Kiva - microfinance through online charitable loans
- Thank you to Flemming Funch http://ming.tv for alerting us to the work
of Jessica and Matthew Flannery in starting Kiva http://www.kiva.org
Kiva is an online website for making small loans to small businesses in
rural Uganda, Kenya, Tanzania. These are "charitable loans" - you get
the money back when it is repaid, and so you can then keep it or invest
it elsewhere. If the loan is defaulted, then you lose your money, but
the default rate is slim. The borrowers pay an interest rate that is
kept by the local organizers. This is a very much needed service - best
wishes to the founders and participants! I share some information from
+370 (5) 264 5950
Kiva - Why We Do It
Jessica and Matthew Flannery are true believers in the power of small
business development to change the lives of the poor. In her work in
rural East Africa with Village Enterprise Fund, Jessica was able to
visit hundreds of small businesses that had been given grants and loans.
Furthermore, she was able to visit many twice - once before and once
after each business was started.
When interviewing entrepreneurs about their standard of living, one
simple question she would ask was, "Can you afford to take sugar with
your tea?" -- a significant indicator of an East African's standard of
living. Tougher questions would follow: Can you afford to eat even two
meals a day? Do your children attend school? Has anyone in your family
been affected by malaria or AIDS?
What she learned in those interviews astounded her. In almost every
case, those who had businesses were doing dramatically better than those
who couldn't get a grant or a loan to start or expand a business.
Furthermore, the amount of money it took to start or improve a business
was often as little as $100.
All of Kiva's overhead expenses are covered by donations and by the
interest gained from the loans as Kiva entrepreneurs repay them.
Operating expenses are not covered by any of the loan money that lenders
like you contribute. When you "sponsor a business," all of your money
goes to that business, not to any other expenses.
We keep operating expenses low using several strategies, including:
working from home offices; utilizing an entirely paperless transaction
system; hiring part-time staff when possible and when appropriate;
working without salaries. Our partner representatives are paid stipends
which provide them with income in addition to that they receive by the
microfinance organizations they work for full-time.
Why are microfinance interest rates so high?
We found the best, most concise answer to this question on the
Unitus.com website: "Providing microfinance services is expensive,
largely due to the transaction-intensive nature of the business. It is
important to remember that, while microfinance interest rates of 30% to
70% may sound high, they are significantly lower than the 300% to 3,000%
rates charged by money lenders who are typically the only source of
capital prior to a microfinance institution's existence." Kiva, because
of it's low overhead costs, is able to work with partners who charge 10%
or less interest. Kiva has never charged more than 10% interest to a
business it helps start.
June 11, 2005 In other news, the founders of Kiva have teamed up with
two Bay Area entrepreneurs to take this concept to the next level. We
will be working throughout the summer to create a pilot round of loans
in conjunction with a new Micro-Finance parter we are pursuing. We are
totally excited to make this happen soon.