Kiva, the peer-to-peer lending site, is a revolutionary microfinance lending model to say the least. In a recent interview with Forbes, Kiva’s President, Premal Shah, shares his passion and vision about the not-for-profit organization. Here’s are some excerpts of a transcript of the interview (the heading have been added for clarity).
What is Kiva? And How is it Related to Microfinance?
Kiva is a website, www.kiva.org, that you can go to and sift through profiles of entrepreneurs in the developing world primarily, who need a loan (microfinance). And you, using your credit card, can make a $25 loan or more, to one of those entrepreneurs in over 50 countries. Usually, over the period of a year, you’ll start getting paid back by the entrepreneur, and when you get your money back, you can either re-lend that money to someone else or you can withdraw that money from the system.
Some Figures About Kiva
Kiva today has nearly 600,000 people who have made a loan. Our loans have totaled about $90 million. If you look at the 600,000 people, one big surprise for us is that over half of them are over the age of 40…What’s great is that there’s a 98% repayment rate on the Kiva website so that most of the time, the money is actually getting repaid.
Kiva’s Business Model – Not a Traditional Microfinance Model
Kiva is a kind of line-blurring product. It’s not exactly a commercial investment, it’s not exactly a donation. It’s a zero percent interest loan that you make between you and a total stranger around the world.
Banks need to lend at a rate where they need to cover their fixed costs and they need to return money to shareholders at a certain rate of return. People, if you can actually connect with someone and make a transformational impact, or if you and I even go out to lunch and you forget your wallet, I’ll spot you $20 and if you pay me back, even without interest, it’s cool, because there’s a connection there. There’s something about person-to-person lending on the internet that allows us to aggregate a risk-tolerant capital that the world has never really seen.
You actually get to see where your money goes and you connect, on a human level, with who is using the money and their story. People love the ideal of helping people help themselves and when they get to see the person, it inspires them.
Kiva’s Future
Kiva started in the developing world, primarily in East Africa, in Kenya and Uganda (where microfinance is a robust sector). But now we’re in 51 countries, including the United States. On top of that, what we’d like to do is to expand to other types of loans, so not just to business-purpose loans but student loans and green loans.
We want to expand around the world faster. We do have a five-year plan and in the next 5 years, we’d like to hit about a billion dollars in loans. Next month we’re going to cross $100 million so its a 10x growth from where we are today. (Read about other trends in microfinance)
Smart Technology, Innovation and Kiva
One thing Kiva is doing is much like Facebook when they released their API and they created all these apps, or iPhone did the same thing and there are tons of apps on iPhone. Kiva just released its API developers program (Build Kiva) so there are a bunch of people now who are developing Kiva apps (for mobile phones, and these may be used in conjunction with Google’s venture into mobile services for the poor as well):
- One site tracks your Kiva loan data (Kiva Alerts)
- Another site shows the location of every loan on Google Earth, and you can pick it up and see it (Kiva Data)
So we’re trying to push our innovation out to the internet community. Who knows what people will surprise us with. Like when is the app that allows you to make out a loan through you iTunes account…when is that going to be developed? Hopefully in the next few months.
One of the fastest growing financial services in Kenya right now is mobile payments. It grows faster than the banks are growing. If you connect that cell phone now to the internet, the Kiva platform, then you can take a photo of yourself in Kenya (you could be a Masai farmer) and say, ‘I need 300 shilling, I’ve had 4 loans on the Kiva website previously’. You can put your photo up on the website and someone can instantly (help you).
That’s where we’re going. Total dis-intermediation on mobile devices.
This is what we’re going to see in the next 10 years. It’s going to be amazing; it’s going to be mind-blowing. Where we’re going in the next decade, in terms of poverty alleviation, and allowing us to participate in that, it’s going to be incredible.
You may want to look at other elements of technology in microfinance, as well as services in microfinance.
Questions to consider:
What additional mobile applications can you think of that may be useful for Kiva? Considering the steep growth of this venture, do you think there is room for a similar microfinance peer-to-peer platform?
Do Kiva condone the charging of an average of 38% interest to the borrowers in the countries they operate?
In Uganda one of their partners charges 53%… this is not sustainable development, this is daylight robbery.
Do the kind people sponsoring the poorest in the world realise that more than half of their donation/support is paying the Kiva partners interest rates?
Alison, thanks for the comment.
Well, I wouldn’t completely defend Kiva because I agree they should have been more transparent from the start about the role of interest rates in their model, but in my humble opinion, high interest rates are necessary to some extent in the microfinance market, as one of my earlier articles and a Kiva blog entry explains. I agree there is a fine line between sustainability and greed (as your example points out), and therefore, MFIs and regulators need to rely on different ways to control interest rates in this market. I am not sure about Kiva’s relation with the Ugandan MFI, but I do know that donations made by individuals make a positive difference, and that in the absence of better, co-operative based microfinance models, typical MFIs that charge higher-than-market interest rates are the best option the poor have, generally speaking, since informal money lenders often charge twice or thrice as much.
I’d love to hear your views about this.
Kiva DOES NOT enable peer-to-peer lending. Kiva is bringing important attention to microfinance but it has been less than forthright in their methodology (back-filling of loans) to their online community.
Microfinance is NOT ONLY about the $25 but rather the system that allows the $25 to work. It is the MFIs that do the heavy lifting and enable an environment of empowerment.
Kiva terms to MFIs have improved but still, a 1-year term and US$ loan is less than ideal. For Kiva to create generative change in the microfinance industry, it will take leadership and acknowledgment that they can do better by their partners, the MFIs, so they can better serve their clients.
Steve, thanks for the comment. I understand where you’re coming from, but at least Kiva is learning from it’s mistakes; they’re more transparent than ever before and they’re doing a lot of good – their loan portfolio is larger than that of Citibank. However, Kiva’s borrowers and lenders do face the risks associated with exchange rates, which was mentioned in a recent post at the Kiva Fellows Blog. Similarly, Kiva may look into direct involvements in the field, not only through their fellows, but by establishing regional offices that keep a closer eye on developments and performances of MFIs, or by partnering with MFIs to deliver long-term cost savings to clients in high-demand areas. This will further improve Kiva’s performance in the field, while the developments mentioned by Premal Shah in the interview, help strengthen Kiva’s current task of channeling funds to the developing world. Perhaps you’d like to share your views about this.