Last week, I met up with Kiva founders Matt Flannery (his blog) and Jessica Jackley Flannery at a presentation they were making to the staff at microfinance innovator, Unitus. I have blogged before about my positive experience in using the Kiva service. In a nutshell, Kiva is building a marketplace for microfinance … matching up lenders (mostly from developed countries) with microentrepreneur borrowers (mostly from developing countries.) They have made a lot of progress since I last reported and I also found out about some of the enhancements that they have in-the-works. Here are some of my notes:
- Marketplace. Kiva wants to evolve into a microfinance lending marketplace … similar in some ways to what Prosper is doing in the USA for larger loans. They want to match up borrowers with lenders much like Ebay matches up buyers with sellers. They will be introducing community features like the reputation of borrowers with ratings (like Ebay stars) and last loan repayment info. They are already starting to see some borrowers who are using their repayment record on Kiva.org as a credit worthiness indicator for other kinds of transactions.
- Stats. Kiva now has 4,000 lenders. Average lender is lending $68 (may be over multiple loans.) Kiva lenders have disbursed > $250,000 since they began in October 2005. For comparative purposes, to reach 4,000 lenders, Calvert took 10 years and GlobalGiving took 5 years.
- Income. Today, Kiva receives all of their income/funding from donations. Yes, they are a registered 501(c)3 charity. They have no income (e.g. interest income or loan fees) for loans which they facilitate. It is not that they are philosophically against income related to loans they facilitate/manage, they are working through regulatory issues. Here are some of the ways they may generate income:
- loan fee to MFI (maybe 1-2% … still incredibly low cost of capital!)
- optional lender fee (in the 1-2% range)
- interest earned on float (could be substantial)
- loan insurance (e.g. 1% fee pays off loan in case of death)
- Interest rates on loans. Their MFI partners (identified with each loan application) set the loan interest rates and fees. Today, these rates and fees are not disclosed on their web site. They are planning to expose these going forward in order to provide more transparency and encourage interest rate competition.
- Earning interest. Today lenders are paid no interest. Going forward this is going to change once Kiva sorts through the various regulatory issues.
- Loan size & admin. They now have a minimum loan size of $600. They do this for a number of reasons including (a) overall higher transaction processing effort for Kiva loans (e.g. have to post update to Kiva system as well as the MFI’s system); and (b) generally means that this is not the borrower’s first loan, so higher qualification for borrowers = higher liklihood of repayment. MFIs are typically paying loan officers a fee of ~$10 for each Kiva loan they administrate.
- For or not-for profit. Today they are a non-profit. Their business plan says that they need an additional $1.5M of capital in order to get to break-even in 2009. One (key) benefit of being a non-profit today is that Paypal charges them no fees on transactions … which is a substantial cost savings based on their high # of transactions.
Kiva is continually upgrading their web service. I really like how they are now more concisely listing businesses with graphical stats in many places. Also, they have made an easy way for anyone with a blog/webpage/space to promote loans … you simply paste a snippet of HTML (shown at the bottom of every business loan profile) into your web page and a very nice promotion is presented. I’ve done this on the right column of this blog just after archives section. Very cool!
Also, see recent Business Week article on Kiva.
Defeat Poverty 
As well, we have just rolled out social networking functionality on the portal. Micro-loaners can now create a profile that describes their loan portfolio, a simple bio and even a picture! Should the loaner decide to make their profile public, it can be viewed, for example, by the entreprise that is receiving the loan, thus enhancing the personal aspect of this business relationship. It may even spark dialogue between loaners who share the same affinity, such as geographical location.And thank you for posting about Kiva!Tim (volunteer with Kiva.org)tim@kivavolunteers.org
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Thanks for the info and details on Kiva. I went to the website and was surprised that I couldn’t fine out why there is no interest paid on the loans.I understand the regulatory issues. I look forward to the day when the nature of the microloans changes from charity to real investment.
