Microcredit — lending small amounts of money to poor people to help them set up small businesses — is not a new idea; it started in the 1970s when Muhammad Yunus set up Grameen bank. Since then, Grameen has proved outstandingly successful, lending over $3 billion and empowering millions of people.
A new twist on this idea is Kiva, the world’s first peer-to-peer, distributed microloan website, set up by Jessica and Matthew Flannery.
Kiva’s first country of focus is Uganda, where the Internet is available even in poor rural areas. Lenders may loan money through kiva.org, which lists businesses in need of funding and provides background on the entrepreneur starting the enterprise. Individuals may makes loans in increments as small as $25, and can expect to receive repayment, without interest, at the end of the loan term, which typically runs between six and 12 months. Since Kiva’s source of capital is charitably-minded individuals, it is able to provide more flexible loan terms than traditional financial institutions.
To date Kiva has funded 13 small enterprises in Uganda, including a livestock business, a medicine shop, several produce businesses, a fish monger and a clothing reseller. Two of the entrepreneurs have already repaid their loans in full. The enterprises Kiva is working with are asking for loans averaging $500, and the average lender is loaning between $25 and $100.
The Kiva website includes a list of businesses it has lent money to, another list of businesses seeking funding. Each business on the website includes details of the business and its owners, a journal written by the business owners and a page giving details of amounts lent and repaid.
It’s a small beginning at present, but I’ve a feeling that Kiva could grow into something big. Consider if these enhancements were made, either by Kiva themselves, or someone copying them:
Ã¢â‚¬Â¢ At the moment because of the SEC‘s rules, lenders are not allowed to be paid interest. This limits lending to charitable lending at present. If they were allowed to be paid interest (e.g. if they weren’t living in the USA) there would be a greater pool of potential lenders.
Ã¢â‚¬Â¢ The system works on trust. This might be enhanced if the website included a feedback system (like eBay uses) so that people could built up good reputations.
Ã¢â‚¬Â¢ Micro-loans are often not available to the poor, and the same is also true of micro-savings. Kiva could bring together small borrowers and small lenders. A major source of income for poor countries is their citizens living abroad and sending back remittances. Kiva could enable them to invest some of these savings as micro-loans.
Ã¢â‚¬Â¢ It might be possible for Kiva to widen its remit to include an inexpensive money-transfer system. (There might be regulatory issues with this however).
Ã¢â‚¬Â¢ The businesses that Kiva helps currently get a web journal. This could be enhanced to allow them to sell their goods and services over the Internet. (The feedback and money-transfer services will be useful here). Clearly this isn’t going to be useful for all small businesses in poor countries, but it will useful for some.
It’s widely held that mobile phones increase growth in poor countries. (See for example here, here, and here). Widespread Internet access, coupled with sites like Kiva, is likely to do the same, but more so.
I’ve just had an email from Matthew Flannery and they plan to roll out some of these enhancements next year.