The financial crisis has made a lasting impact on small businesses around the world and here at home in the United States. With the credit crunch creating a virtual standstill of lending, small businesses in the U.S. are facing an uphill battle to find funds, especially if their financial history isn’t stellar. Kiva.org, one of the web’s most interesting innovators in the micro-lending space, is hoping to come to the aid of U.S. entrepreneurs and small businesses by launching a pilot expansion that would allow individuals anywhere to make small loans to low-income U.S. entrepreneurs through Kiva’s platform.
Kiva is a peer-to-peer lending site that facilitates micropayment loans between citizen lenders and extremely low-income entrepreneurs in developing countries. Through Kiva’s platform, anyone can loan $25 or more to support an entrepreneur and the specific progress of the loan can be tracked from initial funding to repayment. Upon receiving repayment, lenders can withdraw their funds from Kiva or lend again to another entrepreneur, thereby continuing the lending cycle.
In April alone, Kiva members loaned $4.5 million to entrepreneurs, a 56 percent year-over-year increase and a record month for Kiva. Since the microfinance platform’s birth in 2005, over $75 million has been loaned through Kiva.org to support more than 180,000 individuals from 44 developing countries. Kiva’s president, Premal Shah, says this new initiative to include U.S. businesses increasingly made sense as the financial markets deteriorated and traditional lending began to dry up even in the U.S.
According to Kiva, small businesses represent more than 87 percent of all businesses in the United States, and, on average, these micro-enterprises are responsible for 900,000 new jobs created per year according to the Association for Enterprise Opportunity. This number seems small to me but the impact of small businesses on job creation is clear. To make matters worse, Kiva says more than 10 million business owners faced difficulty obtaining capital—even before the credit crisis and economic slowdown.
Kiva will launch today with the ability to for anyone to make loans to 45 small businesses and entrepreneurs seeking funding from the areas of New York, San Francisco, Boston, Atlanta and Miami. The businesses range in purpose and services, from salons to landscaping to day care facilities. For example, a Queens, NY-based entrepreneur delivers baked goods to bodegas in New York. He is looking to raise $6000 to fund insulation technology for his trucks.
Shah tells us that the idea was first introduced by California’s first lady and journalist, Maria Shriver, when she visited Kiva’s office last year. She asked if Kiva’s model could be replicated domestically to support low-income entrepreneurs in the United States. Shah said that initially he wasn’t sure if lending within the U.S. fit into Kiva’s model of international development. But following the recession, the organization realized the opportunity and need to provide community driven, low-cost capital for the everyday small business owner in the U.S.
Traditionally, Kiva uses partner microfinance programs, called a “Field Partners,” to evaluate whether businesses and entrepreneurs are eligible for Kiva’s platform. Field partners looks at a variety of factors in businesses, including past loan history, village or group reputation, and feasibility of business idea and then facilitates the loan transactions between Kiva and the microenterprise. In the US, Kiva will be partnering with ACCION USA, microfinance institution that lends to 48 states across the U.S., and Opportunity Fund, a community development financial institution based in San Jose, CA.
But P2P lending to U.S. businesses has proven to be controversial in the past. Prosper, a US peer-to-peer lender stopped all new lending on its site because of scrutiny by the SEC. Prosper, which is currently back online, agreed to register under the Securities Act, a process which took months. Since Prosper is a seller of investment, the organization had to be registered with the SEC, according to securities laws in the U.S. Loanio and Lending Club also faced similar problems in P2P lending initiatives.
Shah says that Kiva differs from P2P lending sites like with Kiva, you can’t earn a rate of return. The best you can do is get your money back at 0% interest – like lending to a friend. Shah maintains that a key factor for the SEC to determine is whether the organization is offering a ’security’ — where there is an opportunity to earn a rate of return. Since Kiva’s loans to the working poor at 0% interest are clearly charitable in nature, Shah says that registration with the SEC is not required.
