I have been lending some money to people through Kiva microfinance to help alleviate poverty since 2007. While reinvesting some funds that were paid back, I noticed that I just reached $1,000 in money lent out through 40 loans of $25 each. Kiva loans do not pay any interest. Out of the $1,000 that I have lent out, I have received about $805 back, about $185 is outstanding, and I have lost about $10. Now, you should know that the people borrowing this money are paying interest rates much higher than zero but much of that interest goes back to paying operational costs and covering defaults. There has been some debate as to whether this is becoming a form of predatory lending, but I believe there is a real need for such lending in these countries. You also have to trust Kiva in their selection of MFI field partners. I also do microfinance lending at Microplace.

Right now you can get a free $25 trial to try out Kiva using my invite link (I get nothing). You basically get to make a free $25 to a person of your choosing from a developing country, but when it is paid back you the money goes back to the sponsor. I know, rather cheesy. I think you should just have to keep lending it out by making it ineligible for withdrawal. That’s what I like about this type of lending – the money you commit can help many people over time.

Why not observe Veteran’s Day with a useful gift for a current soldier? My wife’s co-worker is currently serving in Afghanistan, and he sent over a list of requested items from his unit. I’ve also read through several recommended lists online – long but good ones here, here, and here. There are some inconsistenties – one says to send homemade cookies, another says that nothing homemade is allowed. Some places accept books and music CDs, others don’t. However, between them there are definitely many things in common.

Mainly, don’t treat giving to the troops as a charity like Goodwill or Salvation Army. They are already supplied with all the essentials, and may have access to a commissary (though many don’t!). The point is to provide them with comfort and improve morale. They are far from home in a tough environment, so give them something that reminds them of their “normal” lives.

Don’t give them hotel toiletries, find out their favorite brand of toothpaste or shampoo and send them that. This applies to everything else as well. Find out what they want first if you can – requests can be very specific – and then send it to them. If you don’t someone particular in mind, you can get an individual’s name and address from AnySoldier.com, complete with their personal requests. In addition, here is a highly condensed list of popularly requested items.

Food
Individual-wrapped items are preferred as they are easier to share and to carry around.

• Energy & Protein Bars – Clif Bars, Powerbars, Muscle Milk.
• Drink powders – Starbucks VIA instant coffee, Arizona Green Tea, Crystal Light Energy, Propel, popular GNC products. Also sugar, Equal/Extra/Splenda, and powdered creamer packets.

Entertainment

• Batteries (colder months only; AA, AAA, C & 9V)
• DVDs of current television shows and new release movies
• Recent magazines and/or newspapers
• Cards, board games, travel games

Improve Morale

• Phone cards, unlocked GSM phones, or other way to call home
• Letters and picture to let them know that you support them.

Other

• Thick heel, high or low ankle socks. Black, olive green, or white. Cotton or wool. Seems you can’t have enough good socks. These are also used to cool drinks. Less worry about getting the right size.
• Small plush toys or school supplies for Afghan children

Do not send alcohol or adult materials. Do not mix toiletries and food, unless they enjoy food that tastes like deodorant. Don’t send anything that will melt, leak, or explode like aerosol cans. Rather just order a pre-made gift basket online? Check out TreatAnySoldier.com.

Up until this year, our charitable giving has been all over the place. If we saw something we wanted to support, we’d write a check. If our workplace had some sort of matching grant or charity drive, we’d participate. I always buy whatever a kid is selling when they come door-to-door because I remember how much I hated doing that when I was younger. (Although a pet peeve of mine is getting hit up for $1 at Safeway every time I buy some milk.)

We were sitting on a plane on so-called “Cyber Monday”, and thought it would be cool instead to decide on which organizations we wanted to support. (We also spent Sunday shopping at some outlet malls.) We weren’t alone. Payment processor PayPal just reported that charitable giving was up 45 percent during Thanksgiving 2010 as compared to last year.

