Home | Music | Kiva : Investors Seeking Emotional Returns

Kiva : Investors Seeking Emotional Returns

kiva: investors seeking emotional returns
by steve ghil

Have you ever considered how much a loan helps you out in your life? Maybe it is the down payment you are making on a home or a new car or maybe it is simply that you are using your credit card to finance a start-up business or to fund all of your holiday shopping frenzy. Unless you are very wealthy, for most of us we get through it by borrowing money and paying it back. In fact, there is perhaps hardly any difference for us to get by in the developed West as it is for those in the developing world except for how far they can stretch a dollar.   

In Xirdalan, Azerbaijan a woman named Pakiza Azizova has been breeding cattle since 1993 as a means to improve her family’s living conditions. She and her four children are Internally Displaced Persons from the war-torn region of Azerbaijan Kalbacar. The average monthly income for IDPs in Azerbaijan is at around $18. Obviously, her income is very limited, but she needs $1000 to buy more cattle so that she can sell more milk. Selling more milk will mean sustenance for her family and schooling for her children. For someone like Pakiza opportunities to borrow money are limited or non-existent as banking institutions never lend to such high-risk borrowers and if they do, the interest rates are far too heavy for the poverty stricken to pay back.

For the last twenty or so years microfinance institutions have been assisting individuals like Pakiza in impoverished nations who wish to start a business. Such institutions have been founded and based on making financial services available to those excluded from more traditional systems merely because they are poor. However, the internet is helping to bridge this gap by allowing peer to peer direct micro-lending.

For the last three years Domitila Ardon of Comayaguela, Honduras has been running a small business making and selling tortillas. She was let go of her house cleaning job due to her illness and  has been supporting herself and her family selling tortillas. She has asked for $300 to purchase more corn, lime and firewood to expand her business. Domitila and Pakiza are only two of several entrepreneurs that are in my investment portfolio at revolutionary new micro-lending website Kiva.org. There I had read their stories, saw their pictures and gave a loan to them via PayPal.    

Kiva is partnered with microfinance institutions in impoverished nations like Africa, Central America, Eastern Europe, and South Asia. You, the lender, can look through profiles of individuals who are requesting a loan amount to put toward their business which range from a beauty supply store in Moldova, a used clothing shop in Togo or a grocery store in Ecuador. With only a minimum amount of $25 required to loan you can ‘invest’ in the same business with other lenders or give the whole sum with just your credit card or PayPal (Paypal does not charge any transaction fees). All 100% of the money is given to the entrepreneur via the microfinance institution of that country. The loan is paid back to the lender in about 6-18 months. The entrepreneur is charged interest from the microfinance institution and Kiva to cover operation expenses, however, the Kiva lender does not receive interest payments.

Why would anyone do this?   

“People want to help, they want to contribute and I truly believe that one of the reasons why Kiva is so successful now is because people have wanted to do this for so long, but they didn’t know how... Fiona Ramsey, Community and Operations Manager at Kiva.org, “...you can make a donation to an organization that does microfinance that will use those funds to lend but you don’t know who the person is, you don’t get to see a picture of them, you don’t get to hear a story about them... and I think one of the things that we’re trying to do is give every average American person the opportunity to be a mini-Bill-Gates philanthropist.   

To describe Kiva as ‘successful’ is a gross understatement. At just over a year old, Kiva.org has been nearly exponentially growing. Only a few months ago Kiva had already loaned over $400,000 from 5000 users and at just a few weeks ago the website had proudly announced $1,000,000 in loans to assist entrepreneurs in impoverished regions of the world. At the time of my interview in December 2006, the figure had increased by $250,000. They owe their recent growth spurt at least in part to a segment on the long running documentary series Frontline which aired at the end of October.  

The staff had gathered in their cozy San Francisco headquarters to see themselves on Public Television, but more importantly to see visitors to their site multiply. Instead, their servers instantaneously froze upon the east coast broadcast of Frontline. They could not handle the incredible volume of traffic that had been directed to their website. It took three days to get the servers back in working order only for them to crash again. While allowing only 1% of those access to the site, Kiva was still getting a lot of loan money from new users. They have since found new server hosts that are very well capable of handling any surges in traffic such as the one they have recently experienced.   

This recent success, including their invitation to the Clinton Global Initiative last September, has allowed Kiva to extend partnerships with even more microfinance institutions and subsequently more entrepreneurs in more countries. From 15 microfinance institution partnerships pre-Frontline, Kiva is now up to 26 and is expected to be at 30 when this article goes to print. Among them is Grameen Foundation - winner of the Nobel Peace Prize in 2006. Kiva users can now loan money to countries like Afghanistan, Bulgaria, and even Gaza in Palestine.   

“The region that we really don’t have as many partners we’d like is Asia... Ramsey offers, “...we have a partner in Cambodia and we just signed with a partner in Bangladesh... but there’s a lot of interest in loaning to India. Lenders write in and express their interest to the region they would most like to help out in and Kiva in turn tries to increase and expand their partnerships around the world. However, they do run into complications when specific laws of the country can prohibit Kiva and the corresponding partnership from operating ‘legally.’   

For example, in Moldova there was a restriction in returning the money lent to the entrepreneurs, although there was no problem in receiving it. Loans to Moldova are operating normally thanks to the help of lawyers volunteering their time. Currently, lawyers in D.C. and India are examining the laws in India for the movement of foreign capital. Unfortunately, it is more about the laws of that country, the economic ideology that is practiced, more than it is about providing help to those who need it most. I don’t expect North Korea to be setting up any partnerships anytime soon.   

So far loan repayment by entrepreneurs is around at an impressive 95% and 85% of that money is put into other businesses by the lenders; constantly being recycled. “I think that really speaks to the experience that the user is having, says Fiona Ramsey, “...they’re obviously enjoying that experience so much because they’re not getting a financial return on their investment... I think that’s proof that the emotional return is so high that they want to reinvest to get that emotional return a second time.   

But what about loan defaulters?    

“We don’t tell our partners how to run their operations, continues Fiona, “...[but] I think it’s pretty safe to say that if somebody does default...that would affect them from applying for a second loan...but of course it depends on the situation. For example, representatives from Kiva’s microfinance partner The Shurush Initiative in Gaza has had difficulty in reaching a certain entrepreneur there because they simply cannot go into the dangerous neighborhood that he lives in. The Shurush Initiative have already sent notices to lenders to this individual’s business that loan repayments would be delayed. Lenders have replied to those posts offering their concern saying their thoughts are with him and for him not to worry about the loans, but to worry about his family instead. “Obviously in that situation it’s out of the entrepreneur’s hands...I don’t think that would at all affect them from applying for another loan...but it definitely is up to our partners though, says Fiona Ramsey.   

As Kiva.org continues to grow, it is attracting users who are not only unfamiliar with microfinance, but even computer illiterate people who have never even bought anything online before. Scores of volunteers are flooding the website looking to help where they can with such duties as website developing, translating, accounting, and public relations. Kiva communities are springing up online where Kiva users such as teachers can exchange ideas and resources to spread the word and also educate through Kiva.   

Kiva.org was founded by Matt and Jessica Flannery as a non-profit organization in 2004. Matt was a computer programmer at TiVo Inc and Jessica was a Stanford business major. Their travels in Africa inspired the idea that the internet can facilitate direct loans and repayments for individuals in impoverished regions to lift themselves out of poverty.    

“Kiva is a Swahili word meaning “agreement.   

For more information please visit www.kiva.org

© 2007 Kotori Magazine 

SHARE: DIGG Add to Facebook Add To Any Service! Reddit this
All Comments require admin approval.
  • email Email to a friend
  • print Print version