SEATTLE, Washington — They say that a little can go a long way. While this is true in many situations, it is especially true for impoverished people around the world. For those who are living and working in poverty, a few thousand (or even a few hundred) of dollars can make a drastic difference. The U.S. nonprofit Kiva has been making these drastic differences in people’s lives since 2005.
The Methodology of Kiva
In order to understand Kiva, one must first understand the methodology behind their work of microlending. Those in the developing world are often unable to participate in traditional banking or other financial institutions. This leaves 1.7 billion people “unbanked” across the globe. Microlending is a form of finance that works for these individuals. It offers entrepreneurs and businesses small loans that can be easily repaid.
The Borgen Project interviewed Brooke Flohr, an employee at Kiva. She said, “Kiva believes microloans are among the most powerful and sustainable ways to create economic and social good. With microloans, students can pay for tuition, women can start businesses, farmers are able to invest in equipment and families can afford needed emergency care in places where money would otherwise be unavailable.” The U.S. nonprofit Kiva has funded 1.6 million separate microloans, which collectively add up to about $1.3 billion.
Microloans Changing Lives
Microloans through Kiva can be anywhere from $100 to $10,000. Can loans this small really change lives? According to U.S. nonprofit Kiva, there are three reasons why the answer to this question is a resounding yes. First, the value varies from country to country. According to Flohr, an American may think a small sum of money is insignificant, but it could mean the world to someone in a developing country. For example, a 22-year-old juice-maker in rural Zimbabwe was able to bring her production levels from 20 liters per week to 200 after receiving a $500 Kiva loan.
Second, loans like these can help someone grow a business, which then creates opportunities for other community members. This can create a “ripple effect” says Flohr. Finally, loans do more than donations do in that they create a pathway to self-sufficiency. “[Borrowers] are incentivized to generate income in order to repay that loan, which helps to further their success.” One Kiva borrower, a coffee-shop owner, was able to build credit by taking out two loans from Kiva and repaying both of them. This allowed him to receive a larger loan from a traditional financial institution that had previously refused him a loan.
Funding the Microloans
While the loans may be small, the effort that goes into distributing them is certainly not. Kiva has built relationships with a wide network of microfinance institutions across the globe who facilitate the process of gifting loans to those in need. Referred to as “field partners,” these institutions can be schools, businesses or nonprofits that search for struggling entrepreneurs who could be candidates for Kiva microloans. The small amount of interest that borrowers pay is given back to these field partners who make sure that lenders’ money ends up in the right hands.
Before field partners can do their job, the money must first be collected. In order to do this, the U.S. nonprofit Kiva uses a person-to-person, crowdfunding model, encouraging Americans to lend amounts as small as $25 toward a loan for a borrower of their choosing. All transactions are handled by PayPal. Once the borrower repays his or her loan, all lenders who contributed to that loan are able to access their money and either donate it to Kiva, withdraw it or re-lend it (the most popular option).
With 3.3 million borrowers in 90 different countries, the risk of default by borrowers seems like it would be rather high. However, the average repayment rate on Kiva loans is an impressive 96.9 percent according to Flohr. Lenders can also see exactly where and to whom their money is going on the Kiva website. There, they can read about and see pictures of the businesses and people that they will be helping. Kiva’s website also features a “Success Stories” tab where accounts of various borrowers’ progress are detailed for lenders to see.
Kiva’s Impact and Goals
The U.S. nonprofit Kiva has positively impacted more than 300,000 borrowers in conflict zones, almost 800,000 farmers and almost 45,000 students. Based on these numbers, it’s safe to say that Kiva has helped a fair amount of people get on their feet. But, the organization’s end goal is to do something much bigger than that. “Long-term, our goal is to help achieve full financial inclusion,” says Flohr. “This starts with creating a more connected and inclusive financial system that empowers all individuals and enterprises to realize their full potential.”
In order to increase Kiva’s impact on financial inclusion, the organization decided to start working with social enterprises in 2012. These organizations are not necessarily financial institutions, but their work still has positive financial implications for those in the developing world. For example, Kiva partnered with an enterprise called Sistema Biobolsa, which sold biodigesters that turned agricultural waste into fertilizer. This item helps save farmers lots of money, and many were able to afford them through Kiva loans.
Since its founding in 2005, the U.S. nonprofit Kiva has given hope to people all over the world. Through Kiva, a small loan can become a big achievement. It can amount to an education, a safer future and a better life. This organization might not yet have reached their goal of full financial inclusion yet, but they are well on their way and getting closer and closer with each new loan.
– Ryley Bright