I discovered a new microfinance service called Kiva which is attempting to truly enable person-to-person loans between a loan provider in developed countries and a low-income borrower in developing country.
I am very interested in these kind of innovations because there are currently very few options for middle-class North Americans to invest (not donate) their money in helping very low-income microentrepreneurs start or expand their microbusinesses in order to grow their income and break cycles of generational poverty.
Kiva is using technology to keep the costs of this kind of personalized service to a minimum. Here’s how it works. You go to kiva.org web site and browse through a selection of pre-reviewed loan applications. You get to read an overview of the borrower (including photo), what business they want to invest money in, what size of loan they are requesting and how much they have raised so far. Once you’ve found someone you’d like to make a loan to, you can instantly (using Paypal) make a loan for a portion (minimum $25) or all of the remaining loan ask size. All of the money is managed by Kiva’s web service with human intervention so it is very cost efficient and scalable.
Once the borrower has received a full funding of their loan, then they are actually given the loan typically with a 6-12 month repayment (with interest) period. All of the pre-screening and on-the-ground loan management is outsourced to local Kiva microfinance partners. The partners assign a loan officer who is responsible for posting all of the loan “application” information on the Internet and to write journal entries (essentially a blog) along the way as there is new information to report. All of this information is available for easy access by loan providers (and anyone else who is interested) through Kiva’s web site. Additionally, loan providers are emailed with updates when there is a new posting with one of their loans.
I tried this out. I made a loan of $50 as part of a $500 loan for Steve Ogondo (see his picture on the right.) Steve needed working capital for his new butchery business he called “Gracious God Butchery” based in Tororo, Uganda. Steve has now raised his $500 and now has received his loan. You can now follow his progress on-line. You can also post comments back to him. An assigned loan officer, Moses Onyango, handles all of the translation and communication. I did my research and issued my loan all in about 15 minutes via their web site! And I received an email on Feb 3rd when his loan was granted.
This reminds me of the highly successful (and still innovative) approach to personalization which World Vision International provides with child sponsorship. By putting a face, a name, some individual details and an ongoing communication, both parties benefit from the human connection despite the geographical and cultural differences. World Vision has been able to sign-up the masses for just $26/month … something very doable for most westerners.
There are lots of questions that this approach brings up like:
- how do you know the money is really going to the person in question?
- will you get paid back?
- is this ever going to be operationally sustainable because of the high cost of having the loan officers providing these updates?
- doesn’t this cause privacy concerns?
Kiva attempts to answer these questions in their FAQs. The reality though is that many of these issues will take time to work out. Kiva is functioning as the “trusted intermediary” and are seeking to use open communication to facilitate this trust.
Kiva is also not yet (and for the foreseeable future) paying any interest back to loan providers … the most the you can get back is the amount lent. They are using the interest income generated to pay for operating cost which are substantial. Kiva is therefore a non-profit and is still heavily subsidized. This is a reasonable strategy. Most people won’t care about getting interest on a loan of $25-100, so this works fine. In the worst case of the loan not getting paid back, your loan becomes a charitable gift.
All of that said, I really do like the concept and innovation of this approach. Using web technology (and probably mobile technology shortly), there are amazing new possibilities for connecting people to make a social impact. Being able to personally be involved in helping someone in a far-away place with the opportunity to improve their lives is very powerful.
Please visit Kiva and consider making a small investment today.
7 thoughts on “Personalizing Microfinance”
this is very exciting…a great way to mobilize in a very doable way!
the biggest challenge is to make sure that there are good organizations that will screen people and applications to make sure that the loans are going to the right people and the recovery is high. Have the banks signed up as demand-generators? What are the pros-and-cons?
These are great questions. I don’t have an “insider” knowledge of how this model is actually working. In particular, I have a significant question on whether this model is possible to be operationally self-sustaining. The work required by a loan officer to post all of this information online (and in English in countries without a lot of English speakers) is a lot of overhead.Kiva has recently got a boost on the loan supply side based on an article in the Wall Street Journal. They will need an ongoing viral marketing approach to keep marketing costs down.
thanks dave, put your article on my bloghttp://x1brettstuff.blogspot.com/brett
I just went through Kiva’s website, and I am very impressed. I’ve read about a few banks and such who offer micro-loans, but this organization allows for anyone to get involved. Micro-lending has already been proven to work, so I’m a strong supporter. Now I have way to actually contribute to it. I’m very excited about this company and what they do. I’m in agreement that they have some challenges to overcome, but I hope that they can do it. They have a great idea here, and I know that they have won me over at the very least. Reading those stories about how these loans have changed people’s lives so drastically, how can one not get excited? The best part is when they successfully they pay the money back, it then can be used to lift up someone else beginning a chain of hopeful successes. People who decide to donate are not providing hand outs, they are giving these people an opportunity to change their own lives. So when they do it I imagine it would have to give them a sense of accomplishment like none other.