Written by Julian Modiano   

Even the most outspoken critics of the free market never go so far as to disapprove of one institution brought about without government intervention, and that’s charity. Despite the government’s best efforts, people continue to voluntarily support charities that help people all around the world, and, in what may come as a surprising fact, donations increased even after the 2008 crisis. These days, one of the most popular ones is Kiva. For those of you who don’t know, Kiva is a charity that gives people small loans in order to start their own small businesses. Here is one example, taken from the Kiva website:

"When Kamila Ismatova’s husband got sick, she had to find a way to make money. With their “rainy day” savings she bought 10 kg of flour, and her son and daughter got up early to help her chop wood and bake 30 rounds of bread, which they sold to their neighbors.
As her business began to grow, Kamila started to look for additional funding to expand even more. Even though she was rejected by traditional banks due to her lack of financial history, she was able to find the resources she needed — a loan of US$500 — from Kiva Field Partner MDO Arvand.
Arvand not only lent Kamila the money she needed to transform part of her house into a bakery, it also offered her business consulting services and financial education classes to help her grow her business strategically and sustainably. On top of that, she was able to enroll in Arvand’s micro-savings program, which helps borrowers save so that illness and unemployment aren’t financially devastating.
As a result, Kamlia’s productivity rose to 120 round breads a day, and her profits increased accordingly. With the extra money she was able to rent two hectares of land and begin growing grapes and apricots. Now, together with her children, she harvests crops of fruit trees and sells dried apricots through large stores.
Two years and four microfinance loans later, Kamila’s bakery produces 300 to 400 round breads a day. She has made significant improvements to her family’s quality of life and is an example of entrepreneurial success for her community.
Inspired by her mother’s strength, her daughter has now decided to go to college to become a nurse."

Most people will hear this story and immediately realize how incredible it is. They’ll think to themselves how great Kiva is, and how they should probably consider donating (or ‘loaning’ as Kiva calls it) themselves. Most who have not heard of this sort of charity before will usually understand how much more effective this form of aid is to dumping ridiculous amounts of food into a poverty-stricken area, destroying once and for all the already limited local food supply and make them dependent on foreign food. But somehow, while they completely understand how effective this system is for raising people out of poverty, people will not manage to apply this to a wider context. That the free market is by far the best system to lift people out of poverty. All Kamila needed was a loan of $500 and the willpower and determination to accomplish her goal. Of course, had she been living in a ‘civilized’ country, she would’ve (or at least, legally should’ve) been immediately shut down due to health and safety regulations. And acquiring the business license in the first place would probably cost at least twice as much as the initial flour. And in the time it would take her to plow through all the bureaucracy, she might well have run out of food for her children. Result? She would probably have had to become an employee working for some massive corporation, trapped earning an extremely low wage for the rest of her life– instead of being on the road to becoming an employer herself, and perhaps to one day challenge those corporations.

It is the perfect example of how any regulation – however necessary it may seem to us now – can only benefit the rich, at the expense of the poor. Rich people don’t care about health and safety standards, business licenses, or any of the other bureaucratic nonsense you need to overcome to start a business – they’re rich, and what’s a couple hundred dollars more to them? But take a case like Kamila’s, and even the smallest regulations automatically make an already difficult task nearly impossible.

I’m sure many of you will read this and reject it on the basis that in a free market economy, society supposedly deteriorates immediately, it becomes a dog-eat-dog environment, and donations to charity plummet to zero. Every single charity closes down. Now where do the loans for these poor people come from? The regular banks don’t give loans to those people, and now that Kiva and every charity is gone, where will people like Kamila get their initial loan? Well, as in pretty much any situation, if something has the potential to literally turn peoples’ lives around you can be sure it will be profitable. There are without a doubt profits to be made giving microloans to poor people, and this isn’t just me speculating. SKS Microfinance is a charitable organization that was founded in 1997 with a goal similar to Kiva’s. However, last year they were making so much money that they decided to go public on the Bombay Stock Exchange. Of course this caused a great deal of controversy as people made claims that this was a disgusting way to make money off of the poor, but all that is irrelevant given the fact that many more people will now have access to microloans, will be able to start their own businesses, and rise out of poverty. Not to mention the fact that it is now fierce competition to banks, many of which have started hopping on the bandwagon and offering microloan possibilities of their own, and completely destroying the businesses of loan sharks. Funny how once again, banks exploiting poor people (another way of saying, “voluntary interactions between two parties that I don’t approve of”) somehow lead to the banks making a profit and the poor people having at least the chance to rise up out of poverty. Will people ever learn?