Minting Pennies - Personal Finance, Investing, and Microfinance » Money Talks

Money Talks–CHAPTER 5 (SEEK YE THE TRUTH)

Karl — Tue, 15 Dec 2009 21:00:52 +0000

Tenacity was always one of Bill’s strong suits. It is that special brand of determination that Penney found very interesting and captivating. Little did she know that he was working hard to try to uncover the truth.

BILL: Hi honey. How was work?

PENNEY: Hey, how was your day? Mine was just a little bit more stressful than usual because of some deadlines but pretty much the same as any other day.

BILL: Sounds exciting.

PENNEY: I know, right? What are you smiling at?

BILL: Oh, I have been doing a little detective work.

PENNEY: Really now?

BILL: Yup.

PENNEY: About what exactly?

BILL: Microlending.

PENNEY: Still not giving up on the idea huh?

BILL: I think that microfinance is still the only way we will get rid of poverty.

PENNEY: Okay, so what you got?

BILL: You know that Ebay microlending site you talked about?

PENNEY: MicroPlace?

BILL: Uh huh.

PENNEY: What about it?

BILL: I have been trying to learn more about it and exactly how it works.

PENNEY: Well like I said it is different from Kiva because it gives you a return on whatever you loan out.

BILL: Yeah…

PENNEY: But they are able to do so because they charge the borrowers high interest rates so the entrepreneur carries that extra burden.

BILL: Actually that is where you are wrong.

PENNEY: Really?

BILL: Yeah I started a correspondence with someone from MicroPlace and I asked them how they are able to give returns when others like Kiva could not.

PENNEY: So you asked them how the funding of loans to MFIs worked?

BILL: Yup, and this is how it was explained to me in an email:

“Yes, you are oversimplifying a bit to say someone must be charged more so investors can earn returns, but I can help clear it up. It goes back to my explanation about the cost of capital for each issuer. Issuers have many sources of capital- donations, below market bank borrowings, institutional investors, equity capital, guarantees etc. MicroPlace to them is just another source of capital. So the interest rate they charge to MFIs is dependent on their overall cost of capital (of which MicroPlace is only one part). Similarly, MFIs themselves typically have various sources of funds, and provide a variety of services, all of which together determines the rate they charge to borrowers. Remember, we’re all about loans to MFIs, not one for one lending, so it follows that the interest rates charged to borrowers do not necessarily correspond to our specific investments/returns.”

PENNEY: Okay, so the way I understand it, issuers are just one place where the MFIs can get money from and they have other choices.

BILL: So it would stand to reason that if the issuers and MicroPlace charge too much interest/burden then they won’t have any MFIs borrowing from them.

PENNEY: That’s the way I am understanding it.

BILL: Yeah I guess that is capitalism at work there.

PENNEY: Oh that brings up good point though. Are all the MFIs non-profit or are some of them for-profit?

BILL: Why?

PENNEY: Well, capitalism is all about making money. If MFIs have access to all this cash from lenders, how do we know that they are not using it to create profits for the business instead of trying to help the poor.

BILL: Well, if they charge too much then the entrepreneurs will go to another MFI. The competition should keep the rates low.

PENNEY: What about places where there exists no competition?

BILL: Hmmm. I’m gonna have to do more research it looks like.

PENNEY: Yeah let me know as soon as you hear something.

Money Talks–CHAPTER 4 (HAVE YOUR CAKE AND EAT IT, TOO)

Karl — Tue, 24 Nov 2009 18:00:17 +0000

Our couple sat across from each other and were talking about philosophy and economics. Well, actually they were just trying to understand Bill’s homework assignment but their conversation just lead to money matters. AGAIN.

PENNEY: There comes a time when you have to worry about your own finances first before you worry about helping others.

BILL: I think Socrates said something like that. Or was it Plato? Maybe it was Aristotle? I can’t remember. I need to study more. Anyway, one of them says it’s a virtue to help out with charity but not at the expense of your own welfare.

PENNEY: Exactly.

BILL: Well we can only do what we can with what we have.

PENNEY: Yeah, I have been doing the numbers and we are barely positive on our cash flow.

BILL: But we are still positive though, right?

PENNEY: Yes we are but we might have to stop our contributions to Kiva soon.

BILL: That’s only like 25 dollars a month though, right?

PENNEY: Yes but I feel like we need to put that 25 dollars to an emergency fund instead. It’s only a little bit but it would give us some breathing room.

BILL: Well, why don’t you just increase your take home pay like what I did last year?

PENNEY: Huh? What do you mean?

BILL: Well you expect to get a tax refund next year right?

PENNEY: Yeah I should get a good chunk actually.

BILL: You know what that means right?

PENNEY: What? We get to put a huge deposit to our savings account on the beginning of next year?

BILL: Yeah, that and you gave the government a loan.

PENNEY: Well—

BILL: Yeah you did. They taxed you too much and they are just returning money that should have never been taken from you.