One of the compelling parts of the new program is the ability for lenders in other countries to lend entrepreneurs in the U.S., making Kiva the enabler of economic development throughout in both developed and underdeveloped countries. Kiva has also signed up celebs to take part in the new initiative. Apparently, actor Tom Hanks will be lending to a U.S micro business and investor Warren Buffet has been asked to contribute to the new project as well.
That’s awesome.
Maybe you should mention that some European startups are doing the same. Friendsclear (France) and Scred (Finland) come to mind.
dumb idea in europe or here. i predict that kiva will drop this in a hurry or be gone entirely.
Kiva works because the money being lent is small enough to lose without pinch. that being said, as a long term participant on kiva, i have never lost a dime. but lending 5 or 10K is a very different story.
You don’t lend 5k – 10k: you lend $20 along with 200 other lenders. If the lender folds, you lose $20 (or part of $20). If not, you get $20 back.
Disclosure: I’ve been using Kiva for a while now and it was one of my better investments during 2008.
So far all of my microloans have been paid back and I’ve on my second round of investments (reinvesting the cash, rather than pulling it out).
BTW, Kiva gift certificates are a cool Xmas present to give.
loans on kiva are not investments, they pay no interest or dividends. if kiva was your best investment in 2008, you deserve our sympathies.
Not all returns of the investment are monetary. There is something calls SRO (Social ROI) where you can see a poor person coming out of poverty is worth the investment.
I don’t want to offend you. This is what i learned from the Social Entrepreneur Event i attended.
i think it’s safe to say that Kiva was MANY people’s best investment in 2008.
I think that is for suckers unless you somehow expect the good karma from a poor person in a 3rd world country will improve your life in any way, maybe it prevented them from being a terrorist and killing you, or they invented something to help your life, but these investments seem minimal. I would much rather invest in my hometown than another country.
Joe: said like a guy who never traveled past his county limits !
I’ve invested most of my 250+ Kiva loans in Kenya and Tanzania; you should go there for an eye-opening experience. The people we’ve seen will put almost anyone’s work ethic to shame including, I presume, yours.
kevinkris, i have a really good subprime loan i would like to sell. warms the heart
Gimme a break, I think Americans work hard and we get paid for it, even though many of us our out of work. Are you a traitor to this country?
Joe: “Gimme a break, I think Americans work hard and we get paid for it, even though many of us our out of work. Are you a traitor to this country?”
I cannot make sense of your sentence. You seem to be making sort of three points at once in a strange senseless mish-mash of emotional appeals. What is your point ?
Kiva won’t be gone. It’s completely addictive, just as bad as gaming imho. I can’t help but fund these guys and keep track of them. One of the most satisfying online experiences you can have. If you’ve got some spare cash you can roll, it’s a great pastime.
This is useful information. As a business owner (I don’t subscribe to the title “Small”), I’ve contacted microlenders. I was told recently that I did not qualify for a program because I have an MBA. The logic was I had a degree. Therefore, I had traditional lending options. The organization did not entertain the argument that education did not guarantee loan approvals. They equated low-income with no education. I experienced the field representative as projected her opinion on my choice to be an entrepreneur. In our country, people get edcuation to get a job. I receive education to create jobs. I’m looking forward to the day when I can find a group that understands my passion.
I’ve contacted Accion in the past. I find Accion to be the best among the microlenders in New York.
Although I have not received a loan from the organization, they are the best choice to partner with Kiva’s launch in America.
It’s 5 something in the morning. I’m contacting Accion as soon as business hours strike.
Thanks for the article. It is informative and supportive to Americans in business.
“Shah says that Kiva differs from P2P lending sites like with Kiva, you can’t earn a rate of return”
Probably missing something there.
Kiva doesn’t pay interest. The intention of that line was possibly:
“Kiva differs from P2P lending sites like %%%. With Kiva, you can’t earn a rate of return.”
At any “rate”, Kiva has a return in my opinion. It improves many lives, often those of an entire community and for $25, you can’t beat that.
“Shah said that initially he wasn’t sure if lending within the U.S. fit into Kiva’s model of international development.”
