Kiva is for charity, pure and simple. I don’t view it as an investment at all. Yet, while I’m quite comfortable with LC, I’m not with Kiva – and choose to use more established vehicles for my charity dollars.

I wouldn’t give money intended for my Roth IRA to my religious organization or the Red Cross. I wouldn’t put my money intended for charity causes in the S&P 500.

We shouldn’t conflate the two just because they are peer-to-peer.

I look at LC/P as a way to diversify your investment portfolio. Due to newness of them, it probably doesn’t make sense to put more than 5% of your portfolio in them. The loans are essentially bonds and since the risk is spread out amongst many loans, it is not as risky as it may appear.

It may be nice to help out someone for the social aspect of it, but it has been my experience that people often don’t read the stories when investing. They certainly don’t follow up and become friends with the people they are lending money to.

I don’t know if I would want that kind of connection anyway. I don’t expect to talk to all the employees of all the companies in the Russell 2000 before investing there.

I have accounts with all three institutions and I have been happy with all three. I am getting a great return on my money on Lending Club and Prosper (averaging around 10% over the last 18 months). While Kiva may have some misleading practices I am happy to continue to support entrepreneurship in developing countries.

The biggest hangup for me is that the site has yet to make a profit in its history. Their prospectus states, “We have incurred net losses in the past and expect to incur net losses in the future” and, “we may not become profitable”.

All backup plans and collection agencies aside, I have a difficult time trusting my investment to a site that admits they may not have a financially sustainable system.

re:Kiva My biggest problem with Kiva is the amount of interest generally charged. I’d be OK if it was something <10%, but basically they charge credit card rates to make up for the time and money spent managing micro-loans. I'm not comfortable spending my charity dollar to enable that, especially since I am Christian and therefor enjoined not to practice usury.

Investors looking to get into microfinance can check out microplace.com – they offer anywhere from 1%-3% returns. It’s not much but it’s an actual investment, not just a donation to a lending institution.

If you use the sites, you can spread your cash across several loans to help diversify and reduce your risk. You may end up helping someone legitimately in need. Could people game the system? Almost certainly, but there are always jerks who do nonsense like that. I’d rather loan my money (if I had more of it!) to someone else at 4-15% (or whatever) than to a large for 0.001%. The large bank may not run off with my money, but they did already run off with taxpayer’s money, and since I pay taxes…I figure they already got my cash and I’m not much interested in giving them more.

I’m not advocating putting all your cash into P2P. Of course some of the loans will fail. But I don’t see a problem using this as another investment tool and a way to try to grow some wealth. If you’re savvy, you already know you need to be careful and won’t invest carelessly.

Based upon a recent post at Tynan.net, I opened an account with Lending Club, and will give it a try with a relatively modest amount (<$2K).

And Jane, thanks for your comment. I Googled "Kiva misleading," and the articles I found were eye opening, to say the least.

Just because Kiva is a non-profit doesn’t mean that the companies on the ground in all these places around the world are as well. They charge interest to the recipients, which does not make it back to the Kiva donatees.

While these comments may sound negative, they weren’t meant that way. I just wanted people to understand that it is a form of doing good and not a money maker. I fund a $25 loan a month and have for 3 years. I’ve only had 2 defaults and 5 late payers. While you can’t write it off on your tax deductions (except the donations to Kiva), it does feel good.

Except that if they didn’t spend money maintaining that nice website with the personal touch, they wouldn’t have nearly as much money to spend on loans. I know there’s a tipping point on that one, but I don’t think we can criticize all publicity efforts as a matter of course.

I would post links about this, but you can just goggle “Kiva misleading” and you will find tons of discussions of this practice. It is rampant in charities. Adopt a child charities have also already funded those children who sent you letters in the mail (and they might send many families personal letters just like yours – you are not their special donor). You are also not actually buying a chicken in Romania (although the Heifer International is one of the only charities that is open about this.) They’ve just found that people tend to give more if it is personal.