PENNEY: Well as long as they return it…

BILL: But think about it the other way. If you did not get taxed enough they come after you and they charge interest. But when they give you back your refund, they do not include interest.

PENNEY: That’s true.

BILL: Yeah they borrow your money for an entire year and nothing in return. They just give it away to who ever needs the next bailout.

PENNEY: Oh don’t get me started on that. But how does all this fix our cash flow issues?

BILL: Well you can use this tax withholding calculator to find out how much to reduce your income taxes by each paycheck.

PENNEY: OK. Then they will reduce how much they take from my paycheck every two weeks?

BILL: Yup. Just like that you have increased your income.

PENNEY: That’s very handy.

BILL: It’s very useful.

PENNEY: What’s the catch though?

BILL: Since it is your money anyway that you are merely holding back from the IRS, everything is good. BUT you have to make sure that you do not withhold too much from Uncle Sam.

PENNEY: Let me guess: they will come knocking around April 15 if you do?

BILL: Yup.

PENNEY: OK, so I use the calculator and once I have that number, then what?

BILL: Just resubmit a new W-4 to HR or your boss and the new deduction will show up on your next paychecks.

PENNEY: This extra income should definitely help right about now.

BILL: Yeah I did this while I was working and I got a little but more each paycheck but I did not receive a huge refund like I used to around tax season.

PENNEY: So now I can use the extra money to keep our lending going and still have money left to go to our emergency fund.

BILL: Exactly. With all due respect to Plato,or who ever it was, it is just too easy to come up with reasons not to keep doing good.

PENNEY: I guess it really shows that if you want to do something bad enough, you will find a way to do it.

Money Talks–CHAPTER 3 (WHY NOT KIVA?)

Karl — Thu, 12 Nov 2009 20:50:32 +0000

She was staring at the screen with a blank expression. Never had she felt so directionless and utterly disenchanted. When he finally arrived home, she did not even notice until he bowed down to kiss the top of her head.

BILL: Hey, what are you looking at there?

PENNEY: Huh? Oh, this? Just the most horrible news ever.

BILL: What? What happened?

PENNEY: Look at this article by the New York Times. It’s an article on Kiva.

BILL: Oh, really? Seems like more people are going to become lenders like us then. I mean with all this new exposure. How are our little entrepreneurs doing anyway?

PENNEY: That’s just it. This article is saying that the lenders like us are actually not lending directly to the local entrepreneurs. It is an “illusion” they call it.

BILL: Wait, so who is getting our money? I mean if it is not going to the taxi driver or clothes maker, then who is it going to? This is starting to sound fishy.

PENNEY: Well apparently the money is going to the field partners or local Microfinance institutions. And then they are the ones responsible for making the repayment.

BILL: The goat herder never sees the money?

PENNEY: No they still get the much needed loan but—

BILL: Okay, I am going to have to sit down for this cause I’m not following. Maybe you need to go step by step.

PENNEY: Well supposedly, lenders like us first look at the pictures on Kiva and we decide to loan money to a particular person on the other side of the world. Kiva takes the money from all the lenders and give it to the field partners—

BILL: These are the Microfinance institutions?

PENNEY: Uh huh. Then the MFI’s give it to the goat herder as you call them. Then the goat herder repays the loan to the MFI then the MFI sends the money to Kiva and they redistribute the repayments to all the lenders.

BILL: Yeah I thought that that was the way it worked.

PENNEY: So did I.

BILL: So where is the illusion?

PENNEY: Well apparently the MFI’s give out the loans then they post pictures for Kiva and that is what we see when we choose who to loan out to.

BILL: Oh so the goat herder already has the loan and the MFI is just trying to get funding to cover it?

PENNEY: Exactly.

BILL: So the money we lend actually goes to the MFI and not the individual entrepreneur.

PENNEY: Yup.

BILL: Well that kinda sucks.

PENNEY: I know.

BILL: I was willing to put up with the small, miniscule chance of losing part or all of my loan cause I thought that we were directly helping people. It felt like a human connection, you know?

PENNEY: Me too.

BILL: I mean how is Kiva different now from those other sites you were talking about like that Ebay one?

PENNEY: Microplace.

BILL: Yeah that one. I mean that invests directly into the MFI’s right?

PENNEY: Yup.

BILL: And didn’t you mention Microplace also gave you a small return on your investments?

PENNEY: Yes it does.

BILL: So why not switch over to that one then?

PENNEY: Well that one is not perfect either. They manage to give back returns because they charge higher interest rates on the local entrepreneurs. They carry that extra burden.

BILL: Well that sucks. There needs to be away to get rid of all these intermediaries and really establish a human to human connection, you know.

PENNEY: Well, according to what Matt Flannery said and David Roodman’s thoughts on the whole thing, establishing that true human connection is going to be really difficult especially with an organization as big as Kiva.

BILL: Really difficult…but not impossible right?? If there was only a way…

PENNEY: I know! Maybe we could think of something.

BILL: Man, now I know why you were just staring into the distance when I got here.

