each of the following:

Local Food Bank
Modest Needs
4-H National Council
School Alumni Scholarship Fund

Modest Needs (mentioned before), has found a donor that will match 100% all monthly donations for 2006. So I’m going to start a monthly match in 2006 instead of a lump-sum now.
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