What is Kiva?
If you haven’t already, read up on what Kiva is all about. Essentially, they provide a platform for getting crowd-sourced loans to financial institutions in developing countries that are working to alleviate poverty. They have a video on the process here.
Essentially, a micro-finance institute (MFI) in a country will post the profile of one of their borrowers who needs a loan to help elevate themselves out of poverty. Kiva posts the loan on their website, and donors from around the world can donate as little as $25 towards the loan. The total amount (eg. $1000), once collected, goes to that MFI who lends it to the person. When the loan is repaid, you get your $25 back; except now, one person has been lifted into a position of self-sufficiency in the process!
Does Kiva Charge Interest?
No, they don’t. Their about page explicitly states:
100% of every dollar you lend on Kiva goes directly towards funding loans; Kiva does not take a cut. Furthermore, Kiva does not charge interest to our Field Partners, who administer the loans.
Kiva is primarily funded through the support of lenders making optional donations. We also raise funds through grants, corporate sponsors, and foundations.
We are incredibly thankful for the support that has enabled us to do the work that has touched the lives of so many people.
The Kiva Challenge: MFIs Take Interest
Unfortunately, microfinance depends on some level of profitability — you can’t just administer loans without recovering your operating costs. Because of this, MFIs need to charge interest — this comes under the heading of riba.
Say the loan is for $1000. The MFI may loan it, and collect interest during the process, so that the total amount they are repaid is $1100. Some MFIs charge as much as 100% interest over the total lifetime of the loan!
Are All MFIs Interest Based?
If you browse Kiva loans, you’ll see several loans in Muslim countries like Pakistan, Lebanon, Palestine, and others. The question arises: do MFIs working in these countries provide Islamically-compliant microfinance loans?
The answer is a resounding yes; and with this, Kiva Muslims was born.
On our home page, we compiled a list of MFIs that use Islamically-complaint loans. These are MFIs which we verified (either directly, or via Kiva) that they provide only Islamically-compliant loans.
The Fiqh of Kiva
You might be wondering what the ruling is on using Kiva. On the one hand, virtually every Field Partner charges interest. On the other hand, you’re giving money to Kiva only; they send it to the field partners who administrate the loan — so you’re not directly eating or taking interest. Kiva doesn’t give or take interest either; only field partners do this.
I spoke to shaykh Isam Rajab of AskTheShaykh.com. Here is his reply:
Allah’s Messenger Sallallahualahi Wasallam cursed 5 people involved in Riba: “the two witnesses, the one who write the contract, the eater and the giver”. From your question, it appears that the person who is giving a loan is not one of those 5 people and therefore, he or she is not at fault. Especially when this is going to help the needy. However, the fact that there is riba involved cannot be ignored as well but the sin goes to the third party that takes it. Muslims should utilize Islamic means of financing like a Muslim third party who will become a partner and take a profit instead of interest. In short, this transaction is not haram because the person is not taking or paying interest -riba- but it is disliked as it eventually involves riba to someone else.
That is to say, in the esteemed shaykh’s opinion, Kiva is makrooh.
What does makrooh means? Technically, an act which is makrooh is one where there is no reward or sin in doing it; but there is reward in leaving it.
On the other hand, if we utilize Islamic MFIs or Field Partners, this means that we can still earn reward in the Hereafter for using Kiva.