“The blogosphere is a-buzz about Kiva,” writes Pablo Halkyard on the World Bank’s Private Sector Development blog, though I’d never heard of it until tonight. Kiva combines the development potential of microcredit with direct reporting on the people receiving loans. Interested donors can browse the Kiva website for African businesses in need of small amounts of capital to get started. They can then make loans to specific businesses in increments of $25 and will receive monthly updates on the success of the entrepreneurs to whom they give loans. At the end of the finance period, the loan is repaid and may be withdrawn or loaned out again to another business.
The idea of microcredit isn’t new — it has a successful track record of spurring development among those without access to traditional banks. What is new here is the pairing up of lenders and borrowers on a peer-to-peer basis, allowing lenders to see exactly what their money is used for and to rechannel it when it has been repaid. Kiva currently reports a 100% repayment rate. Though that may not last, microcredit generally boasts very low default rates. In addition, all of the money lent goes directly to the entrepreneurs; Kiva’s operating expenses are paid entirely by interest and outside donations.
The enterprise blurs the distinction between lenders and donors in an appealing way. I wasn’t sure which word to use as I wrote this post. A person lending through the site isn’t just writing a check to charity, for he fully expects to be repaid. On the other hand, he isn’t looking to make money. There’s no reason to use the site except to better others’ lives. Kiva’s identity is also hard to pin down. It’s part microfinance institution, but it also partners with other MFIs and serves as an innovative marketer for that approach to development. The whole concept is a celebration of how entrepreneurship and creativity can help do good in the world. I like that way of thinking.