Kiva & the Micro-Lending Revolution – Too Small to Fail
December 15, 2011
December 15, 2011
Today there is a lot of press about the banking crisis. The headlines blast us with news about bad loans, the need for bank bailouts and now the threat of junk sovereign debt. All of this has made most banks skittish about making loans.
One form of financial assistance that is flourishing, however, is micro-lending. In micro-lending, loans, very small loans by traditional banking standards, are made to individuals who are too poor to appear on the radar of any financial institution. Micro-lending has become very popular as a way for individuals to make small loans that go a long way in helping the poor establish or expand a business that will lift them out of poverty. One of the pioneers of micro-lending was Muhammad Yunus who won a Nobel prize for his pioneering work in making loans available to the desperately poor through his micro-finance institution, Grameen Bank. The bank estimates its micro-loans have helped over 8 million of the world’s poorest citizens become more financially self-sufficient.
The Internet has made it possible to easily connect micro-lenders with small borrowers. Consider Kiva, a San Francisco-based non-profit organization with a mission to connect people through lending to alleviate poverty. The Kiva operating model is simple:
- Let’s say you want to lend money to one of Kiva’s entrepreneurs. You open an account and then can make loans as small as $25.
- Kiva’s field partners (micro-finance institutions in areas where loans are made) vet the entrepreneurs and administer the loans.
- Kiva provides progress updates via e-mail.
- When the loan is repaid the money is once again yours to either withdraw or use to make another loan.
Video Explaining How the Kiva Micro-lending Model Works
Each loan has its own page on the Kiva website. The page has a description of the entrepreneur, the amount of money to be raised, the repayment schedule, a list of contributing lenders and information about the partner administering the loan, including other loans that partner has supervised.
Since it was started by Matt Flannery and Jessica Jackleys in 2004, Kiva has built up an impressive set of stats:
- Total value of all loans made through Kiva: $264,818,925
- Number of Kiva Users (those who have opened an account to make loans): 1,035,157
- Number of Kiva Users who have actually funded a loan: 651,686
- Number of countries represented by Kiva Lenders: 217
- Number of entrepreneurs that have received a loan through Kiva: 692,882
- Number of loans that have been funded through Kiva: 349,124
- Percentage of Kiva loans which have been made to women entrepreneurs: 80.52%
- Number of Kiva Field Partners (micro-finance institutions Kiva partners with): 146
- Number of countries Kiva Field Partners are located in: 61
- Current repayment rate (all partners): 98.96%
- Average loan size (This is the average amount loaned to an individual Kiva Entrepreneur. Some loans – group loans – are divided between a group of borrowers.): $385.41
- Average total amount loaned per Kiva Lender (includes reloaned funds): $256.61
- Average number of loans per Kiva Lender: 7.78
And perhaps best of all in this era of oversized executive bonuses, Kiva distributes 100% of the loan funds it collects to its entrepreneurs. The non-profit uses a combination of fundraising and grants to pay for its operational overhead.
As with any financial endeavor, there are risks for the lender. For example, the loan may not be repaid. Or the field partner could engage in fraud. Or the countries where the loan is made might go through political or social upheaval. But Kiva’s 98.96% overall loan repayment rate is a number most large banks can only dream about.
Micro-lending represents a powerful, sustainable method for people to help other people move out of poverty. And taxpayers needn’t fear that they will ever have to bail out the micro-lenders.