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I have loaned money through Kiva and the money is gradually being paid back. All well and good, however I have problem with who validate the field partner’s claims. Check out field partners in Cambodia! The claims regarding the local money lenders interest rate varies wildly between field partners from 43% to 120%! Why should the local money lenders interest rate vary this much, or is it just coincident that those field partners which claim the highest local rate charge their customers over 3 times more interest than the field partners claiming lower local money lenders rates. Coincident or are some field partners profiteering on the back of peoples goodwill?I have emailed Kiva 4 times regarding this, written a snail mail letter to Matt Flannery (CEO) and even phoned the San Francisco office from the UK but after 6 month – Not one reply. If Kiva system can’t validate their field partner’s claims then what else don’t they know about how the field partners operate?Don’t get me wrong the idea is brilliant but the current system has flaws. Until these flaws are address I can’t continue to support or recommend Kiva any further!
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Jeremy, first please desist from spamming my blog with the same comment on multiple posts. This is completely unacceptable.responding to your comment … Well it might be that their field partners are working in different areas of the country where the moneylender rates are different. My experience is that moneylending rates are very local and are often driven down as microcredit has more penetration functioning as an alternative. The other fact is that moneylending will always exist as a service because it operates as an instant lender of last resort and therefore is more convenient than microcredit even though it often results in exploitative indebtness. So, generally microfinance orgs ignore what moneylenders do and they get pushed to a more niche business model. My net, is that I don’t think that moneylender rates are a useful factor when considering supporting a particular MFI or market. Any my 2 cents.
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I made some loan back a couple of years ago. Most were paid back, but some were only partially paid. Then I heard nothing. They decided to keep the remainder of my money without so much as a thank you.It’s been over 7 months and no register of a default, no account activities update. If they do this to a lot of people, I am sure they can make bonuses very lucrative every year.
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Dave,I’m a journalist and I’m wondering why there is no mention of the amount of the “operation fee” as well. I’ve heard similar reports to those Jeremy is making and since you aren’t being more transparent with the figures, it makes sense people would ask questions. He asked a reasonable one. I don’t think it’s spam. And JimBoaz has posted a question as well. The concept of Kiva is brilliant, but I’m doing my due diligence before loaning – as are many others. It makes sense to post a respectful and explanatory reply – particularly after the recent ponzi schemes we’ve all seen in the news. People simply want to keep track of their money, get answers and help. If you react to these questions like you have – it makes me nervous about Kiva. Sorry. Hope you figure out a way to truly be transparent.
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First, the “spamming” I referred to from Jeremy is that he posted the same comment multiple times on my blog…not that this post was spam.Now on Kiva … I am not a Kiva insider, just a Kiva member who makes loans. So, I don’t have the inside scoop on how their operation works and exactly what their various fee structures or arrangements with MFIs are.I know from experience that some Kiva loans do not get paid back. I had 2 (of my 62) Kiva loans which were only partially repaid. The default on one was 50% and the other was 10% for a total of $15. Kiva was very upfront about the situation…here are some of the things they proactively communicated to me on one loan:”Kiva’s Field Partner, the Women’s Economic Empowerment Consort (WEEC), is currently experiencing operational difficulties and is unable to repay its debt to Kiva. Therefore, all of WEEC’s active loans have defaulted and the partnership is now closed.” and “Your loan has defaulted because it is highly unlikely that Kiva will be able to collect the full amount of loan funds from WEEC. In the unlikely event that additional funds are recovered, you will be notified and your Kiva account will be credited with the additional funds.”I am not defending Kiva’s business practices…I’m sure that they can and should improve. I have been impressed with their continued growth in MFI transparency. I understand that they are seeking to be as transparent of a marketplace as possible. I also know that they run on a very small budget for the size of operation they are running. I believe this is largely because they’ve chosen to be a non-profit which limits their access to capital.So, please do continue to channel your comments/feedback to them (as I do). The net is I believe they are WAY more transparent than any consumer-funded MFI lending vehicle out there than I know of. If someone knows of another MFI that is more transparent, please let me know!
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