Kiva - Loans that Change Lives


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Kiva - Loans that Change Lives
Wan HJ IBRAHIM, Student (MBA), Australia

Kiva is an international nonprofit, founded in 2005 in San Francisco, with a mission to expand financial access to help underserved communities thrive.


Kiva is the world's first online micro-lending platform which is the world's first person-to-person lending marketplace for the poor. Founded in October 2005, in just 4 years, Kiva has raised over $100 million sourced from 720 000 lenders, for more than 300 000 entrepreneurs in over 50 countries. Taking its name from a Swahili word which means "unity" or "agreement", Kiva combines the culture and approach of an internet start-up with an intense focus on alleviating global poverty. Headquartered in San Francisco, Kiva's team has 50 employees and 500+ volunteers (Kiva, 2007). Kiva has been called the "hottest non-profit on the planet" by FORTUNE magazine (O'Brien, 2008) and a Top 50 Website by TIME (A. Hamilton, 2008). Kiva is a web 2.0 organisation that allows internet users in developed countries to provide microloans to entrepreneurs in developing countries, empowering them to lift themselves out of poverty. Kiva aggregates these loans and passes them onto field partners, who disperse the funds and oversee the loan's repayment. Kiva Fellows are volunteers who are placed with field partners to act as a link between lenders and borrowers. Choosing good field partners is vital to Kiva's mission as they select potential borrowers. All partners are established institutions and are carefully vetted before being allowed to partner with Kiva. The field partners write and upload borrower profiles to the Kiva website, allowing lenders to see who is using their money and for what purpose, the amount they require to set up their business, and the amount of the loan that has been repaid (Kiva, 2007).

According to Kiva’s president, Premal Shah in the recent interview with Forbes said that “there are a bunch of people now who are developing Kiva application (for mobile phones, and these may be used in conjunction with Google’s venture into mobile services for the poor as well).” He also stated that “one of the fastest growing financial services in Kenya right now is mobile payments. It grows faster than the banks are growing. If you connect that cell phone now to the internet, the Kiva platform, then you can say, ‘I need 300 shilling, I’ve had 4 loans on the Kiva website previously’. That’s where we’re going, total dis-intermediation on mobile devices.” (Forbes, 2010). Providing microfinance to developing countries is the main service that Kiva aims to provide. Therefore, Kiva has designed and integrated this function to be accessible across various devices like the M-PESA cell phone. M-Pesa allows Kiva partners to disburse loans and collect repayments with lower transaction cost and less risk than dealing with cash. M-PESA (M for mobile, pesa is Swahili for money) is the name of a mobile-phone based money transfer service that was developed by Sagentia. M-PESA is a branchless banking service that had 1.6 million customers just one year after it was launched in March 2007 by Safaricom (Gordon, 2010). Its business objective is to provide a service which allows microfinance borrowers to easily receive and pay back loans using the network Safaricom airtime resellers. It also allows them to send remittances across the country and make payments. In addition, it enables the microfinance institution (MFIs) to offer a low interest rate to their users by reducing cost of dealing in cash. It also helps the entrepreneurs that are farther away from the field partner's offices to track their finances and make repayments easily (Hughes & Lonie, 2007).

Kiva exists because of the power the Internet has to “reduce” distance between countries and people. Like it said above, they have not only utilised this communication network but they are now revolutionising non-profit organisations. Kiva has been providing peer-to-peer micro-lending for three years. It is a non-profit organsiation that connects people through microloans whereby an entrepreneur can buy a cow and sell the milk to pay back their loan. This gives the poor the opportunity to earn money and the skills that will give them a future. Recently they released an open API that enables any developer to create new tools and applications that can support their web community. The Kiva API allows developers to access public data such as listing of entrepreneur request and latest lending activity. Used in a mashup with Google maps open API and Kiva, people can view locations from anywhere around the globe microfinance loan transfers in real-time. Kiva is the first online non-profit embracing open APIs but GlobalGiving and others alike should soon follow suit. The advantages of API fundraising and open API collaboration will significantly change non-profit structures while enhancing transparency and accountably between donators and the non-profiteers. It’s a revolution for non-profits that will change lives in poorer societies.

