A unique Web site is bringing together aspiring philanthropists and budding entrepreneurs in the developing world.
Kiva, meaning “agreement” or “unity” in Swahili, is a non-profit, Web-based charity dedicated to microfinance, allowing private donors to provide small or “micro” loans to struggling entrepreneurs in the Third World. Since its launch in late 2005, Kiva has generated over $5 million in loans to those hoping to open or sustain small businesses in Africa, Asia and Latin America.
With most traditional charities, donors have little opportunity to follow the progress of their beneficiaries. Contributors to Kiva, however, can see how their money is used from the moment they invest, in addition to having the opportunity to reinvest their initial contribution as soon as it is repaid.
Applicants for the small loans are screened by Kiva’s local partners, existing microfinance organizations such as World Relief and Action Now. After approval by the local partner organization, a photo, business plan, estimated repayment time and some biographical information are posted on the Kiva site for each loan applicant. Visitors then browse the applications to select a recipient. Loan requests range from $400 to $1200, and although a donor can choose to fulfill the entire amount of an applicant’s loan request, donors usually invest from $25 to $125. Most individual loan requests are thus fulfilled by a number of donors.
Loans are distributed via Pay Pal, which does not charge Kiva for transferring funds; the first non-profit with which Pay Pal has made such an arrangement. Once an applicant’s loan request has been met, Kiva transfers the funds to one of its microfinance partners located in the recipient’s home country, which then disburses the funds, charging borrowers a reasonable rate of interest on their loans. According to Kiva’s FAQ section, the organization carefully screens its partners and does not work with those that charge usurious rates.
Microfinance is an expensive proposition for the lending institution, given transaction costs and currency exchange rates. Because there is little profit to be made in funding the poor, most traditional financial institutions do not make loans in the comparatively small amounts requested by Kiva’s applicants. Microfinance institutions, therefore, by lending money at reasonable rates to people with few existing resources, generally make just enough from their small fees to remain in business.
After disbursing the funds to borrowers, partner organizations provide Kiva with periodic progress reports that are then posted on the “journals” section of the site, along with comments from the loan recipients. Lenders are also encouraged to comment and to make their own journal entries. As the recipient’s business develops, the partner organization begins collecting payments, sometimes in amounts as low as $4, to return to Kiva. Once an individual loan is fully repaid, the money is redistributed to the original investors, who can then withdraw the money, or use the funds to invest in another small business.
Kiva’s entrepreneurs are a diverse group, representing countries from Ghana to Mexico to Azerbaijan. Their business ideas are even more varied, ranging from small food stalls and bicycle repair shops, to investment in a single payphone.
Loan requests are filled at varying rates, with some applicants reaching their goals within days of having their requests posted, while others wait for months as investments trickle in. African nations seem most popular with Kiva’s investors, along with Afghanistan and Mexico. Recipients in more obscure countries like Tajikistan and Azerbaijan see the slowest rates of investment.
Those interested in Kiva’s nontraditional investment methods should log on to www.kiva.org.