Kiva loans: not just for third-world entrepreneurs
Today was an exciting day in the office, as Kiva announced its expansion to entrepreneurs in the US.
This strategic move raised both enthusiasm and skepticism. I blogged about this a while ago and expressed that I would personally be excited about funding an entrepreneur next door. There’s no doubt that micro-loans should be available to entrepreneurs in the US. The question is: should Kiva be the one doing it?
Here are my candid thoughts on the topic. (Although I’ve been interning at Kiva since March, these views are entirely my own and do not represent the organization.)
Will this change Kiva’s brand image?
Absolutely. Right now, the average loan is $416. This is a huge amount to an entrepreneur in the developing world, and part of the magic that Kiva sells. There is an exoticism value of making a loan to someone living in Vietnam or Kenya, where $25 goes a lot farther.
That visual imagery of a foreign Kiva borrower— like Dovi stirring palm oil in her makeshift outdoor kitchen in Togo, certainly invokes a different, deeper (?) set of emotions than domestic borrower Joseph, holding a blackberry in the streets of NYC. Or Amato (photo on the right) in front of her large flat screen TV, who was featured on Good Morning America today, asking for a $6,000 loan.
As Kiva begins to support new entrepreneurs, in both rich and poor countries, the image of a Kiva borrower will certainly change. So the question then is, how will this impact Kiva?
On average, it takes 1.71 days to fund a loan. Demand for loans is higher than supply and in response, Kiva has been trying to expand the amount of loans on the site in a healthy, sustainable manner.
The lending process tends to be personal, and lenders spend time browsing profiles of borrowers before making a decision. Lenders have preferences for specific gender, location, and sector. I.e. someone who spent time abroad in South America might choose to fund loans in Peru. In the same way, there will be those who are only drawn to entrepreneurs in their community. As a result, the expansion to domestic loans only broadens the lender base.
Furthermore, domestic loans allow lenders to be closer to the borrowers. I made my first domestic loan (and my first non-female loan), to a pair of guys with a board-game shop in San Francisco. Just as I hand picked this loan, I plan on visiting the store to see how things are going. Now that loans will be made within communities, I’m certain there will be a sense of evangelism and support of the products and services.
But will lenders want to get too involved? Most likely. One of my favorite stories is of an American lender who was traveling to Cambodia and wanted to meet the woman who received the loan. He was able to track her down and said excitedly, “Hi! I’m the person who gave you this loan for your business!”, to which the woman resonded, “Hi, I’m the person who paid you back”. If this happened abroad, there is no doubt in my mind that domestic lenders will track down their local borrowers. Or at least check the National Sex Offender Registry before making a loan.
It will be interesting to see other ways the lender-borrower relationships change for domestic loans. For instance, several of the borrowers posted their company’s website in the profile, something never before seen on Kiva. Will lenders keep closer tabs on businesses they’ve helped to fund? Will they support in other ways: Will graphic design lenders offer to make marketing materials? And will borrowers start to ask for services beyond financing?
Connecting entrepreneurs to micro loans, no matter where they are, is a good thing. Empowering people to run businesses and get out of poverty is a great thing. I’m excited to see Kiva take these risks and move micro-lending into a truly global movement.
Halle,
I am glad to see such promise and expansion in the Kiva offices, although I am slightly weary on how successful the domestic version of Kiva will be. If you define success as people offering loans, and others paying back those loans- Then yes, this works.
My true concern though is the additional effort for a single loan to make an impact in growing a business in the states. Will there be larger subsidized loans given to counteract the difference in economies of those overseas?
I know that Grameen recently opened a micro-lending program in NY. I am sure Kiva is taken some of the lead with this. Regardless, It is exciting to see how this will play out!
Thanks for the post,
Taylor Barr
Taylor Barr
June 11, 2009 at 2:59 PM
This move increases the American-centricity of the Kiva website and image. As a non-American, I feel very lukewarm about this.
Additionally, adding (one of) the richest country in the world to the site seems an awkward and unappealing mix. Great that some boardgame guys in CA get a loan, but who missed out? There are huge arrays of existing funding opportunities in the US already. The reason banks aren’t lending at the moment is quite rational – lending went too far before (subprime) to people who could not pay the loans back. The demand from such people has dropped, and the supply has dropped too. This is a natural contraction, but won’t be permanent. In the developing countries, there hasn’t been – and won’t be – the same possibilities, and now Kiva will freeze them out even more.
That said, it seems that the move has generated positive feelings generally, but they seem nationalistic rather than global. (“Finally, I can fund someone in MY OWN COUNTRY” is a popular feeling.)
Well, I’ve voted with my feet anyway and withdrawn my money from Kiva – and will take the rest out when it’s repaid.
I feel sad that Kiva has gone down this route.
Stu
June 11, 2009 at 3:02 PM
Stu,
I completely empathize with your sentiments. While you are correct that funding arrangements are plentiful in the US, they are not available to everyone, especially small business owners. Many of the US Kiva borrowers have already gone down the traditional routes of financing only to be turned down because lack of available capital means more stringent lending requirements.
I think you are, however, misinterpreting the excitement of US Kiva lenders as being nationalistic. We have been lending to entrepreneurs abroad all this time that it is nice that we can support someone in our own back yard. In order to promote a feeling of a global community, you must include the US (and hopefully Canada, Australia, Western Europe, etc. sometime in the future).
Here’s why I think this will work out in the end — this is an opportunity to bring in new Kiva lenders (particularly in the US), who once exposed to the site, will find out there are others in the developing world who need a greater amount of support and will want to help them. This only adds to the pool of resources that is available to the developing world, so I think this is a win-win proposition.
I have already made 2 loans to US borrowers, but the remaining 99% of my Kiva portfolio will continue to go the developing world. That’s a fair amount, isn’t it?
Tracy
June 11, 2009 at 8:23 PM
What does being a former sex offender have to do with being creditworthy? Don’t get me wrong, I think their crimes are disgusting, but after they serve their time we make it virtually impossible for them to reintegrate into society. If Kiva of all groups propagates this, aren’t you just part of the problem?
max
June 12, 2009 at 11:14 PM