I think he should have stuck with this first instinct.
I’ve made several loans with Kiva and for me this is an unappealing initiative. Diluting the focus on poorer countries is a shame and I think is a real distraction.
So some Americans have gone from 100 times to 90 times richer than your typical Kiva borrower. I just don’t see how this fits in to the previous goals. Far better would have been to re-use the technology with a completely different name.
I realise that the Kiva lender can always choose whom to lend to, which is great. I would never lend to someone from a rich country for zero interest, maybe many people will. But the fact that Kiva is going in this direction in general changes their image and principles, I believe.
If they go ahead with this after the pilot, I’ll be waiting for my existing loans to be repaid, then I’ll be withdrawing my money from Kiva and looking for alternatives.
I totally agree with this response. I just visited the website and was disappointed that Americans were requesting no interest loan amounts of $10,000. This dilutes the efforts of entrepreneurs in underdevelopment countries with modest requests. I believe anyone who wants to borrow $10,000 should visit Prosper when the SEC approves. It’s a win win for the borrower who doesn’t qualify for traditional lending and the lender who receives a high rate of return on their investment.
Actually, they’re not interest-free loans. ACCION USA and Opportunity Fund state on their respective sites that their loans range between 8-15% interest, and they charge borrowers ~3% origination fees. So these are not free loans in the least.
Some of the interest charged to borrowers goes to servicing, some of it goes to running the MFI, and some of it probably goes to Kiva, too. But none of it goes to the “lenders” on Kiva, as has been pointed out above.
Incidentally, this is the same arrangement for all of Kiva’s loans, US or elsewhere. The difference is that the rates in other countries can sometimes be much higher (in the 20% and higher range).
I believe you’re getting the loans offered by Accion and Opportunity Fund mixed up with the loans they “partner” with Kiva. I’ll verify in the morning since business hours have passed. If you are correct, I thank you. I would apply for a loan with interest. I do not believe an American business (for profit) should receive a loan without paying interest. That’s charity; not a business transaction.
Agreed. they should do this to try – but should rebrand the platform for the US
I feel exactly the same way.
I also feel like there is a better chance of receiving my money back from the persons in less fortunate areas because it means so much to them. I won’t be lending to the US even though I’m a citizen.
That’s crazy. I am sure there are a lot of passionate people in the US who could use some kind of assistance. There are others I could less about… It shouldn’t make a difference where you live. Investing in your own community is good for the community. There are many less fortunate areas in the US too.
Then stick to loaning to developing countries. Pretty simple.
I use kiva and it’s a great service, but with the option for the majority of americans to pop down to a bank and get funding if their idea is good enough, I doubt it’ll work in the US. I like the idea of supporting people who have no other choice, not people who just don’t want to take a different route.
Um…sorry to burst these people’s bubble…but the reason why it works in poor countries is because people there are truly in need and make pocket change compared to Americans. So $25 to someone in Africa or South America is probably a huge frickin’ deal.
To Americans…unless you are willing to give people $1,000+ w/ zero interest, I really don’t think it’s going to help much. Plus, Americans are a bit jerky when it comes to gaming a system…so I would expect many people to be fraudulent in their taking of “loans”…
…just sayin’…
I have the same thoughts about persons in the United States taking advantage of this system too. What prevents them from taking the money and playing the stock market with it, etc. No thanks. Not at 0% return to a society that has so much.
Agreed. Concept is good in theory here, but I would hate to see such an incredible innovation for the developing world (and i mean truly incredible) be stifled because of a few bad American apples. Just a passing thought here – Kiva’s long term image would be better served to spin this out and re-brand. Or better yet, license the technology for a very high fee to the US government and use that revenue to fund more entrepreneurs in the developing world, keeping with the non-profit theme (and their core mission) and protecting their brand from a failing model in the US.