PENNEY: Yeah Kiva has done a lot of good so I don’t want to really abandon it but then again I am craving that connection too. I don’t really care about return on investment or default rates. I just want to help directly.

BILL: Me too. Me too.

Money Talks–CHAPTER 2 (WHY KIVA?)

Karl — Mon, 26 Oct 2009 15:30:18 +0000

As soon as she heard the clinking of the keys approaching the door handle, she perked up and got ready to meet her boyfriend’s eye line. The news was just too good to be contained any longer. This she had to share immediately.

PENNEY: Hi. How was school?

BILL: Such a horrible day. Can’t believe it.

PENNEY: Oh? [her heart was sinking] What happened?

BILL: What happened? First, I lost my calculator so I had to buy a new one. Then I got a ticket cause my parking permit at school apparently expired last week.

PENNEY: Oh.

BILL: This is turning out to be a pretty expensive day.

PENNEY: Oh.

BILL: How was work?

PENNEY: Well someone at work told me about this website Kiva.org and how it is trying to end poverty by –

BILL: Oh another nonprofit asking for donations?

PENNEY: No. Listen. It’s a website based on the idea of microlending.

BILL: Huh?

PENNEY: Microlending is an idea developed by this guy from Bangladesh, I think. It’s slowly helping people in developing nations inch their way out of poverty.

BILL: How is this charity different?

PENNEY: For starters, it’s not a charity in the traditional sense. Kiva, the organization, allows lenders from all over the Internet to personally loan to a specific entrepreneur in a nation halfway across the globe. They have this cool video that explains it pretty good.

BILL: So wait. It’s a loan that I give to people? So does that mean I get my money back?

PENNEY: Yup.

BILL: That’s definitely NOT a charity then.

PENNEY: Nope. Pretty cool, right?

BILL: Yeah but how much can we really loan to businesses. I mean, like, aren’t start up costs like in the thousands of dollars?

PENNEY: Actually you can start up a business for about a hundred dollars even here in the U.S. but no, you do not need to loan thousands or even hundreds of dollars.

BILL: Really?

PENNEY: You can make a loan for as little as twenty five dollars.

BILL: Twenty five dollars? And that will help?

PENNEY: Whatever you loan is added to what other people loan and with everyone around the world loaning, it is easy to meet the needs of single entrepreneurs one at a time.

BILL: Hmm. Interesting.

PENNEY: So we should definitely start loaning, right?

BILL: Well maybe after we recover from my unexpected expenses today. We’ll think about it.

PENNEY: You mean you were not expecting these expenses? That’s what our emergency fund is for.

BILL: Oh yeah I forgot we started doing that.

PENNEY: Yeah, together we have put enough in there to cover your little financial mishaps for today.

BILL: What would I do without you?

PENNEY: Well, hopefully, you keep on lending. I really think we can make a dent with this concept.

BILL: Ok. I’m on board. Cool, what’s for dinner?

PENNEY: Spaghetti again.

BILL: Really?

PENNEY: Just kidding. There’s some fried chicken on the table.

Money Talks–Chapter 1

Karl — Wed, 14 Oct 2009 17:00:56 +0000

(A couple sits across from each other on a small kitchen table eating dinner out of bowls and talking about their money. The quiet meal is getting livelier.)

PENNEY: Bill, you have to help me out, too.

BILL: But you are so much better at it than I am. Besides, I am just way too tired by the time I get back from school. I’m taking a full load this quarter, you know.

PENNEY: Yeah well, I put in a full day at work too. But we still need to iron out these details. We have to work as a team.

BILL: You know, I can’t think of any great collaborations in history. True great works of art are always achieved by one person with one vision.

PENNEY: Huh? What’s your point?

BILL: East of Eden, La Boheme, the roof of the Sistine Chapel –

PENNEY: Yes?

BILL: They were all achieved by one person with one vision. You are the one with that vision when it comes to our money.

PENNEY: Oh please –

BILL: I am kinda serious, actually. You make money better than me especially with all that investing stuff. You save money better. And you are already out of debt.

PENNEY: So that gives you an excuse to just dump everything on me?

BILL: Well no. It’s not like that –

PENNEY: What is it like then?

BILL: My concern is that if I tried to help out, then I might just end up screwing everything up. You know – your vision.

PENNEY: Don’t you get it? It is OUR vision. These are OUR plans.

BILL: Still, what if I mess everything up? What if I lose all our money in the stock market when I try to invest?

PENNEY: That is why we will be working together when it comes to OUR finances.

BILL: Are you sure?

PENNEY: Yeah I’m sure. You know, you forgot to mention a work of art that was a collaboration.

BILL: Which one?

PENNEY: Les Miserables.

BILL: Oh yeah. That wasn’t too bad.

PENNEY: “Wasn’t too bad?” I remember you tearing up when Eponine was dying.

BILL: Whatever. How is your spaghetti?

Is it even possible to achieve your financial dreams if your significant other is a non-participant? Or is it better if just one person took care of everything and neglected the other person’s two cents?