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.