Choosing Where To Give

Who should you let essentially spend your hard-earned money for you? Here is a list of the best charity comparison websites out there. In their holiday giving guide, Charity Navigator suggest that you pick charities that are financially healthy, committed to accountability and transparency, and creating measurable results.

However, giving for us is still personal, so we tend to include groups that are either local or have personally affected our lives. For example, Mrs. MMB and I both received some form of scholarship from our alma maters, so we give back to them.

Spreading The Love

In the beginning, I wanted to have us pick four organizations to support, and then divide our money evenly. For example, if we were to give $2,000 then each place would get $500. However, once we got going we ended up having so many different charities we “had” to give to, so we decided to split the money in half, and then we could give how we wanted. We could each give all of it to one single charity, or split it between 20 of them. Here’s what we ended up with:

Universities (Alumni)
Local Humane Society
Local Hospital Foundation
4-H Youth Program
Microplace Microfinance*
KIPP Schools
PSI (Global health: HIV/AIDS, malaria and family planning)

*Microplace is not a non-profit, but instead a for-profit site owned by eBay that packages microloans to entrepreneurs in developing areas into interest-paying investments. All of my interest earned is reinvested, so that each year the outstanding loan balance grows. Right now, if you give a $20 investment gift to someone, you get another $20 matching gift for free. $40 impact for $20. The recipient picks where the investment goes, and when it matures they get $20 back to re-invest or keep.

With the recent natural disasters and also economic recession, many people are being extra careful to make sure their donations go as far as possible. Earlier this month, BusinessWeek ran an article Philanthropy: Rethinking How to Give which did a good job exploring the many websites now available to help you do just that. Initially, most websites focused on financial factors like what percentage of donations go to administrative or fundraising expenses, whereas now many sites tackle the harder task of measuring actual impact for the dollar.

Here is a list of the links, along with a quick description of that makes them unique, as they each have a slightly different approach. What was new to me was the idea of giving to a mutual fund-like portfolio of charities focused on a specific area, like education or global health.

• CharityNavigator – Largest and well-publicized charity rating site, provides a 4-star rating based primarily on financial criteria.
• GiveWell – Tries to identify the best charities, not rate them all. Focused primarily on charities working internationally
• GreatNonProfits – Allows clients, volunteers, and funders to post personal reviews based on their experiences.
• GuideStar – Tries to be a one-stop shop for both financial data and personal reviews of charities. Must register to see a lot of things, and pay a subscription fee for premium in-depth data.
• Partners for Change – Tries to educate and direct “mass affluent” philanthropists (who donate at least $10,000 per year) towards a mutual fund-like portfolio of charities.
• Philanthropedia – Ranks non-profits based on opinions of experts, and groups them to mutual fund-like portfolios.
• Root Cause – Provides detailed “social impact research” reports to larger groups and financial advisors.

If you have a Discover More Card from the old $50 bonus, or any Discover card that has the earns their CashBack Bonus, you can donate your balance towards Haiti relief directly to the American Red Cross and Discover will match it 100% dollar-for-dollar, up to $1 million total.

I received this e-mail today from Microplace, which provides loans to low-income entrepreneurs around the world. I think it’s a great idea, although of course you should remember that you are lending money and it may or may not be repaid. You may consider augmenting your charitable contributions with this type of investment.

Haiti earthquake increases need for microfinance to support rebuilding

Dear Jonathan,

A massive earthquake with a magnitude of 7.0 hit Haiti on Tuesday near the capital, Port-au-Prince, and is feared to have killed thousands. This disaster requires both immediate emergency relief and longer term rebuilding efforts. Microfinance will support the financing needs that inevitably arise from this type of catastrophe as Haitians look to rebuild their country.

You can help today by investing on MicroPlace in Fonkoze, the largest microfinance institution in Haiti.

Even better, I see that Microplace is still running their Buy-1-Get-1-Free promotion, where if you buy a $20 gift certificate towards any fund, you get another one for free. That’s $40 of microlending funds for only $20. To find the Fonkoze Haiti fund, click on Find a Gift Now, and use the Geographic filter > Latin America > Haiti.

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.