Kiva.org is an online peer-to-peer network that transacts loans as small as $25 from individuals to entrepreneurs around the world, and has recently opened its microloans to American businesses for start up and growth.
We may bemoan many of the new “creative financial services,” but some (not-so-new) models are found in the successful online micro-financing initiatives, which have been supporting developing-country entrepreneurs for the past few years. Kiva’s model presents admirable success: high repayment rates, with the entrepreneurs moving on to sustainable businesses, and with the online investors re-circulating their repaid investment funds into new ventures 90% of the time. Kiva transacts $5M in loans every month.
Why is this model so successful? Because the internet allows a true connectivity between the person funding and the person receiving, in regular updates on how the funds are put to use, and the subsequent results in business growth. It is virtual, but personal. Combining the best of technology, social networking, communication and philanthropy, this cutting edge model has been so successful that Kiva has had to restrict the amount of loans from any one individual, putting a cap on their investing. This allows everyone to participate, broadening Kiva’s market base and demographic.
Now Kiva is allowing American entrepreneurs to apply for microloans.
From its website:
“Kiva realizes that access to credit is a challenge for entrepreneurs everywhere. Kiva started out as a website focused on developing-world entrepreneurs. In June 2009, Kiva began experimenting with allowing entrepreneurs in the United States to raise money on its website.”
On October 13th 2009, National Public Radio ran a segment on Kiva. http://tinyurl.com/yj4jlxo
“Premal Shah, the president of Kiva, says the San Francisco-based organization thought it might help the economy in its own backyard.
“”We know that small businesses are the cornerstone of the economy. It’s a real growth driver of the U.S.,” Shah says.
“”Even before the credit crunch, small business loans were hard,” he says.”Post credit crunch it’s really, really hard. So, Kiva started thinking, ‘Wow, we’re allowing people in the developing world to request loans, why not un-crunch America and allow people here in the U.S. to request loans and see if the Internet community wants to fund them.’”
Kiva’s history is interesting. Here is the short form of the story, from their website:
“In March 2005, through a local contact in Uganda, 7 loans were posted on Kiva for a total of $3,500. They included a goat herder, a fish monger, a cattle farmer and a restaurateur. Six months later every loan had been repaid. These original 7 entrepreneurs became known as the “Dream Team” and proved it was possible to lend to the poor over the Internet.
“In October 2005 Kiva announced to the world the first peer-to-peer micro lending website via a press release. Shortly after the Daily Kos discovered Kiva and broadcast the website to hundreds of thousands of its readers. The word was out… and the rest is history.
“Since its birth Kiva has grown from a small personal project to one of the world’s largest microfinance facilitators, connecting entrepreneurs with millions of dollars in loans from hundreds of thousands of lenders around the world.
“Kiva is a global organization and seeks to provide working capital to entrepreneurs all over the world. Poverty exists in every country, including the United States, and Kiva hopes to address poverty wherever it exists. ”
In March of 2008, Fortune ran an article, “The only nonprofit that matters” about Kiva and Donorschoose. (More on Donorschoose next week). http://tinyurl.com/369pd7
This is financial creativity at its finest. In 2002, I wrote that the preceding 20 years (1982-2002) had been the e-ticket ride of creating the infrastructure of technology and communications (satellites, fiber optic cable, telecom, microcomputers, compression technology, and the World Wide Web), and that we were entering in the era of creating the new applications that would change the way the world works. With these synergies in business, play, and giving, we are well on our way now.
