Wednesday, October 14, 2009

Kiva Update, Kiva $s are Fungible

Thank you to those who votes on the Kiva proposals! I really like the project and hope my students do to. Congratulations to the winners!

An extremely timely blogpost was made a couple of weeks ago by David Roodman about Kiva, which I was just e-mailed today. In the post Roodman outlines a lack of clarity in how Kiva presents the loans you can fund. In short, nearly all Kiva loans are prefunded. That is the person you want to give money to may have already received it from a microfinance organization. Roodman carefully discusses the implications for this highlighting the problem of a lack of transparency.

The founder of Kiva,Matt Flanery, responds to the blog post here (here).

At this point it might be important to remember an important part of microcredit and money in general, that it is fungible. If we loan a woman in Bangladesh $100 to buy cloth, but she would have purchased the cloth even without the loan but instead uses the $100 to send her children to school. Then the loan was in fact for schooling, even though she said it was for cloth. If Kiva shows a proposal that says they will loan the money to a woman in Bangladesh, but instead have already loaned her that money and use that money to loan to a store owner in Bolivia, which they later post. The money is fungible.

I think I'm OK with what Kiva does, just like Roodman. I do like that Kiva's founder stresses the importance of transparency in his blog post. I applaud Roodman's for his in depth discussion of Kiva.

Thanks to Roodman if I decide to continue with this project every semester we will know how Kiva actually works.

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Friday, October 9, 2009

Kiva Contest II

Dear Blog Readers,

For my Development Economics class I'm holding a contest please help me vote for the best proposal. I had students write a request to fund a micro loan. The micro loan was requested through a website called Kiva. On the website potential borrowers request funds for a loan and people like you and me can provide a loan directly to borrowers in developing countries. To engage my students a little more I chose the top three proposals in the class. The proposal receiving the most votes will receive $150 to put toward the loan of their choice, 2nd place $50, and 3rd place $25.

I would like it if my blog readers, read their proposals and chose their favorite. To vote make a selection using the poll to the right of this post. If you only have time to read a few pick a couple of enteries at random and select one you like.

Fortunately, Kiva is becoming very popular and many of these loans have been funded. In that case I will allow the students to choose a new loan to fund. Thank you for your help, and I hope you enjoy my students' proposals.

Seth Gitter

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Contest Proposals

Please Vote on Your Favorite Kiva Proposal

Proposal I (link to loan)

I propose to lend money to a woman by the name of Akouvi Victoire Adanlekponsi from Lomé, Togo, who is asking for a loan of $675 for her business. She is married to her carpenter husband and has two school-aged children. Akouvi runs her own business selling cooking oil, which she started in 1991, in order to help out with family finances and to support her children’s education. Akouvi’s country, Togo, has a GDP per capita figure of $900, according to the CIA World Factbook, making it the 14th poorest country in the world. Because the country is so poor, its citizens might not have access to quality financial institutions, and this is where microfinance institutions play a role.
As Akouvi has sustained her business for almost two decades, the business is certainly viable. According to her Kiva profile, she has built up a loyal clientele over the years and now even has commercial clients. The reason she needs the loan is because her business is growing. In response to growing demands for her oil, Akouvi will be using the money to buy additional oil drums to meet her “urgent need” to increase her stock. Because Akouvi is a female, she is a good candidate for the loan, as women usually manage household budgets and tend to be more responsible. Thus, she will probably be more likely to repay her loans on time. And given the state of poverty in Togo, the loan will not only go toward Akouvi’s business, but if her family hits a rough patch financially, it may also help Akouvi keep up with household finances and continue to send her children to school.

