Microfinancing website Kiva has provided finance to more than a million individuals in the developing world through crowdfunding loans. SALT profiles founders Jessica Jackley and Matt Flannery
Jessica Jackley, co-founder of Kiva, the world’s most successful microlending website, was inspired to create her organization by Muhammad Yunus in 2004. Yunus’s Grameen Bank provides credit to individuals who would not traditionally qualify for bank loans and has transformed the lives of millions of people in poor areas of the world. Jackley was thrilled that people from the other side of the world were no longer seen as “desperate”, but as successful businesspeople in burgeoning communities. She travelled to Uganda to learn more.
Matt Flannery, meanwhile, a computer programmer at TiVo, was growing restless with software development and had been equally impressed by Muhammad Yunus. Together with Jackley, who returned from East Africa with new ideas about microfinance, he co-founded an internet platform so his friends and family could lend small amounts to businesspeople in poor regions.
In her 2010 TED talk in Oxford, Jackley recalled the birth of the company. “I went back to Uganda a few months later with a digital camera and a basic website that my partner Matthew and I had built, and took pictures of seven of my new friends. I posted their stories of entrepreneurship up on the website, spammed friends and family and said ‘we think this is legal – haven’t heard back yet from the SEC on all the details – but what do you say?’ The money came in basically overnight and we sent it over to Uganda. And in the next six months a beautiful thing happened – the entrepreneurs received the money, they were paid, and their businesses grew. They were able to support themselves and change the trajectory of their lives.”
Officially opening for business in October of 2005, Kiva facilitated US$500,000 of loans in its first year. The total amount lent and borrowed had risen to almost US$150 million by 2010 – just five years after the start of the project. To date, 1,232,412 lenders have provided 795,278 loans worth US$632,718,375 to 1,461,459 borrowers (some are in groups). Kiva has come to the same conclusion as Muhammad Yunus – that the vast majority of borrowers repay their loans on time despite the basic contractual requirements and paperwork. Kiva’s repayment rate is 98.81%.
The website is simple to understand. It shows profiles of individuals requesting loans and explains how they propose to spend the money. Repayment schedules and terms are also presented. Money is sent to borrowers via Field Partners – organizations working in 83 countries with loan recipients. These Field Partners are mostly microfinance institutions, although Kiva also partners NGOs, schools and social enterprises with access to local communities.
Criticisms of Kiva often relate to the painful reality that if a loan is not fully funded within 30 days it “expires”, which means all lenders are refunded and the individual attempting to raise that money may receive none of it. Some Field Partners award their loans before they are funded by Kiva users, and so there are occasional disconnects in how the money is distributed, especially as the initial unfulfilled posting usually remains visible on the Kiva website. The reasoning behind the expiration is twofold. First, it ensures that the appeals posted to the website “reflect the on-the-ground reality” in order to avoid continual over-funding of a successful proposal. Second, it creates a “feedback loop”, which empowers lenders to post stronger requests.
‘My introduction to business was in these US$100 little infusions of capital. I learned about profit and revenue, about leverage, all sorts of things from farmers, from seamstresses, from goat-herders,’ Jessica Jackley
The increase in Kiva’s success has had a direct impact on the number of expirations. If there are more loans on the website than lenders to fund them, expirations are frequent. In her TED talk, Jessica Jackley discussed the Western perception of “the poor” as an anonymous mass of needy people, requiring pity and donations. Paradoxically, those perceptions are both challenged and perpetuated by Kiva. Whilst the website provides a platform for humanizing the poor, it also tends to highlight borrowers that fit cleanly into the stereotypes of Western perceptions of poverty. The expiration pages are filled with less emotive profiles that read like studies of businesses the world isn’t interested in helping.
Kiva’s defence is that the presence of unfulfilled loan requests doesn’t negate the remarkable daily work of multiple lenders. Jackley’s opinion, informed by Muhammad Yusuf’s, is that “the best way for people to change their lives is for them to have control, and to do that in a way that they believe is best for them”.
Jackley and Flannery have both moved on from running Kiva, but its work continues to have a worldwide impact. It feels particularly appropriate that both founders went on to create their own opportunities, just as their website encourages businesspeople to do. “I didn’t know the difference between profit and revenue when I went to East Africa,” Jackley admits. “My introduction to business was in these US$100 little infusions of capital. I learned about profit and revenue, about leverage, all sorts of things from farmers, from seamstresses, from goat-herders.”