(*don’t know your customer)

Truth in advertising has never been very highly valued in the microfinance sector. Know-your-customer (KYC) sadly is also a much-espoused but rarely-heeded principle. The current promotional video for on-line lending platform Kiva shows that Kiva cares about neither.

This most widely known online microlending platform once claimed it facilitated person-to-person (P2P) microending. After the New York Times debunked that as a deceptive illusion in 2009, Kiva had to retract the claim, now fielding the (far clearer?) promise to “connect people through lending to alleviate poverty”. In fact, what Kiva does is merely lend your money for free to microfinance institutions (MFIs), which can then on-lend the money in whichever way they see fit, at interest rates somewhere between 20% and 100% APR. The joyful little cartoon video about “Pedro, a farmer who gets a loan through Kiva.org and transforms his business” doesn’t exactly make this clear.

But the main problem with Kiva’s video How Kiva Works is that the claimed impact of microloans is so absurd, it prompts serious questions about who at Kiva actually knows anything about what microfinance does. Let’s briefly look behind the cutesy imagery.

Enter Pedro and his family: “They live in Bolivia. Together, they run a small business, farming coffee beans, just like the ones you’re drinking now.” But Pedro has a problem: one of his cows dies, so he can only plow half of his field. Kiva lenders help him out with a loan of $2,500, and he buys a tractor.“With this loan, Pedro can grow ten times as many coffee beans as he did before.” Pedro can repay his loan, the borrower is happy, the lender is happy. The end.

What’s wrong with this story? Or rather, how much B.S. fits in 1.5 minutes?

First: coffee growers don’t use cows to plow fields. Neither do they use tractors to plow fields. The reason: coffee is a shrub, effectively a tree, reaching heights of 6 to 10 meters (coffea arabica). So where Kiva’s animators got the image of a field-plowing coffee grower from simply beats me. Machinery is hardly relevant for Pedro.¹ Furthermore, how does Pedro actually increase his yield tenfold? It makes no sense – especially without buying or leasing new land. Lastly, the price of the tractor ($2,500) appears unrealistically low; as this website shows, even used tractors cost tens of thousands.²

Image: public domain

Stylised representation of coffee production from another age.

Image: public domain.

Kiva can’t get basic agronomics, economics, or truth about its loans right. The story is – at best – a nice little fairy tale. At worst – given that it claims to present “How Kiva Works” – it is a deliberate deception of potential lenders about the chance they have to change lives (other than their own) with a small loan.

Why does this matter? On the one hand, well-intentioned people are duped into unrealistic expections about the power of microlending. Kiva is possibly the primary access point for “everyday” people into the microfinance world. The NGO claims it has over 1.5 million users, to whom (as Domen Bajde has pointed out on this blog) it appeals with “inspiring visions of poverty, progress and giving“, which allow them to consume the feeling of charity without financial loss, and earn charming tales of entrepreneurship to boot. On the other hand, the video demonstrates Kiva’s principle of DKYC: they don’t have a single clue what their “beneficiaries” actually do. How could one trust Kiva with any money if they can’t even get their clients’ business models straight?

Yet, despite the faulty (if not plainly intellect-insulting) imagery it is interesting to note the careful use of language. The video does not actually say “you are funding Pedro”; it says the loan is “fully funded” when enough money is collected. Kiva are very careful to select their words to still give the impression of a P2P platform, without openly lying. (So their legal department, at least, works.) The motive behind the video appears to be what Kiva so far has excelled at: creating the illusion of a meaningful connection between lender and borrower. The adorable cartoon farmer harks back to Muhammad Yunus’ depiction of poor people as “bonsai trees”.

Reality doesn’t play much of a role in the stories Kiva tells its users, such that one may wonder whether the users or Kiva itself really care. Kiva could have very easily avoided factual errors by depicting any other Bolivian crop like corn, wheat, potatoes, quinoa – or, coca for that matter. Instead, the video has Pedro (nice cliché foreign name – check the moustache, ¡ay ay ay!) in Bolivia (some faraway poor place) producing coffee beans “just like the ones you’re drinking now“. We’re all connected through loans and coffee, and that warm feeling of global harmony is just one cup and a $25 loan away.

P.S.: Other unresolved issues around Kiva – from animal-cruelty cockfighting loans, to $42 million sitting idly in Kiva’s bank account – nicely summed up here.

P.P.S.: Hat-tip to Jürgen Lautwein for useful basic facts about coffee production.


[1] No doubt, large plantations employ some mechanisation, but not in the sense implied by Kiva; mechanisation is used to harvest low-quality beans in labour-expensive countries. Agro-economically and botanically the video is plainly wrong.

[2] Australian $ is roughly parity with US $. Used machinery might be somewhat cheaper in Bolivia, but $2,500 remains an illusory price.