Or, if US politicians are pushing for this for their own personal benefit, why don’t they guarantee the loans behind the scenes through Kiva – a few hundred K in grant money could test the concept and protect those who use Kiva to lend and ultimately brand perception. Those of us who use Kiva use it in large part because we know we usually get our money back and we therefore feel like we are actually helping someone help themselves – sadly, I think money here in the US will be used far less responsibly and this will chase people away from the Kiva model.
Surely we have spent money on far worse initiatives lately. it actually bugs me now thinking the US government has potentially pushed them to do this, which could potentially damage this wonderful model – yet another way the US might crush the developing world. Let’s match EU CAP-like subsidies while we are at it.
with that said, i really do hope it works and that i stand corrected.
NOTHING about Kiva changes in my mind, insofar as developing world impact, because I can still choose who I lend to.
What’s more, a little bit of money CAN make a big impact on the lives of Americans who have a long history of ingenuity and creativity when it comes to bootstrapping their opportunities. Doesn’t always take $10K… sometimes it just takes $500 – $1,000K. And, it’s these types of businesses that make the backbone of the US economy.
Microlending has long taken place in the US, but Kiva’s announced plans may change the game by bringing in more funding and elevating the visibility of those investments.
Sure, anyone can rack up credit card debt to bootstrap a business. But the mechanics of entering into a small loan will require some entrepreneurs, especially those who are not ordinarily inclined, to do what makes businesses succeed ie. create a business plan, focus like a laser on the business opportunity at hand, and then be indebted to someone who is going to hold them accountable.
I think the key to Kiva’s US success will be to have ACCION and Opportunity Fund establish effective regional partnerships with the many existing community development microlenders, like http://www.wmef.org/ in Western MA.
Good to see Kiva expanding.
I must say though, that even though I enjoy lending through Kiva, I would probably not lend to Americans. The whole point of Microlending is to help people in third world countries. We Americans are blessed with so many resources.
When I lend to Americans, I expect a nice return to compensate for the risk. Currently, my fave site is http://www.lendingclub.com where I have been lending for a little over a year, and I’m have gotten around 8.5% returns on my initial $5K investment.
The US Government should require that all the banks who received any part of the hundreds of billions of dollars in federal bailout money put a percentage of those funds into Kiva. At least then Americans might have a chance at access to those funds, vs. the banks not lending and using the money to buy market share during this depression. Obviously Sam Ryan (@citricsquid) hasn’t tried to get a business loan recently – “pop down to the bank and get funding” – ha!
Sounds like a good thing but it’s tough to see how it can help in America. Reason is because entrepreneurs here need so much more money than in 3rd world countries.
If they continue with their current model, I don’t think they’ll succeed. The reason it works abroad is because the payments are so small (i.e. approximating only $25). That amount of money goes a lot further in the third world than it does in the US. To be sure, that amount is enough from one person to get a small business going in somewhere like Cambodia. Getting a company going in the US is going to take a lot more than $25 from each person contributing. They’ll have to change it for it to work in the US – maybe even offer returns.
Really exciting that Kiva’s using their model to help domestic small businesses. Microfinance helps empower entrepreneurs in all parts of the globe. An organization I’m helping out (Wokai – http://www.wokai.org) is helping establish this model in rural China, an area not currently served by Kiva.
“Wealth is everywhere and poverty is everywhere”.
Glad that we now have the option to choose to lend to entrepreneurs in the US. Keep in mind that these aren’t the entrepreneurs you see in Silicon Valley or
If you are interested in bringing your skills to assist an MFI field partner abroad check out the Kiva Fellowship – http://www.kiva...ellows-program/
This is a great development for Kiva, and I wish them the best. But I wonder why no one has mentioned Microplace (eBay’s microfinance site), where ACCION USA already offers the ability to lend to Americans, AND pays a 2% return? Are they already irrelevant?
(Incidentally, people used to scoff at a 2% return. Those were the good ol’ days.)
This is pretty amazing, and why not. With a good model set in place, why couldn’t you just open this up to folks locally and domestically in the US. It’s always great to see good companies doing well and growing. Thanks for sharing.
