The Influence of Choice — Could P2P Funding Introduce Bias?

By Jeremy Gordon, KF11, Kenya

Kiva’s success is exciting. A door is now open allowing us to reach those living in places we can’t easily visit in person and to become personally involved in micro-finance. Making my first loan on Kiva felt a bit like a rediscovery of the internet. International Skype conversations were impressive, but this was something novel—Kiva allowed me to lend my own resources to help achieve someone else’s goal, and I was hooked.

Because this sort of P2P lending is still new, we can’t yet know the full extent of its impact on the microfinance ecosystem; even less can we predict the role it will play five or 20 years into the future. I think it’s important to start a conversation, and to consider what influence we, as lenders, may have.

In some ways, the Kiva lending model is a free market susceptible to the same influences of supply and demand as any other. Perhaps certain loans (maybe agricultural loans to rural farmers) are consistently chosen by lenders more often than others (say, maintenance loans to urban taxi drivers). If loans of the latter type take significantly longer to fund on Kiva’s website or are more likely to expire before they’re completed, a flexible market will adapt, and a Kiva partner may choose to post other loans that tend to fund more quickly or reliably.

I don’t have the research to describe what, if any, bias Kiva lenders exhibit in selecting their loans, but there’s little reason to believe our choices are random. Transparency, after all, and the ability to choose which individual borrower we contribute our loans to are both central to Kiva’s model.

Currently, it seems unlikley that the preference of lenders will influence the selection of loan recipients by Kiva’s partners. Because of a policy that limits Kiva’s contribution to 30% of an MFI’s funding, partners are free to simply rotate the selection of their portfolio posted to the website if they find that some of their loans fund better than others. That said, imagine a not so distant future where P2P lending is well-established and popular, and some MFI’s rely on several such sources to fund the majority of their portfolio (even today, some MFIs receive funding from both Kiva and a similar platform, MicroPlace). Under limited resources, when such an MFI considers its next batch of loan applicants, might it not consider the data collected from its past experience showing that certain loans are more popular than others? Might they not feel some pressure to reject Halima’s loan for a juice freezer (or Ali’s more controversial charcoal loan), for fear it will not fund through Kiva and their other P2P funding sources? Might western-world fads or biases translate into shifts in the availability of loans in certain industries, or to specific demographics? Is it possible, at some point, that entrepreneurs may be compelled (or even encouraged) to transition into a business more popular to western lenders?

I fully believe organizations like Kiva have a great opportunity to bring interest, energy, and capital to the microfinance industry, but I think some of these questions warrant dialogue. How much influence, as lenders, should we have?

Jeremy is a Kiva Fellow working with Juhudi Kilimo in Nairobi, and Yehu Microfinance in Mombasa. He recently discovered the subtle difference between two Kenyan staples: mandazi and mahambri.