Interested in empowering the poor? Look no further than Kiva, a San Francisco based nonprofit that has provided over $542,899,850 in small loans to poor entrepreneurs around the world. Founded in 2004, Kiva makes it easy for individuals to lend as little as $25 to provide affordable capital to beneficiaries and help them start or improve a small business.
This practice of lending is known as microfinancing, and Kiva operates under the idea that poor individuals are able to lift themselves from poverty if given access to the proper financial services, such as access to loans and savings accounts.
Kiva keeps things personal and helps prevent the dehumanization of the poor by connecting the lender and the borrower directly. Using a person-to-person setup, Kiva allows potential lenders to browse the stories, pictures and loan proposals of beneficiaries before choosing an individual to lend to.
Kiva loans have a 0% interest rate and 100% of each loan goes directly to the borrower. Kiva does not take a cut, rather, their business operations are funded through donations from various grants, corporate sponsors and foundations.
The lending process begins with the selection of Field Partners in the 73 countries where Kiva works. These partners consist of social businesses, schools, microfinance organizations or other nonprofits that are committed to using credit to empower the poor.
Kiva Field Partners identify borrowers, administer loans and send pictures as well as stories of the borrowers to a team of volunteers that translate the stories and publish them to Kiva.org. Lenders then browse these stories and are able lend anywhere from $25 to the full price of the loan to the borrower they select.
As the borrowers repay their loans, Kiva provides repayments to lenders. Kiva boasts an impressive 98.93% repayment rate over 1.2 million funded borrowers. Once loans are repaid, individuals can re-lend their money to another borrower – and another, and another.
Traditionally, credit is often available to the poor through informal or erratic means. However, in many cases, these informal moneylenders charge such high interest rates that business owners are left with little working capital.
Kiva’s work allows the poor to attain affordable credit, which opens the door to economic opportunity. Studies by the Consultative Group to Assist the Poor (CGAP) show that borrowing money helps households manage cash flow and regulate consumption as well as deal with everyday crises that may arise. Tangible impacts seen include households making greater investments in the education of their children, better nutrition and living conditions, and an increase in healthcare services when needed by members of the household.
In summary, using the resources provided by lenders via Kiva allows poor households, “to make the transformation from ‘every-day survival’ to ‘planning for the future.’”
– Madisson Barnett