This is a fantastic example of Design for Extremes framework at work. Kiva started with super long tail (in US perspective at least) and has found that some of the very same elements apply right here at home. Super powerful to see a business using Design Thinking in their decision-making process. Congratulations. Hopefully US returns will be as good as Kiva has seen abroad.
Small business loans are currently the hottest sector of social lending right now. While volume still pales in comparison to bank-lending, Lending Club and Pertuity Direct are seeing a surge in applications and are a much friendlier environment to small business borrowers right now. Kiva has always been a different animal and if they can make this a financial success it may finally ignite the long hoped for growth in the domestic P2P loan market.
Congratulations to the Kiva team for their commitment to innovation in the Microlending space.
Good luck with the pilot.
Rob G from Lending Club
That’s great news to hear – wish Kiva good luck! It’s pretty remarcable that they could make the link between their actaul market and the situation in the US.
// Twitter @projectlog
This is a *very* interesting social experiment… Comments so far suggest that many Americans may be drawn to the novelty and exoticism of connecting with someone in Uganda. Some lenders may choose to stick to loans in the third world and never make a domestic loan. Is part of Kiva’s success thus far the difference in purchasing power between developed and developing countries?
Personally, I’m stoked about the opportunity to invest in an entrepreneur whose business I could visit down the street. In fact, I just made a loan to Just Awesome- a board-game store in San Francisco. Can’t wait to visit these local entrepreneurs.
This is so fantastic. Keep up the good work Kiva. I’ll be requesting some funding 10K-30K.
Maybe the US government will end up using this in the event our lenders overseas (China, Oil-rich nations) call in their money…
It’s a clever idea.
JB
now here is a good question, would you loan to a tech company through kiva?
and i mean like a startup
Entrepreneurs helping entrepreneurs sounds like a good proposition
As long as the lender retains the choice as to whom they lend to then the integrity of the model is preserved. If Kiva then extends the range of lending choices that can only be a good thing.
I am no longer amazed at the nonsense people want to spread about something. News Flash but not everything revolves around money.
Poverty is a cycle that needs to be broken, I see the usual “I got mine, go get yours” stance many umm certain Americans take.
At times the internet is the worst invention ever because people can say whatever they want and not be held accountable. Even if its a lie or a lie they want to believe, they can still say it.
Certain people lie to themselves everyday, another Tim Wise moment brought to you by somebody that Mike Malloy says “Knows You Better Than Yourselves”
There’s some fantastic discussion occurring here! I think a lot of people have raised some very valid points, but as an employee of ACCION USA, I’d like to do my best to clarify some points and dispel a couple of myths.
Kiva does not loan to its borrowers at zero interest. Kiva operates through intermediaries known as field partners (of which ACCION USA is one) who screen clients for Kiva borrowing and facilitate the loan. The loan is disbursed at whatever interest rate the field partner deems appropriate for the particular client (AUSA’s rates range from 8-15 percent). Kiva carefully scrutinizes the operations of a field partner before they approve them, ensuring that they lend ethically and responsibly. To alert lenders to the risk level of lending through a particular partner, Kiva assigns each organization a star rating (visible on their webiste, under the logo of the field partner). When Kiva states that they provide funds at zero interest, they are referring to the money donated from Kiva borrowers that transferred to the field partner with no extra cost. The field partner still charges interest on the disbursed loan to compensate for overhead; borrowers pay but field partners don’t.
Also, as many people have expressed, poverty exists in the United States and financing is not readily accessible to small business owners. In fact, a credit vacuum afflicts the small business lending market; commercial banks aren’t able to turn a profit without charging exorbitant interest because of high overhead, so the only financing option available to many small business owners is credit cards. Microlenders provide an alternative by offering accessible, reasonably priced, and fairly termed installment loans.
If anyone would like to learn more about Kiva’s domestic lending program, I’d recommend an incredibly informative, well written piece on the Kiva blog. For more on ACCION USA, please feel free to visit our website, blog, and follow us on twitter!