Billed as the world's first person-to-person microlending Web site, Kiva was launched by newlyweds Matt and Jessica Flannery with seven loans totaling $3,500. Within six months, all seven loans had been repaid, and that success quickly led to new loans. Two and a half years later, Kiva has enabled 43,550 enterprising poor people, 75 percent of them women, to achieve dreams of their own. PND recently spoke with Jessica Flannery about the organization's beginnings, success, and plans for the future.
Philanthropy News Digest: What was the inspiration for Kiva?
Jessica Flannery: I was working on impact evaluation and program development in rural Kenya, Tanzania, and Uganda with the Village Enterprise Fund and Project Baobab, two Bay Area nonprofits, when I first saw how microfinance could change people's lives. At the time, I was interviewing a lot of amazing individuals who had had a single opportunity to create a business, and while they had done a great job with what was available to them, their success almost always was tenuous. I knew they could be successful on a long-term basis if they had access to the resources you and I have, and I wanted not only to share the stories of these people but to help them go to the next level. The first postings on the Kiva site featured seven entrepreneurs I had met in a Ugandan village, including a goat herder, a fish monger, a cattle farmer, and a restaurateur, and we raised the $3,500 to cover their loans by spamming our wedding list!
Neither Matt nor I had a business background when we conceived of Kiva. We had so many unanswered questions that at one point we were cold-calling the Securities and Exchange Commission asking, "Is this legal?" But we did our research and sought out mentors and advisors who were willing to help us. I believe our lack of experience and naïveté — even our lack of assets — may have helped us initially.
PND: How does the Kiva model work?
JF: Kiva partners with microfinance institutions in other countries that vet and approve loan applications from low-income entrepreneurs. We now have eighty-nine partners in forty-two countries. The loans they approve are posted to the Kiva Web site for funding, and users of the site select an entrepreneur to support and the amount they would like to contribute to the loan, starting at $25. Entrepreneurs typically need about $500, although we've had loan requests as small as $75. Lenders typically put in less than $100, so there are usually multiple lenders to any one entrepreneur.
The online transaction is free thanks to PayPal's support, and as the repayments are made each lender receives an e-mail notifying them of the progress of the loan, as well as journal updates posted blog-style to the loan profile by the field partner describing how the life of the person who received the loan is changing. When the loan has been repaid, the lenders' loan amounts are credited to their Kiva accounts. They can either withdraw the funds or reloan them to another entrepreneur. The vast majority of lenders choose to reloan the money.
PND: Many of the things that have contributed to Kiva's success were in place long before 2005 — the Internet, microfinance, a heightened awareness of the developing world. What did you see in the technology or the philanthropic landscape four or five years ago that other social entrepreneurs did not?
JF: The Web 2.0 principles we rely on weren't around a few years ago, so when we came up with the idea for Kiva, people thought our idea of gathering little bits of money from all over the world to collectively make a big impact — rather than going after a $1 million check — was fundamentally unscalable. We wanted two hundred and fifty thousand lenders to pitch in $25 or $50 each to fund thirty-five thousand entrepreneurs.
At the time, we also were warned that the Kiva model would be too expensive for a lot of microfinance institutions to take advantage of. But we followed the advice of one of my favorite professors at Stanford, who said, "If you want to start a great business, be contrarian and be right." We ended up being more right than we anticipated.
I'll give you an example. Even if microfinance institutions have to hire one or two new staff people to focus on Kiva projects, it's still cost-effective for them because our platform is the Web. Working with us also encourages MFIs that don't use the Internet a lot or aren't computer-based to move to electronic record-keeping. But you'd be surprised how much technology has penetrated the African villages where we work. Even a few years ago, I could be in a remote area hours from any electricity source and my cell phone would work. In Uganda, cell coverage extends to a huge percentage of the country.
PND: Did you expect Kiva to develop as quickly as it did? And has the rapid expansion of the platform created problems?
JF: We never expected Kiva to develop as fast as it has. With that overwhelming growth, our main problem has been having more lenders than entrepreneurs. That mismatch has created tensions. For a good part of last year, we had to put a cap on lending or ask lenders to make smaller loans. In our model, we can grow the number of entrepreneurs we work with in two ways — by signing up more partners or by encouraging our existing partners to grow their enterprises. The latter is definitely a mistake if those enterprises aren't ready for more growth, and signing up more partners takes time because of the due diligence involved. We want Kiva to be a thoughtful, intentional enterprise.
PND: What does the future hold for Kiva?
JF: We'll continue to do what we're already doing well while working to increase the functionality of our Web site and create a richer user experience. Right now, for instance, we're developing better group-lending functionality so that in schools that lend through Kiva, class portfolios will be accessible to all participating students. We expect the site to become more dynamic as we get better, faster, and smarter at what we're doing.
During our first two and a half years, we have processed loans totaling $28 million, with a default rate of only 0.3 percent. By 2010 we expect to have facilitated loans totaling $100 million. But no matter how large we become or how we evolve as a platform and organization, our focus will always be on connecting people. That's what we believe in.
— Alice Garrard