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Kiva Microfunds
Founders	Matt Flannery Jessica Jackley (Now Jessica Flannery)
Founded	October 2005
Headquarters	San Francisco, California, United States
Staff	Matt Flannery (Chief Executive Officer) Premal Shah (President) Sam Mankiewicz (Chief Technical Officer) Jen Hamilton (Chief Financial Officer)
Area served	World-wide
Focus	Economic development
Method	Microcredit
Employees	34[1]
Motto	Loans that change lives
Website	http://www.kiva.org

Kiva Microfunds is an organization that allows people to lend money via the Internet to microfinance institutions in developing countries around the world and in the United States, which in turn lend the money to small businesses.^[2] It is a 501(c)(3) non-profit organization headquartered in San Francisco, supported by loans and donations from its users and through partnerships with businesses and other institutions.^[3]

Lending process

Kiva allows microfinance institutions around the world, called "Field Partners", to post profiles of qualified local entrepreneurs on its website, www.kiva.org. Lenders browse and choose an entrepreneur they wish to fund. Kiva aggregates loan capital from individual lenders and transfers it to the appropriate Field Partners to disburse to the entrepreneur chosen by the lender (but see Borrowers not the ones chosen through Kiva site). As the entrepreneurs repay their loans, the Field Partners remit funds back to Kiva. As the loan is repaid, the Kiva lenders can withdraw their principal or re-loan it to another entrepreneur.

Lenders' funds are transferred to Kiva through PayPal, which does not collect its usual fees in this case.^[4] It is possible to pay by credit card through PayPal's website, even without a PayPal account, but a PayPal account is needed to withdraw funds.^[5] Field Partners charge interest to their borrowers, although Kiva claims to keep track of how much interest is charged and will not work with those charging unfair interest rates.^[6] Kiva lenders do not receive any interest because Kiva is not registered with the US Government as a broker.^[7]

History

Kiva partners around the world (September 2006)

Kiva was founded in October 2005 by Matt Flannery and Jessica Flannery.^[8] The couple's initial interest in microfinance was inspired by a 2003 lecture given by Grameen Bank founder Muhammad Yunus at Stanford Business School. Jessica Flannery, then Jessica Jackley, worked at the school and invited Matt Flannery to attend the presentation; this was the first time Mr. Flannery had heard of microfinance, but it served as a "call to action" for Jessica. Soon after, Jessica began working as a consultant for the nonprofit Village Enterprise Fund, which worked to help start small businesses in East Africa. While visiting Jessica in Africa, Matt and Jessica spent time interviewing entrepreneurs about the problems they faced in starting ventures and found the lack of access to start-up capital was a common theme. After returning from Africa, they began developing their plan for a microfinance project that would grow into Kiva, which means "unity" in Swahili.^[9][10] Kiva is run by a team with experience in business, microfinance, and technology.^[11]

Interest rates

According to its web site, Kiva quotes interest rates as the "self reported average rate charged by the Field Partner to the enterpreneur."^[12] As of January, 07 2010 35.21% is the Average Interest Rate and Fees Borrowers Pay (Portfolio Yield) to All Kiva Field Partners.

There are a total of 134 field partners listed on the Kiva website and their status is as following: 77 Active, 5 Paused, 23 Pilot and 29 Closed. The following table shows the interest rate charged by a sampling of field partners.^[13]

Statistics

As of December 25, 2009, Kiva has distributed $110,671,610 in loans from 631,345 lenders. A total of 157,207 loans have been funded. The average loan size is $401.66. Its current repayment rate is 98.13%.^[1] According to Alexa, Kiva's website ranks in the top 15,000 websites on the Internet.^[15]

The total costs of running Kiva in 2008 totaled $4.7M. During 2008, the user base released about $37M to low-income entrepreneurs listed on the Kiva website. So, for every dollar spent on operations, Kiva lenders sent about $8 for loans.^[16]

Criticism

Borrowers not the ones chosen through Kiva site

When Kiva began, lenders chose who could borrow their money. Since then, the system has changed, so that loans are paid to borrowers before their stories are posted to Kiva‘s website.^[17][18] This is disclosed on Kiva‘s site; each loan proposal states whether funds were pre-disbursed. Thus, lenders‘ loan funds likely go to borrowers other than those chosen by the lenders.^[19] Whether lenders‘ preferences are used for lender preference trend analysis by any field partners or Kiva is not stated. Kiva‘s response has been to keep pre-disbursing but be clearer about the process^[20] in its legal terms^[21] but not in its main process description.^[22]

Interest rates

Some people, including microfinance pioneer Muhammad Yunus, argue that the interest rates of many microcredit institutions are unreasonably high. In his latest book^[23] he argues that microfinance institutions that charge more than 15% above their long-term operating costs should face penalties.

For example, in 2009 micro-loans from Kiva partners in Guatemala averaged 23.16% for the equivalent of USD$430 lent on average, comparable to the commercial BanRural rate of 24.5% for a loan of USD$635.^[24] (For reference, the inflation rate for Guatemala typically varies between 5 and 10% and was just 0.62% in 2009.^[25])

Kiva defends the interest rates of its lenders, however, saying its field partners provide much better rates than local alternatives, but must charge what they do because "the costs of making a micro-loan in the developing world are higher versus larger loans in the West."^[12]

Fraud by one partner

In July 2008 Kiva discovered that fraud had taken place with one of their 112 field partners,^[26] an African organisation based in Cote d'Ivoire. They suspended activities with the organization and after an investigation followed by the negotiated repayment of loans, they cut all ties.^[27]

Full-repayment frequency uncertainty

Whether defaults are extremely low has been questioned on the ground that a field partner may pay Kiva for loans defaulted to the field partner in order to maintain the field partner‘s good credit with Kiva.^[28] Whether interest rates collected by field partners are enough to pay for significant defaults depends on local economic conditions for each field partner.

References

External Links

• Podcast interview with Jessica Jackley Flannery, Feb 2008
• Interview with Premal Shah, President of Kiva
• PBS's Frontline - World on Kiva

See also

Sustainable development portal

• Flat rate (finance)
• Microcredit
• Microcredit Summit Campaign
• Social entrepreneurship

External links

• Official website
• Microfinance at the Open Directory Project