Kiva (also see my lender page) is an amazing and deceptively simple idea: People, mostly in third world countries, need loans to buy food, crops, cows, equipment, education, etc. so they get a loan from a local Kiva partner, and those loans are backed by Kiva users in $25 increments. There is no interest paid to Kiva users, (although the local partners do charge some interest), so it’s not really an investment per se.
I’ve been a user of Kiva for a more than five years now, and have made 350 loans so far for a total of $9,400 loaned. In the first few years I only sporadically made some loans and let repaid money sit around for a long time. In the past couple of years I’ve been using Kiva more consistently, every month re-investing the full repayment amounts as soon as they come in, and usually adding 4-6 loans ($100-$150) of new money.
As I’ve been doing this I noticed an effect that makes perfect sense but I hadn’t considered before: Since the loans are anywhere from 9-24 months, but the repaid amounts are repaid typically monthly, if the repaid amounts are re-invested immediately, the original loan amounts stack on top of each other, allowing the same money to be invested several times over simultaneously.
Recently I’ve been thinking about actually quantifying that effect and figuring out what impact it could have. Since it’s not a very simple calculation, I put together a spreadsheet to calculate the full picture for me.
The following assumptions are made:
- Amount per loan: $25.00 — This is the standard loan amount on Kiva, so this just assumes you never double up on a single loan (which is not a good idea as it spreads the loss risk poorly).
- Investment per month: 4 loans, or $100 (and reinvest all repayments) — This is approximately what I’ve been doing, although frequently it’s a bit more than 4.
- Average loan duration: 15 months — This is the average loan duration for my loan portfolio, and seems about average for Kiva.
- Loss rate: 2.07% — This is the actual loss rate of my portfolio, which is a bit higher than the average Kiva user at 1.09% because I tend to loan to war-torn and riskier areas.
After 5 years (60 months) of consistent and prompt investment, the results could be:
- Total investment: $6,000 — This is the actual amount you’ve paid out of pocket.
- Total loans made: 1,004 — The number of individuals or groups helped. This is the most amazing thing, watching all of these individuals succeed due to your help.
- Total amount loaned: $25,100 — The amount your $6,000 turns into after re-investment through immediate re-loaning.
- Total amount lost: $519.57 — Due to a combination of loan defaults and currency exchange loss, not all of your money will be returned.
- Total amount returned: $5480.43 — If you stopped making loans after the 60 months and started to withdraw your money from Kiva, at the end of it you’d get this much back (investment minus loss).
Check out the full calculator on Google Docs for all the details and per-month amounts.
The really amazing thing with following this plan is that the Kiva borrowers themselves end up—through prompt repayment of their loans—funding each other. For me, the amount being invested each month is quite modest, and through reinvestment of the repayments, the monthly impact is huge. This month, I received almost $400 in repayments, added an additional $100, and made $500 in new loans.