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I remember back when microfinance was winning Nobel prices and I had just started studying economics I considered investing in it. This was the true promise of

I remember back when microfinance was winning Nobel prices and I had just started studying economics I considered investing in it. This was the true promise of capitalism - investing money will make everyone better off. However, the only microfinance organizations available would only take donations not investments. So I would have had to donate money to someone in order for them to lend it to a poor farmer for outlandish 30% and above interest rates! I’d rather donate it to an actual charity in that case.

lefstathiou 6y ago
“The road to hell is paved with good intentions.”
lern_too_spel 6y ago
A charity only gets to give part of the money away once and pay the rest to administrative overhead. A lender is incentivized to get the money back more than a charity and has to do more vetting and training of the people it lends to. In order to be self-sustaining, it needs to charge interest.
- jm_l 6y ago
  GiveDirectly (https://www.givedirectly.org/ https://www.givedirectly.org/) gives 88% of the money straight to recipients and offers a nice baseline for charity work. There's also better metrics than "how much money does the charity take off the top" which you can learn about in Will McAskill's book "Doing Good Better," namely you can try to track things like "how much good are we doing for the amount of money we get." The main idea is that if a charity can use more of its donation money in order to have a better impact, then that's what it should do.
  - lern_too_spel 6y ago
    The point is that the money can be used only once, so your money gets 88% of its value. A lender uses the money more than once, so they can provide more value from a donation.
    - owowow 6y ago
      The money is used more than once as it stays in that community rather than being paid back with interest. Often money earned, lent or given to the least well to do has the highest velocity in changing hands, resulting in much more positive economic impact than if the money were given to people who were better off.
    - zozbot234 6y ago
      A costly loan provides only a tiny fraction of value, compared to an actual transfer. You can't sustainably "loan" money to people in extreme poverty, they can't possibly pay you back. And once these people have bought assets with their transfer they can even access traditional loans.
      - heavenlyblue 6y ago
        You can’t sustainably give money to people and not end up with a huge amount of fraud. Then the 40% of inefficiency may turn our to be not as bad.
        zozbot234 6y ago
        We're talking about people in truly extreme poverty here, which is trivial to verify. Sure, you can and should make some effort to direct your aid to the very poorest, etc. but at this level, fraud just doesn't matter the way you think it does.
- pfortuny 6y ago
  Depends greatly on the charity. Caritas has very little overhead because they work with voluntaries (mostly). But yes, there is always overhead.
rapind 6y ago
There is no Nobel prize in economics.
- nordsieck 6y ago
  > There is no Nobel prize in economics. There is a prize in economics in memory of Alfred Nobel, which everyone refers to as the "Nobel prize in economics". https://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Economic_Sciences https://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Econom...
FabHK 6y ago
Kiva.org has been taking loans since 2005 (and repaying them, by and large). They ask for a donation to cover their operating costs, but it's optional.
- wodenokoto 6y ago
  That’s fine and all, but the promise of microfinance and micro loans was that it was win win. Something along the lines of “Investing in the poor is a business that makes the world better” But if investing in the poor means needing donations to cover your operating expenses, then I suppose kiva is at best a charity (if they also give reasonable interest rates and loan conditions) and not the investment originally promised. That is not to say that kiva is bad, but it is also not a great poster child for microfinance, imho
  - FabHK 6y ago
    Agreed. I'm not sure about Kiva (or micro-finance more generally) anymore as the best use for spare cash. I was just commenting on the original assertion that "the only microfinance organizations available would only take donations not investments" EDIT to add: Though, Kiva can't be considered an investment, either - best case (!) you get the original amount back. While the field partners take considerable interest from the loan recipient. So...
imtringued 6y ago
Why would microfinance be better than a big company getting a big loan and setting up say a battery factory in Congo because there is lots of cobalt there? The reason why that factory doesn't exist has nothing to do with the type of loan by the way.

lefstathiou 6y ago

“The road to hell is paved with good intentions.”

lern_too_spel 6y ago

A charity only gets to give part of the money away once and pay the rest to administrative overhead. A lender is incentivized to get the money back more than a charity and has to do more vetting and training of the people it lends to. In order to be self-sustaining, it needs to charge interest.

jm_l 6y ago
GiveDirectly (https://www.givedirectly.org/ https://www.givedirectly.org/) gives 88% of the money straight to recipients and offers a nice baseline for charity work. There's also better metrics than "how much money does the charity take off the top" which you can learn about in Will McAskill's book "Doing Good Better," namely you can try to track things like "how much good are we doing for the amount of money we get." The main idea is that if a charity can use more of its donation money in order to have a better impact, then that's what it should do.
- lern_too_spel 6y ago
  The point is that the money can be used only once, so your money gets 88% of its value. A lender uses the money more than once, so they can provide more value from a donation.
  - owowow 6y ago
    The money is used more than once as it stays in that community rather than being paid back with interest. Often money earned, lent or given to the least well to do has the highest velocity in changing hands, resulting in much more positive economic impact than if the money were given to people who were better off.
  - zozbot234 6y ago
    A costly loan provides only a tiny fraction of value, compared to an actual transfer. You can't sustainably "loan" money to people in extreme poverty, they can't possibly pay you back. And once these people have bought assets with their transfer they can even access traditional loans.
    - heavenlyblue 6y ago
      You can’t sustainably give money to people and not end up with a huge amount of fraud. Then the 40% of inefficiency may turn our to be not as bad.
      - zozbot234 6y ago
        We're talking about people in truly extreme poverty here, which is trivial to verify. Sure, you can and should make some effort to direct your aid to the very poorest, etc. but at this level, fraud just doesn't matter the way you think it does.
pfortuny 6y ago
Depends greatly on the charity. Caritas has very little overhead because they work with voluntaries (mostly). But yes, there is always overhead.

rapind 6y ago

There is no Nobel prize in economics.

nordsieck 6y ago
> There is no Nobel prize in economics. There is a prize in economics in memory of Alfred Nobel, which everyone refers to as the "Nobel prize in economics". https://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Economic_Sciences https://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Econom...

FabHK 6y ago

Kiva.org has been taking loans since 2005 (and repaying them, by and large). They ask for a donation to cover their operating costs, but it's optional.

wodenokoto 6y ago
That’s fine and all, but the promise of microfinance and micro loans was that it was win win. Something along the lines of “Investing in the poor is a business that makes the world better” But if investing in the poor means needing donations to cover your operating expenses, then I suppose kiva is at best a charity (if they also give reasonable interest rates and loan conditions) and not the investment originally promised. That is not to say that kiva is bad, but it is also not a great poster child for microfinance, imho
- FabHK 6y ago
  Agreed. I'm not sure about Kiva (or micro-finance more generally) anymore as the best use for spare cash. I was just commenting on the original assertion that "the only microfinance organizations available would only take donations not investments" EDIT to add: Though, Kiva can't be considered an investment, either - best case (!) you get the original amount back. While the field partners take considerable interest from the loan recipient. So...

imtringued 6y ago

Why would microfinance be better than a big company getting a big loan and setting up say a battery factory in Congo because there is lots of cobalt there? The reason why that factory doesn't exist has nothing to do with the type of loan by the way.