Kiva lending for non-business purposes

Kiva is considering to add new types of loans to their portfolio, in addition to their existent category if business loans. Specifically, in a thread at Kivafriends.org, Ben Elbinger of Kiva is discussing allowing MFIs to add Building loans, Educational loans, Health loans, and General (personal) loans to their Kiva portfolio. The argument here is that anything that will allow a poor person to better their overall standard of living will alleviate poverty, even if the social impact is not optimal.

Here is an example of Kiva giving a loan for building personal property rather than for business purposes.

I think that Kiva absolutely should offer loans for non-pure-business purposes, as long as the loans will be paid back in a reasonable time and there is enough due diligence to ensure the repayment of the loan. Many Kiva lenders will fund these loans and be happy to do so... and many of these loans fulfill a real personal or family need that will allow the borrower to become a more (or again) productive member of society.

Having said this, personally, I am a little hesitant to put money in anything else but a business loan. The reasons for this are various and diverse, and insofar personal that any of us may have an equally valid, different opinion about the topic:

• Business loans are the most effective for reduction of poverty, IMHO. Investments in businesses can yield clearly identifiable financial returns. These returns are used both to pay back the loan and (more importantly) to grow the business and economic situation of the borrower
  
• Although personal property (building) loans are important, there may be better/cheaper ways of getting them than through microfinance. I think that all of this starts with the government providing title to property. This is something that institutes like the ILD have been promoting for a while now. Specifically in Perú (where the ILD is located), it is now relatively easy to get a home loan based on the actual value of the house, using the property as guarantee for the loan. This has brought down interest rates for home loans to around 10-15% annually; still higher than in the Western world, but a lot lower than microfinance rates.
  
• Education loans are interesting. Unlike in the West, education is mostly free or rather cheap. The loan is therefore often not used to pay for lots and lots of tuition, but mainly to offset costs related to studies (registration fees, study materials, cost of living, etc.). My problem with them is, that they are given without a reasonably short turn around expectation. This means, that the lender shouldn't expect the borrower to pay back until they finish the education and start earning money. Unless we're talking about a short course, this may be a while. For education, in all reality, I would propose investing more into a grant system (maybe based on the grades of the student?) rather than a loan system. This can be done for a fraction of the cost per student compared to the US higher education system.
  
• Health loans. Also interesting, similar to education loans. I'd assume that someone that needs a health loan is quite ill-- smaller health issues that don't impact the ability to work are often solved by cheap/free local clinics. (HINT: they need funding too!!!) If it impacts the ability to work, the effect is twofold: the person has to pay for more expensive health care procedures, AND can't earn income at the same time. This makes life very expensive. Loans (or maybe grants?) are definitely needed, but the risk of non-repayment is higher: what if the person won't recover enough to catch up with the lost personal finances AND pay back the loan? This translates probably in either subsidized loan rates or in higher interest. The latter is the "third strike"-- unable to work, no income, AND a more expensive loan to survive. Also here I'd favor a grant scheme that will help people pay for at least the health care part and maybe even for part of survival of their family.
  
• Personal Loans. Ugh. My mother still uses the expression all the time-- "de tering naar de nering zetten" (don't spend more than you can afford). Although I am sure there is a market for this, we just need to look at our own countries to see what a liberal "spend it before you can afford it" culture can result in. I'm not sure I want to see the average poor Thirdworldian up to his/her eyeballs in debt because of consumables that were not really needed. Am I am pretty sure I wouldn't want "my" MFI to be involved in this unless the loan is really necessary...
  

As a result, I think I'll do the following:

• I will continue to invest in business loans.
  
• I'd be interested in knowing more in educational and health grants and also in educational/health infrastructure improvement projects
  
• I would probably consider building loans, because I guess that the borrower WOULD have gotten a cheaper mortgage if one had been available...
  

Anyone any thoughts? (This would be a great topic to hear Kendall Mau's opinion on...)