by Mai Dao-Horton
Kiva is a non-profit organization based in San Francisco, California that facilitates microloans. Kiva partners with existing microloan institutions and through these partners is able to connect lenders, such as you and I with a borrower, from anywhere in the world. The borrowers, working poor from developing countries are seeking economic independence through the growing of a business by taking out these loans. The loans may be used for a number of needs: to pay rent for a store, new equipment for a farm, stock for a manufacturing business - every kind of enterprise under the sun.
The Loan Cycle
1. Lenders pick a business and make a loan with a credit card or paypal account.
2. Kiva transfers funds to local field partners. Field partner disburses loans to each business.
3. Over time field partner collects repayments and provides business updates at Kiva.org.
4. Funds are returned to lender. Lender may withdraw funds or re-loan.
The course of each loan varies between 6 to 24 months, depending on the borrower's terms set up with the partner. The loan is not repaid to the lender until the entire loan amount is collected in full.
Thanks to the power and low-cost of administration via the internet, Kiva is able to create a similar interpersonal relationship as has existed through caring for a child through sponsorship. The individuals featured on Kiva are real people who need a loan and are waiting for socially-minded, ethical people such as us to lend them money.
Why you and me?
The poor have little chance of borrowing from traditional sources like a bank. It just isn't profitable enough for the bank.
For a moment pretend that you are a poor fish seller walking into a bank:
- You don't have any money to open a savings account with
- You don't have any collateral to secure a loan with
- You don't have a credit record as you have never been formally employed and you've never taken out a loan before
- You might even be unable to complete the necessary paperwork as you are illiterate.
The only credit available to the poor is mostly from informal commercial and non-commerical money-lenders but almost always at a unreasonably high cost to borrowers.
Each entrepreneur requesting a loan through Kiva.org has successfully completed an application process conducted by a local microfinance institution (MFI). These MFIs have entered into a Partnership Agreement with Kiva.org to become one of our Field Partners, who are responsible for the distribution, administration and collection of loans. Given the critical importance of their role, each Field Partner must successfully complete Kiva.org's Due Diligence process before being given access to Kiva.org's capital source. The Due Diligence process is designed to maximize the potential of a loan, with respect to repayment and social impact.
Each Field Partner must meet the following criteria:
- Have a mission of lending to the poor for a social purpose.
- Have an established history of accountability and credibility with Kiva.org and other organizations (e.g. U.S. Peace Corps).
- Have low overall associated risk, high repayment history, and/or a loan loss reserve fund.
- Be able to accept debt capital from US lenders.
- Sign Kiva.org's Hosting Agreement.
- Be cleared of the US Department of Justice Terrorist Exclusion List and the Treasury Department's list of "Specially Designated Nationals and Blocked Persons."
- Provide Kiva.org with financial statements that indicate sound financial health.
- Provide Kiva.org with legal incorporation registration documents.
- Be capable of managing the currency risk in their region, as all Kiva.org loans are granted and collected in US dollars.
- Offer a socially responsible interest rate to borrowers given their local economy (i.e. significantly discounted in comparison to alternative options for low income borrowers with no collateral, credit history, etc).
Each Field Partner establishes a reputation with Kiva.org based on:
- Repayment rate
- Journal frequency
- Social impact (as measured by the impact assessment report provided on each business at the end of the loan term)
The beauty of Kiva is that it is not charity - it is an opportunity for us all to become entrepreneurs of a sort. Now it is feasable for anyone of us to become micro-lending financiers.