Kiva: New Gateway of Loans for the Poor

 

The rise of social networking websites has created new opportunities for the poor to gain access to much needed credit. Kiva.org is pioneering a new way for entrepreneurs in the South to obtain for their businesses unsecured, no-interest financing from lenders worldwide. By just a click of the mouse a person anywhere in the world can lend as little as US $25 or more to aspiring entrepreneurs in developing countries.

Kiva, which means “agreement” or “unity” in Swahili, was founded by Matthew and Jessica Flannery after time spent in East Africa. They built upon the idea of Nobel Peace Prize Winner, Mohammud Yunus’ Grameen Bank but took it a step further by tapping into the resources of the web. It works by allowing potential lenders to search for an entrepreneur via the website. Each entrepreneur’s business idea is explained, a photo of the entrepreneur is posted and the amount of the loan they require and how much they have raised so far are clearly displayed. It is then a simple matter of the lenders using their credit cards to make a loan online. Kiva then transfers all the funds to their local partners (microfinance institutions) which, in turn, disburse the loans to each business. All entrepreneurs are screened for their trustworthiness and the viability of their business. Loans are usually between 6 to 12 months and lenders receive regular email journal updates from the business they sponsor. Gradually, the loan is paid back and the lender is returned the full value of the loan.

The process is so simple that one may ask, “Does this really work?” Take the story of Nicholas Kristof, columnist for the New York Times who recently accounted his experience with Kiva.org in his New York Times Op-Ed piece, “You, Too, Can Be a Banker to the Poor”. Through Kiva.org he chose two entrepreneurs, a baker and an owner of a TV repair shop in Afghanistan and lent them US $25 each instantly making himself a business partner with total strangers. He recently visited Afghanistan to see their progress and found two thriving businesses. Mr. Abdul Satar, the baker, borrowed a total of US $425 from a variety of lenders, Nicholas being one of them, and was able to open a second bakery with four employees. Mr. Abdul Saboor who runs a small TV repair shop now has a second shop with two new employees.

By harnessing a user friendly website to make instant cash loans, Kiva has come up with one of the simplest and most direct ways to help poor entrepreneurs who need start up capital. It was first tried out in Uganda about a year ago where partnerships were forged with local microfinance institutions that examined and evaluated each business before they were posted on the website. It has now attracted close to 18,000 lenders contributing an average of US $82.

“I believe the real solutions to poverty alleviation hinge on bringing capitalism and business to areas where there wasn’t business or where it wasn’t efficient,” co-founder Matthew Flannery told the New York Times. “This doesn’t have to be charity. You can partner with someone who’s halfway around the world.”

By David South, Development Challenges, South-South Solutions

Published: April 2007

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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