Kiva Brings Loan Program to the US
Published June 10, 2009 @ 08:42AM PT
Influenced by the impact of the recession, peer-to-peer micro-loan platform Kiva formally announced this morning that it has expanded it's offerings to include US-based low income entrepreneurs.
According to TechCrunch (who has maybe the best post on the announcement) Kiva President Premal Shah says that the idea first began germinating when California First Lady Maria Shriver visited the Kiva offices and asked whether their loan program could be applied to low income entrepreneurs in the US. While at first Kiva wondered if that really fit in their conception of international development, the recession and the reluctance of banks to make loans in the US has changed their thinking.
The first slate of US entrepreneurs featured on the site features a range of enterprises, from a street corner hot dog stand to a software company designing better tools for architects to a board game store. Even in the time I've been writing this post, some of the loans have been fully funded. These loans run from around $2,000 on the low-end to about $10,000. Like all Kiva loans, the US program is run in conjunction with financial institution partners, in this case microfinance institution ACCION USA and community development financial institution Opportunity Fund.
In a fascinating twist to the story, TechCrunch points out that while other peer-to-peer lending sites like Prosper and Lending Club have gotten into trouble with the SEC for offering a security-like instrument that actually has a rate of return, Kiva is likely fine because they don't have any rate of return, making the funding a charitable donation. This continues to be a fascinating case of where it makes more sense for a social enterprise to stay nonprofit.
Kiva opening its doors to US based entrepreneurs could have serious impact on the way small businesses are funded. Perhaps just as important however, is the message it sends. I can't write it much better than Kiva's blog announcement:
We know there is much more to be done to fully achieve our mission of connecting people throughout the world, but we are very excited about this first step. We look forward to the day when money is flowing in all directions around the world through Kiva: a Guatemalan woman making a loan to an entrepreneur in Detroit, a man in Uganda making a loan to an entrepreneur in Rwanda, and an Italian lending to a Filipino farmer. We are excited about these possibilities and look forward to seeing them become a reality.
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Comments (12)
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Nathaniel is the founder of Assetmap, a San Francisco-based startup that builds web tools to help people better visualize and leverage their social capital. Before that, he was the founding director of the Northwestern University Center for Global Engagement.
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Check out Leigh's post on this, which is far more insightful than mine: http://uspoverty.change.org/blog/view/more_microlending_comes_to_the_us
Posted by Nathaniel Whittemore on 06/10/2009 @ 11:54AM PT
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"In a fascinating twist to the story, TechCrunch points out that while other peer-to-peer lending sites like Prosper and Lending Club have gotten into trouble with the SEC for offering a security-like instrument that actually has a rate of return, Kiva is likely fine because they don't have any rate of return, making the funding a charitable donation. This continues to be a fascinating case of where it makes more sense for a social enterprise to stay nonprofit."
It is not often that I get to use my law degree on here, but just a quick clarification on this -
The reason that Kiva avoided the SEC scrutiny that snagged Prosper is because Kiva loans do not pay interest or any other return - therefore they escape the statutory definition of a "security" - not because Kiva was formed as a not-for-profit entity. Non-profits can and do issue securities (such as notes) and when they do, they are generally equally responsible for complying with securities laws as for-profits.
Posted by Muhammad At-Tauhidi on 06/10/2009 @ 05:43PM PT
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I wonder if they could do even smaller loans, like $500. Some businesses only need that much, and it's tricky to get it. Credit cards can be used, but their interest is awful and not everyone can get one. As a massage therapist unhappily working for poverty wages for other people, a boost about that size to promote my own independent practice would be ideal.
Posted by Amanda Zabohne on 06/12/2009 @ 11:03AM PT
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Microloans actually do go as low as $500 -- check out ACCION USA, Kiva's U.S. field partner, for information! www.accionusa.org
Posted by Laura Kozien on 06/12/2009 @ 12:23PM PT
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I'm very glad this is happening. The main problem I see has to do with the size of the loans. One of the things that's led to Kiva's success is that people can make very small loans and entrepreneurs are seeking a few thousand dollars, tops. It's going to take a lot of $25 loans to raise the $10,000 some of the U.S. entrepreneurs need.
http://trueslant.com/annefield/2009/06/10/microlending-kiva-style-finally-arrives-in-the-us/
Posted by Anne Field on 06/12/2009 @ 12:59PM PT
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I dont get it , this kiva joint surely aint doin thiis for free. whats in it for them, braggin rights
Posted by Stephen Beams on 06/12/2009 @ 01:13PM PT
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I just got back from a conference in DC on something called New Market Tax Credits - a federal program designed to encourage capital investment in low-income neighborhoods in the United States. While there I spoke to someone who works at a community development financial institution whose mission he described as "Banking the Unbanked." Among other strategies, they also do a small amount of microloans and we got to talking about Kiva's expansion into the U.S.
