A few weeks ago David Roodman, research fellow at the Centre for Global Development, kicked up a bit of a storm when he posted a lengthy blog raising concerns about the transparency displayed by micro-lending site Kiva.

You can read the post here, Kiva CEO Matt Flannery's response here, a NY Times article here, another Flannery response here and a host of subsequent blogs here but if you haven't got a spare couple of hours on your hands I'll give a quick overview focusing on the tech side of things.

For those unfamiliar with the model, Kiva connects people in the developing world who are looking for loans with lenders. It does this by posting the ‘stories' of borrowers on its site so that lenders can get a feel for them before deciding who to hand their money over to. Kiva then gets the cash to the borrower via microfinance institutions.

One of the reasons Kiva has proved a huge hit (over half a million people have used it to make loans worth $100 million) is by humanising the process - the organisation has tapped the Internet to enable lenders to put a face and story to the name of the person they are helping.

But the person you see on the site asking for a loan has already got the money. This is because Kiva uses "pre-disbursal" - the MFI almost always make the loan before it is funded by Kiva lenders.

Kiva says (and Roodman agrees) that this makes sense - if the MFI has the money to hand, why make the borrower wait?

The problem is, for Roodman at least, that "the person-to-person donor-to-borrower connections created by Kiva are partly fictional. I suspect that most Kiva users do not realize this."

Kiva has listened, accepted it should be doing better and made some changes to its site to make the process clearer.

So all's well that ends well but there are several other issues raised by the episode, not least the role technology plays in microlending and philanthropy in general.

As Flannery says: "One of the contributions that Kiva has made is to demonstrate that empathy increases generosity. The pictures and stories on the Kiva site increase understanding between various parties that would otherwise operate in completely different universes. When understanding increases, so does empathy. When empathy increases, so does generosity. People are inherently more generous towards people and causes they understand."

The limitations of the technology are interesting; it can create the illusion of closeness but Kiva has yet to find a way to make the connection real. I suppose this illusion is a far wider issue - people all over the world use the Internet to make ‘friends' and find ‘followers' without forming any real relationship.

Flannery acknowledges the relationship between lender and borrower is to some extent synthetic but it's a start and as the technology improves so too will the connection.

"As technology spreads throughout both the developed and the developing world, I hope to see the strength of the connections increase as well. You can imagine that, as wire transfer costs decrease, we could see a loan funded on Kiva the day that it is disbursed."

There is of course a whole other question: is the personalisation of lending and charity - enabled by technology - even a good thing?

Roodman draws a parallel with the child sponsorship system that charities have been using for decades. People see a picture of a cute kid and want to help. Trouble is, a lot of the time the money didn't really go directly to the child, and nor should it have.

Rodman says there is a "tension between creating the psychological experience of connection that raised money and the realities of fighting poverty. Often the fairest and most effective way to help poor children is by building assets for the whole community such as schools, clinics, and wells."

But ultimately I fail to see how Kiva, and similar online outfits, can be a bad thing. The lack of transparency was a mistake but it's a new model using new technology and lessons have to be learned.

The Internet may not be the silver bullet it is sometimes portrayed as but there's no doubt it is a useful tool for alleviating poverty. Kiva aims to raise $1 billion in microloans by 2015, benefiting an estimated one million people directly and 32 million indirectly, which seems like something that's worth doing.