Kiva Is Really A Crowdfunded Bank For Refugees And Other ‘Unbankables’
You’ve probably heard of Kiva, but if you aren’t among the 1.7 million people who have made loans on the platform, you may not really know what it is. This crowdfunding platform is, in effect, a bank funded by people who lend their money with an expectation of losing only a little, to 2.9 million people who stand to gain a lot.
Kiva co-founder and president Premal Shah, 42, joined me for a conversation about the site and how it works to not just make loans but also to change lives in 85 countries around the world—including here in the US. Watch the interview in the player at top of the article.
Kiva lenders receive on average about 96% of their money back and agree not to receive interest. “It is done philanthropically,” Shah says. For many, presumably, it is their first impact investment.
The 110-employee nonprofit, based in Silicon Valley, doesn’t make the loans directly to borrowers. Instead, the organization partners with microlenders with a compatible impact-oriented objective and a proven track record. One thing that typifies the borrowers: by traditional standards, they are not just unbanked, they are unbankable.
John Kluge, founder and managing director of the Refugee Investment Network, learned of Kiva while writing “Charity and Philanthropy for Dummies” but didn’t connect with the organization until three years ago at the SOCAP conference.
The connection has proved valuable. Today, Kluge serves as an advisor on Kiva’s leadership council. Kiva’s senior investment manager for refugees and displaced populations, Lev Plaves, serves on the steering committee for the Refugee Investment Network.
Working together, the organizations helped to create Kiva’s World Refugee Fund in 2016. “Most financial institutions were afraid to lend to refugees because they perceived refugees to be a higher risk–why loan to someone who might return to their home country?”
Kluge notes that most refugees remain in their new home countries indefinitely— for years or decades.
“Under Kiva’s 0% interest model, this allowed microfinance institutions in countries like Jordan, Lebanon, Rwanda, Mexico, Colombia who were skeptical of lending to refugees, to do so at minimal risk. It was almost like an R&D fund for them,” Kluge explains.
The fund provided $5 million in loans to more than 8,000 refugees and yielded something that is almost invaluable: data. The fund proved that refugees are just as likely as most—and more likely than some—to repay their loans, making way for more loans and economic support for this particularly vulnerable population.
Kiva doesn’t charge its field partners any interest or fees, allowing them to access the zero-interest capital and thereby to make their loans to their borrowers affordable. Customarily, the borrowers do pay interest. Kiva monitors its field partners to ensure both that they are financially viable and that their loans are creating positive outcomes for borrowers—not just loan production numbers.
Shah describes microlending as a tool in a toolbox for serving the underserved. “Just like with any tool in the toolbox if not use well if not used responsibly it might not be as helpful as the original intent.”
In an effort to increase the impact on the lives of the people Kiva serves, it continues to innovate. One way to do that, Shah notes, is with better matching of repayment schedules to the economics of the borrowers’ business.
For example, he sites farmers who may borrow to buy inputs like better seeds and fertilizer that will increase yields. Traditional weekly repayment plans would be burdensome or even prohibitive. Creating a loan with a grace period will allow for Kiva to have its desired impact by allowing the farmer to repay the loan from the increased harvest.
“There’s still a long way to go in terms of improving access to capital and we think what Kiva lenders are doing is they’re looking for that sweet spot between high impact things that help poor people make more money and sustainability in terms of repayment rates and in terms of something that can scale with markets,” Shah says.
Over the years, Kiva has made loans totaling over $1.1 billion. About $100 million of that is currently outstanding. And most of the rest has been collected and returned to the 1.7 million lenders—many of whom reinvest the money in Kiva loans.
Kiva’s operating costs are funded primarily by tips. Every time a lender makes a loan, they are invited to make an optional tip (the suggested amount is approximately $3.75, which is the operational cost of making each loan). This covers over 60% of Kiva’s costs, and the rest are covered by donations, corporate partnerships and grants.
Dr. Thane Kreiner, the executive director of the Miller Center for Social Entrepreneurship at Santa Clara University, says, “Kiva’s pioneering microloan platform helped changed the way a generation thinks about ending poverty: providing agency is more authentic than charity. More recent innovations like the World Refugee Fund and Direct to Social Enterprise program illustrate Kiva’s continued leadership.” [Disclosure: The university invited me to travel with a group to visit social enterprises in Kenya, Rwanda and Uganda in 2017.]
Shah remains optimistic about the future—not only for Kiva but for the world. “One thing that’s exciting about technology is that it allows us to really bring out, hopefully, the best of humanity. When you can get involved in someone else’s story and invest in someone in West Africa or the Bronx, it’s really exciting to be a part of their business journey, you know. And we don’t have to feel a sense of pity, but we can feel a sense of excitement and a sense of partnership with someone around the planet.”
This article originally appeared in Forbes.