Now this person (a very knowledgeable guy) had a pretty critical appraisal of the potential for Kiva to replicate their model in the U.S. His basic take was it is a lot harder to raise a meaningful amount of money for a small business in the U.S. than an entrepreneur in Kenya. Raising $500 in financing from 40 people who each contribute $25 makes a very meaningful difference for someone who otherwise makes less than $2 a day. But $500 is unlikely to be a "game changer" to a business based in the U.S. So Kiva will either need to attract a LOT more supporters or much larger loan sizes in order to have more than a negligible impact in the U.S.
His second point was that it is not clear that there is a true capital gap in the United States for Kiva to fill. Providing loans to developing countries is valuable because it addresses a true inefficiency in the capital markets. But loan amounts of less than a few thousand dollar are readily available to most in the United States through credit cards. So in the United States, Kiva is unlikely to solve a capital inefficiency as much as they are simply competing against Amex.
I am sure that Kiva has thought about these issues, but it will be interesting to keep on eye on how they adapt their model the the U.S. environment.
Posted by Muhammad At-Tauhidi on 06/12/2009 @ 07:21PM PT
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If you believe there'e no credit gap in the U.S., you've obviously never been poor. There are plenty of people who can't get credit cards, or can get them only with usurious interest rates.
Posted by Spencer Selander on 06/13/2009 @ 03:23AM PT
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Spencer -
Feel free to present a contrary point of view but I would appreciate if you kept the personal comments to yourself as I dont see how they particularly helpful.
To your point, the fact that some people in the U.S. cant get credit cards, or can only do so with high interest rates, is not the same as saying there is a market gap.
The situation among the poor in emerging countries was that these markets were completely ignored by traditional financial institutions. There was simply NO underwriting going on in these areas because the market was not well understood and because sizes of the loans were unattractive within traditional banking models. What Grameen et al. did was show that these markets where actually far better risks than traditional finance had anticipated.
That is simply not the reality in the United States. Credit card companies and other are very actively engaged in underwriting (underwriting = pricing of credit risks) at the low end of the United States market. These markets are not "overlooked" - on the contrary, financial institutions have looked at them closely and decided that they are risky (and have priced credit accordingly). The fact that some people can only get credit cards with high interest rates does not mean there is a market failure – it just means that some people are not very good credit risks. Under these circumstances, it seems less likely that Kiva knows something that traditional finance has persistently overlooked.
Posted by Muhammad At-Tauhidi on 06/13/2009 @ 10:28AM PT
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There is a credit gap in the US. However the article does not reference the existing (since the Clinton era) microloan program of the Small Business Administration. I was working there at the time it was introduced. Microloans are administered through local nonprofit entities like a community-development group, who receives the funds from SBA. Borrowers usually are required to complete business-management training of some sort, it varies by local lending entity. Max loan is $35,000 with avg (according to SBA) of $13,000. The program was inspired by work of Grameen Bank. See this link:
http://www.sba.gov/services/financialassistance/Introsbafinance/sbarole/LOANPROG_MICRO.html
Posted by Joanne Daschel on 06/13/2009 @ 09:09AM PT
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I wonder if this could be a viable option for disabled people like myself who want to start their own business. I once tried to do it through Voc Rehab and they put too many barriers and bureaucracy in my path... Medical bills forced me to bankrupcy years ago, so I can't get financing by conventional means. I also have to be careful to maintain financial eligibilty for medical benefits.
Posted by Cinder McDonald on 06/14/2009 @ 01:00AM PT
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Nathaniel,
Thanks for the article! Working for ACCION USA, it's been exciting hearing all the discussion occurring over domestic microfinance. I love that you highlight less tangible impacts of our partnership with Kiva. We certainly hope to open major avenues to credit for small businesses all across the country. But beyond that, Kiva and AUSA also want to make a statement that we are committed to addressing poverty wherever it exists; that need is need and it cannot be neglected. Kiva recently authored an incredible write-up on their blog, elaborating on this idea and summarizing their findings from the domestic loan test period.
And a credit gap absolutely exists in the US! The only type of financing available for microenterprises is credit cards, which charge high interest rates, often damage credit scores, and harshly penalize for late payments. At ACCION USA, business owners frequently call asking for a debt consolidation loan because they have become so mired in credit card debt. Clearly, credit cards are superior to no financing at all or to the loan sharks that so often dominate markets overseas. However, to deny that a credit gap exists discounts the reality confronted by small business owners.
For anyone looking for a microloan, please visit ACCION USA's website where you can apply online and access our wealth of financial education resources. To continue this discussion, don't hesitate to email me at hocking at bc dot edu. And if you're interested in learning more about AUSA please feel free to visit our blog and begin following us on twitter (@ACCION_USA)!
Posted by Sam Hocking on 08/18/2009 @ 02:14PM PT
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