Proposal II (link to loan)

I have chosen Edward to receive a loan to help better the life of his family and himself. He lives in a town called Dormaa in Ghana, and he is an herbalist. I have chosen him over other people because as an herbalist he supplies medicines to drug stores and also goes village to village to sell his medicines. I believe he is more important than most of the others on the kiva website because there are many farmers and general store owners but not many people who can improve the health of others. Edward lives in Ghana which is a poor country with a GDP per capita of $ 1,500, but I chose Edward because Ghana is growing at a high rate and this loan will help their growing economy. Currently Ghana’s economy is growing at a 7.3% rate, which is high. Their GDP per capita has gone from $ 1,300 to $ 1,400 and is now $ 1,500 in the last three years. For a country with such a small GDP per capita this is very promising growth which is why I feel Edward should get the loan he needs to help himself his family and his country. Also Edward makes medicines for people which are a much needed business in a country that is as poor as Ghana. With the right supplies and funds Edward is sure to succeed and improve the health of many people. He has been an herbalist for over twenty years; he already has a client base of drug stores and villagers. So with this loan Edward will help improve the lives of many people including himself.

Proposal III (link to loan)

After reading the loan description for Shapei Asilbek, I believe she is deserving of a loan through the microfinance program. Asilbek, a 33-year-old woman has owned and operated a pharmacy since 2005 with the aid of her husband. She is the mother of two, and lives with her two sons, her husband, and her mother in a traditional ger. Both of her sons attend kindergarten already. Located in Mongolia, a country with a GDP per capita of only $3,200, the need for pharmaceutical drugs is fairly high. She has placed her shop in a high traffic area next to the local market in the province of Bayan-Ulgii. Asilbek is looking for a total loan of $1,725 in order to purchase more medicine for her pharmacy. In the years she has operated her pharmacy, she has gained a lot of experience in the field of business, and has a very good reputation among her peers, many of which continue to come back to her when they are in need of medical assistance. Not only does she sell the medicine, but also she is a doctor and frequently sees her customers in her shop. A link to her lending page is as follows:

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Wednesday, October 7, 2009

Will The Invinsible Hand Change This Diaper?

I have another secret blog, I have been working on over the weekend. For the 5 readers of mine that don't know, my wife Marie is pregnant and I'll be a dad sometime around Thanksgiving. In the secret blog we are detailing our adventures as a "growing" family. If you are a friend and know me and haven't been invited to read the blog and want to read it send me an e-mail.

So back to the question at hand. This New Yorker cartoon quips "maybe the unseen hand of the market will change this diaper"

So will the market change a diaper? Yes, because typical problem associated with market failures (externalities, imperfect information, and monopoly) are resolved for diaper changing.

Babies create "smelly" externalities in their diapers and noise externallities (known as crying) . Perhaps the public optimal time until a diaper changes is less than when diapers are changed, but I doubt it. Luckily the parents or care taker also bear these externalities, so market force should have parents meet a child's demand for a diaper change.

In the case of imperfect information there may be some times parents do not know if a diaper needs to be changed (why are you crying?). But, generally I expect the demand for diaper changes can be verified (see smelly externalities).

Parents may hold duopoly power over the offer of diaper changes. However, most parents set the price of a diaper change at the total surplus maximizing price of zero.

Now if only I can find someone with a comparative advantage in diaper changing who wants an economics lecture.

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Monday, October 5, 2009

U RA RA Wisconsin! 100 Years of Agricultural Economics

Most of the people in the world are poor, so if we knew the economics of being poor, we would know much of the economics that really matters. Most of the world's poor people earn their living from agriculture, so if we knew the economics of agriculture, we would know much of the economics of being poor.
-----Theodore Schultz's 1979 Nobel Prize lecture

Schultz is the most famous of the alumni of the Agricultural and Applied Economics (AAE) Department at the University of Wisconsin-Madison. Over 70 years later I earned my PhD from the same department. Last weekend I traveled to Madison to celebrate the department's 100th anniversary.

In Schultz's work we can see how agricultural economics became the first economics field to study developing countries. When Schultz received his PhD 1 in 5 workers was in Agriculture in the United States. In the next 70 years this number would fall to less than 1 in 50 in the US. However, the poor in developing countries are still largely made up of farmers.

I think Schultz's Nobel lecture is well worth a read (guess whose students will read it next week?). The lecture details the relationship between health, schooling, technology, and agricultural. I'm still a firm believer that agricultural policy will play a key roll if development policy is to be effective.

There have been a lot of other great graduates and assoiciate faculty at AAE Wisconin over the years and I'm proud to be one of them.

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