It is hard to estimate its monetary value, aside from the stated running costs of $4.7 Million a year (Kiva, 2010a). However, as KIVA's user base increases, both in terms of entrepreneurs receiving finance and lenders providing capital, so does its value as a service. Increased lenders results in more capital to distribute, and increased entrepreneurs offers more opportunities for support. When combined, the growth of these networks increases KIVA's value exponentially. Kiva harnesses the network effects by having a vast number of small sites through its Kiva fellows (who are mostly volunteers), lenders and entrepreneurs (borrower). Kiva lends money to qualified local entrepreneurs through their microfinance institutions (Field Partners) as partnerships. It is amazing to see how Kiva builds on driving forces of long tail by catering to the prosumers (consumers and producers). The consumers are entrepreneurs who were loaned the funds and paid the charges on monthly installments, whilst the producers are lenders who choose an entrepreneur they wish to fund. Lenders range from being one year old to one hundred and one years. With assistance from field partners, Kiva has managed to exploit its services to several countries throughout many small towns These small towns build up mass markets for Kiva. By overcoming the limitations of geography and scale, Kiva has discovered new market niches and expanded existing ones through its field partners. Kiva has more than 90 microfinance partners in more than 42 countries and is still growing. Being a non-profit organisation, Kiva makes most of its money from loans and donations from its users. Kiva lenders do not receive any interest because Kiva is not registered with the US Government as a broker. This allows them to keep their interest rates low for entrepreneurs (Kiva, 2010).

There are three different risks involved in Kiva. The entrepreneur’s risks involve business failure, malaria, AIDS, theft, civil disturbances and over indebtedness, while the field partner’s risks involve bankruptcy, fraud and poor operations. However, Kiva helps to assess this risk by assigning a risk rating for each field partner. In addition, the country’s risks involve devaluation of large currency, institution of exchange manages by local government, change policies on funds repatriation and natural disaster. In July 2008, Kiva discovered fraud had taken place with one of their field partners, an African organisation based in Cote d’Ivory (Ivory Coast). They suspended activities and cut all ties with the organisation (M Flannery, 2009). Kiva conducts routine monitoring with field partners to ensure they understand how Kiva works. Monitoring includes a one-time pilot consultation to make sure that field partners understand:
  • How to use the Kiva website, including how to create entrepreneur profiles, how to write journal updates, and how to deal with website issues
  • Kiva policies and procedures
  • Account statements, billing, and funds transfer
  • Fundraising limit and star rating
What captivates me with KIVA, the use of mobile platforms has allowed them to reach and support entrepreneurs in remote regions with no banking infrastructure. By constantly updating and adding new services, Kiva has also managed to make use of new opportunities and technologies as they emerge. By providing services to small business owners in developing countries all over the world, Kiva has provided services to a client base no one else has reached, allowing them to successfully make use of the long tail. Maintaining a streamlined, lightweight business model, they have been able to pass on the majority of their proceeds to the entrepreneurs they support. The future looks promising as Kiva has already achieved its target $1 billion in loans in 2015 and underwent expansion into new areas such as student loans and climate change. The benefits of lending with Kiva is the ability to connect with people around the world. The return of investment is a social return, not a monetary return. Kiva could go in a lot of directions and they are looking at various ways to improve Kiva. You can join being a member, it's FREE😉.
References:
Evers, P. 2007. Charity through mobile micropayments. The Next Web. http://thenextweb.com/2007/12/24/charity-through-mobile-micropayments/ (accessed May 26, 2020).
Flannery, M. 2009. Contours of a Crisis (II): Social Edge. http://www.socialedge.org/blogs/kiva-chronicles/archive/2009/01/07/contours-of-a-crisis-ii (accessed May 17, 2015).
Hughes, N., & Lonie, S. 2007. M-PESA: Mobile Money for the "Unbanked” Turning Cellphones into 24-Hour Tellers in Kenya. Innovations: Technology, Governance, Globalization, 2(1-2), 63–81.
Kiva. 2007. Loans that change lives. http://media.kiva.org/KIVA_brochure_6.1.07.pdf (accessed September 2, 2020).
Kiva. 2010. Kiva - How Kiva Works. http://www.kiva.org/about





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