December 12, 2007 Print This | Email This     

12 December 2007

Web Site Lets People Offer Microloans to Borrowers Worldwide seeks to connect lenders, borrowers in partnership

Chiyenure stands with two stylists and a customer
Chiyenure Uwobodo of Benin City, Nigeria, center, used a loan to buy beauty salon equipment. (Photo courtesy of

Washington -- Jaime Acosta, a college student and baker from Houston last year loaned some money to Eleuterio Salazar Segura, a store owner in Mexico who wanted to purchase merchandise for his store. After Salazar repaid his loan in full, Acosta then loaned to Penina Mataoa, a tailor in Samoa. “I care about the well-being of others around the world. With all the resources that we have, extreme poverty should not exist,” Acosta said.

Acosta made his loans through, a nonprofit microlending Web site.  Kiva -- which means "unity" or "agreement" in Swahili -- is the brainchild of Matt and Jessica Flannery, who got the idea while Jessica Flannery was consulting on microfinance in East Africa a few years ago.  Kiva is “all about connecting people” and “connecting lenders with micro-businesses online,” Matt Flannery wrote in his blog.

Thanks to Kiva, Chiyenure Uwobodo, a Nigerian mother of four, was able to borrow $250 to expand her beauty salon business.  And Grace Ayaa, a mother of four in Uganda, borrowed $475 for a refrigerator to store the peanut butter she was making until she could sell it, and to buy packing materials. She was able to save enough from her increased income to buy a small piece of land and begin building a home for her family.

Angel Asenov Isaev, a young Roma man in Bulgaria, used his $850 loan to buy equipment and stock for a bicycle repair shop, converting part of his house into a shop front. He has expanded into metalworking as a sideline and repaid his loan in full.

“Kiva is about empowering the poor through loans,” Fiona Ramsey, a Kiva volunteer said in an interview.

Kiva did not invent microfinance -- the supply of loans, savings and other small-scale financial services to the poor -- but its creation of an online marketplace for lenders and borrowers is innovative enough to have led to explosive growth of over 30 percent per month since the Web site’s founding in 2005. Based on the recommendations of an international panel of judges, the Tech Museum of Innovation presented Kiva with an economic development award November 7 at a ceremony in San Jose, California.

“Kiva’s mission is about connecting people through lending for the sake of alleviating poverty, but an important part of this is connecting people,” said Ramsey. “We want to create ways where people in the developing and the developed world can connect with each other ... in a way that is different and not in a beneficiary-benefactor relationship, but a partnership relationship.”

“Our lenders say they love having a sense of being in business with entrepreneurs in other parts of the world,” he said.

Armando Falconi of Guayaquil, Ecuador, stands with his family in his grocery store and bakery
Armando Falconi of Guayaquil, Ecuador, stands with his family in his grocery store and bakery. (Photo courtesy of

Kiva raises money from investors in more than 70 countries via the Internet and turns that money over to 69 partner microfinance institutions (MFIs) in 37 countries. Through the Kiva Web site, investors can direct funds to the loan pool for specific borrowers. Partner MFIs must have a history of lending “to poor, excluded and/or vulnerable people for the purpose of alleviating poverty” as well as at least one year of financial audits and registry as a legal entity in its home country. Kiva refers to its lenders as “social investors.” They receive no interest on the money they lend. The MFIs, on the other hand, lend at prevailing interest rates and keep the interest income. Losses, Kiva notes, are borne by the social investor, not the MFI.

The MFIs make the actual loans to individuals.

Kiva rates its MFIs as to risk.  “One-star MFIs are generally seen as more risky and less likely to handle large volumes of loan capital effectively.  Five-star partners are generally seen as less risky and very likely to be capable of easily handling debt capital and returning it dutifully to Kiva lenders,” says Matt Flannery in his blog.

The loan default rate and payment delinquency rate for each MFI are available on the Kiva Web site. Most MFIs can boast of zero percent delinquency and default rates. The current repayment rate for all partners is 99.78 percent.

“People want to help in a way where there’s a lot of transparency and accountability for their contributions,” Ramsey said.

In Kiva’s first two years of existence, more than 168,000 people have loaned more than $16 million. The average amount loaned is just under $100, and the average amount borrowed is about $620.

Kiva is able to pass 100 percent of what people loan to MFIs because of low overhead, its many volunteers and special partnerships. PayPal provides Kiva with free payment processing. No money is spent on advertising or marketing.

Ramsey believes one key to Kiva’s explosive growth is the $25 minimum amount people can contribute for a loan. “We even have school children doing chores to raise the money and then lend it through the Web site,” she said. “We have a lot of people who write in and say, ‘I never felt in the past like my contribution could make a difference because it’s so small.’”

“People can make a difference with a small amount of money. All together we can have this really strong global community all contributing piece by piece and see it’s made a huge difference. It’s an amazing thing to be a part of,” she said.

More information is available on the Kiva Web site and Matt Flannery’s blog Kiva Chronicles.

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