Loan vs. Donation: The Importance of Semantics
By Alexis Guild, KF11 Bolivia
It was one of my first days at one of our field partners. I was inside the Director’s office. While discussing my workplan for the next three months, I asked him about the challenges he faced, especially when it came to Kiva. He said, “some clients see Kiva as a donation rather than a loan so they have no motivation to pay it back”.
This misconception is actually quite common. In fact, when I told a friend that I was going to be a Kiva fellow in Bolivia, her reaction was: “that’s great – I’ve donated my $25 several times”. I will admit that I have also been guilty of using the term donation instead of loan. Sometimes, I accidentally used the two terms interchangeably. But the difference between a loan and a donation is extremely important. Donations create a paternalistic culture where the people become dependent on the assistance of outsiders. In my Peace Corps community in Guatemala, for example, I was always being asked what I was going to give: books, school supplies, money? They were so used to international organizations and missions coming into town and giving them things, that it became an expectation of any foreigner who arrived in the community.
As a foreign (read: American) organization, there is a danger that the entrepreneurs will see Kiva as a donation rather than a loan. To prevent this, our field partners are asked to adhere to a specific set of guidelines. The Kiva process is complicated. I didn’t realize how complicated until I became a Kiva fellow. Because we, as Kiva lenders, loan the money to entrepreneurs, Kiva expects our field partners (the microfinance institutions) to diligently report the repayments of every Kiva client. Is the client paying on time? Is the client in default? While this process can be time-consuming, it is extremely important. You need to be aware of how your money is being used and be ensured that it is being paid back.
A loan creates financial independence, instills responsibility, and helps others help themselves. Kiva’s mission to “connect people through lending to alleviate poverty” motivates many of us to re-loan our money to numerous entrepreneurs. As Kiva lenders, we play a powerful role. We are able to provide people access to capital that may not otherwise be available. Yet we must remember that no matter how philanthropic we may be, when it comes to Kiva we are lenders NOT donors.
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