[P]eople, even with a very modest amount of money can have a huge impact. Just think about it. You and I could become bankers to people and we could monitor their progress and people in their neighborhoods will see and they will look for micro-loans, they have their own ideas, so we can give them a chance to raise their kids with dignity, send their kids to school, and in troubled places like Afghanistan, we marginally increase the chance that peace can prevail because people will see there is a positive alternative to conflict. — Former U.S. President Bill Clinton, speaking on Countdown with Keith Olbermann about Kiva
When someone with an entrepreneurial vision lives in a developing nation, they often need only a little capital to turn their dreams into reality. Costs are low, relative to the developed world. And a small amount of money — by first world standards — goes a very long way. But even “a little capital” is out of reach when the person has a daily struggle to buy the barest of necessities.
Raising capital, even for a micro-enterprise, can be an insurmountable problem for a person of limited means who lives in a third-world country. Entrepreneurs who have nothing but their vision to use as collateral are generally considered a poor risk by institutional investors. The harsh reality is, without an infusion of capital — often as little as US$100 — they must give up their dreams. Yet, with micro-loans through Kiva, entrepreneurs are turning their dreams into income, and lifting themselves and their families out of poverty.
Connecting Dreams with Lenders
While on assignment in central Africa, in 2004, Matthew Flannery and Jessica Jackley learned firsthand about the important difference a small amount of money can make in the lives of poor, but ambitious, individuals and families. As they traveled, they met dozens of entrepreneurs who, with very little money, were raising themselves and their families from poverty by starting small businesses. They were impressed — so much so that they knew they needed to find a way to help many more enterprising people become self-sufficient through micro-loans.
After returning to the U.S., the Flannerys decided to create their own micro-lending organization, one that would allow individuals lenders to connect directly with entrepreneurs they wish to sponsor. In 2005, they founded Kiva, a nonprofit organization that invites potential lenders to learn about a wide range of entrepreneurs and their projects, then select someone they wish to support. Direct lending to a specific recipient engages an investor in a way that isn’t possible with large organizations.
Kiva presents potential investors with a wide range of choices on its website. Reading and reviewing all of the applicants’ stories can take hours. We learn about their families, their plans and dreams, and their track record for paying back previous loans. After selecting a person and project to support, signing up is easy. PayPal has agreed to process Kiva loans free of charge, or investors can use a credit card, if they wish.
Kiva facilitates the transfer of an investor’s money to the selected recipient’s Field Partner, a lending organization that will supervise the loan disbursement and repayment. Field Partners are carefully screened and monitored, to assure they are good stewards of the funds that Kiva sends through them.
In turn, each Field Partner has its own screening process for selecting projects to put forth to Kiva and its investor pool. While neither Kiva nor the investors charge interest from the entrepreneurs, the Field Partners are entitled to collect a minimal amount of interest, in order to stay in business themselves.
Every penny loaned by an investor goes directly to the borrower. Kiva supports itself through investment interest on the loaned money while it is being transferred to and from the recipient. At checkout, investors are also prompted to donate an additional 15% to help support the organization. For a $25 loan, that comes to a (U.S.) tax-deductible donation of $3.75.
Spreading the Risk
Sponsors can invest as little as $25, supporting a share of the entrepreneur’s request. This method of pooling resources with other donors spreads the risk, so that a single person isn’t heavily impacted if the recipient defaults.
But defaults are rare. Most borrowers pay their loans back within the time allotted, meeting the schedule they’ve agreed upon with their Funding Partner. As I look through the database of applicants for Kiva funding, I’m struck by how many borrowers already have successfully repaid multiple loans.
A woman from Viet Nam, who wants to expand her incense business, has previously borrowed and repaid 10 loans. A 48 year-old woman from Bosnia and Herzegovina has repaid two loans for livestock and chickens, and is now requesting a third loan for more chickens and feed.
Customized Solutions for Individual Needs
I was surprised to see the variety of requests. Not all applicants are entrepreneurs. Some simply need to improve their living conditions. A schoolteacher in Nicaragua, for example, needs a loan to repair the cracks in the flooring in the home he shares with his daughter. This is his fourth micro-loan.
Not all loans go to third-world nations. Kiva recently began facilitating loans to applicants in the United States through a pilot program with the Field Partner Opportunity Fund. The fund is designed to support the working poor, who often launch small businesses to improve their circumstances.
In many cases, enterprising individuals will join together to support each other with a group loan. “In a group loan, each member of the group receives an individual loan but is part of a group of individuals bound by a group guarantee,” the Kiva website explains. “Under this arrangement, each member of the group supports one another and is responsible for paying back the loans of their fellow group members if someone is delinquent or defaults.”
The Kiva site has several helpful tools for lenders, including a post about each recipient, a map showing the recipient’s home country or state, and pinpointing lenders’ locations. Lenders can, if they choose, join a team of like-minded people. Groups range in interest from Mormons to GLBT (gay, lesbian, bisexual, transgender) to Italians to Texans to Catholics to Unitarian Universalists, Microsoft Businesses, Shoppers, and more. Or, if you can’t find a group that you like, create one of your own.
Maintaining the Flow
Once the entrepreneur repays a loan, the investor has the right to collect the money due, but most choose to reinvest those same dollars into another project. An initial small loan of $25 to $500 may be repaid and re-loaned time after time.
In Kiva’s Community pages, I see people who’ve supported more than a hundred projects. I’m struck with the thought that either they have a lot of disposable income, or they must have been repaid several times over. And that, I discover is partially true. A list of each person’s projects and recipients reveals whether repayment is still in progress, repayment has not yet begun, the loan has been defaulted on, or the loan has been fully repaid. Many people have been fully repaid, but others have multiple loans in progress at the same time.
Why Lend for No Return?
What is the appeal of micro-lending? There’s no financial gain, as your money earns no interest for you, and may even lose value during the time it’s being repaid.
One reason for lending is that you get to know the people you support through journal entries on the web (posted either by them or by a translator). You watch their progress in words and photos. You learn about their struggles, and you cheer them on as they progress. Although their financial future is only somewhat tied to yours, you begin to feel that their success is your success.
Joe and I have a dear friend who quietly makes microloans to individuals, helping them convert their entrepreneurial ideas to salable goods in the marketplace. He’s inspired by helping others bring their dreams to reality.
The fact that he knows who he’s supporting and believes in their project makes a huge difference in his willingness to risk his own capital. “Many businesses and other worthy causes only need a small infusion of cash to get launched successfully,” he says. “And organizations such as Kiva are essential to coordinate lenders with people in need.”
Besides, it just feels good to give someone a little boost that allows them to help themselves.
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