> Posted by Elisabeth Rhyne
On Boxing Day, New York Times personal finance columnist Ron Lieber probed the promises and actual workings of make-your-own-microloan sites Kiva and MicroPlace, as well as of online philanthropic services that channel participants’ dollars to individuals whose needs are featured on the site. While focused largely on the senses in which donors’ and lenders’ dollars do or do not go directly toward individuals with affecting stories featured on the sites, Lieber also raised a more fundamental question in his conclusion:
If this way of giving is appealing, you may wonder whether it’s just a bit self-centered. Plenty of worthy organizations build roads and finance research and can’t draw a direct connection between your small
donation and their net results.
While there’s nothing wrong with forging (or imagining) a personal relationship through a philanthropic transaction, donors should look beyond the simple paradigm of the single transformative gift, the magic pot that keeps a single virtuous heroine from starvation. Givers and lenders should use their heads as well as their hearts and recognize that their gifts and loans might be multiplied if they give to organizations that are creating lasting value–by building institutions that will keep on serving their target population for a long time.
Last week, responding to David Roodman’s post about the intricacies of measuring microfinance results, I wrote that microfinance outcomes should not be assessed by seeking a one-to-one correspondence between a loan and a client’s subsequent economic status. Rather, the microfinance mission should be viewed as providing poor people with a set of tools that help them preserve, efficiently spend, and grow their assets over time. These include savings accounts, insurance, and well-targeted loans–the same set of tools that average citizens of wealthy countries enjoy–tailored to the specific needs of specific populations.
The challenge of inclusive finance is to build institutions that provide such services. That entails supporting those MFIs that continue to innovate, working with mainstream financial service companies, technology vendors, retail chains, and anyone else willing to invest money and effort in finding new ways to reduce the cost of small transactions and reach people in remote rural areas and hard-to-access urban slums with products tailored to their needs.
MicroPlace and Kiva do steer money to such MFIs as well as to the individuals those MFIs serve. Donors and lenders should be as pleased with their contribution to institution building as they are with the concept of directly improving a given individual’s life.