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kiva
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

Sources: Monica Brand: Stanford, CGAP, Kiva
Photo: Kiva

microfinance

The values and benefits of microfinance lending to the world’s poor are mixed; but they have overall proven to be a mechanism for lifting individuals out of poverty.  The system of proving microloans is a well-oiled machine providing finance to individuals in low resource areas. One micro lender wants to go a step beyond microfinance and provide the poor with much needed savings and insurance products.To continue to help the poor life themselves up, Microlending pioneer Accion has called for more financial products typically common in the developed world.

These financial products such as insurance, saving accounts, and ways to move money are sophisticated tools many in the developed world don’t think twice about, but for the world’s poor these products are rarely available.  Accion, based in Boston, announced they would begin investing in start-ups that are working to provide more variety of financial tools to people around the world.  Unfortunately, business models and technology to deliver financial tools like savings accounts is much less tested in rural and poor areas. The lack of longevity in testing and practice causes many venture firms to be wary of investing in start-ups.

Accion’s Venture Lab will invest $10 million in ventures seeking to expand financial tools beyond microfinance.  This is not to diminish the effects and needs of microfinance, but to continue to take the poor a step beyond microfinance.   Accion’s first investments include Salud Facil, which helps low-income individuals in Mexico pay for health care, and Varthana, an Indian company financing low-cost private schools.  In addition, the fund is investing in payment companies in Asia and Mexico as well as a start-up in Hong Kong attempting to use data to improve credit scores.

Other investors are also offering money for financial products in the developing world. LeapFrog Investments has dedicated $135 million to bring insurance to underserved markets. Those in poorer income brackets need financial services beyond credit. Constant innovation and testing must be continued to find self-sustaining and profitable financial products to developing markets. Accion Venture Lab will continue to invest in start-ups to help them do the testing they need and continue to innovate in providing insurance and savings products to low-income individuals. Accion’s model is to help the start-ups and if they fail, to take the lessons learned and start over. Ultimately, the goal is improving the credit and lives of the world’s poor.

– Amanda Kloeppel

Source: Bloomberg Businessweek

personal-banking-to-end-world-poverty
2.5 billion people around the world, many of whom live in extreme poverty, are excluded from the formal financial system. Consequently, this exclusion results in the use of risky and expensive financial alternatives that slow individual and macro-level economic development. In the past, microcredit schemes have been used to solve the problem. Recently, a more holistic understanding of financial inclusion is emerging that focuses on savings, credit, financial literacy, and access to services. However, as these new systems take root, debate can be heard in regards to how the systems should be implemented, who the stakeholders will be, and how to ensure that this new financial ecosystem will function in the long-term.

These issues were addressed in early April at a Guardian conference where Banking on Change outlined the future of the financial ecosystem in developing countries. Banking on Change is a partnership between Plan UK, CARE International UK and Barclays that hopes to help around 400,000 people in 11 countries by developing access to basic financial services. The organization has used savings-led community finance groups in poor communities to help people save, build up assets, access loans from the community “pot”, develop financial literacy and eventually link into formal services. The scheme showed that due to erratic incomes, poor people have a high demand for savings accounts and products in contrast to credit lines and accounts.

Living conditions and finances aside, Ashok Vaswani, Barclays’ CEO for retail and business banking in the UK, Europe and Africa, believes that all people are the same. “People’s hopes and aspirations don’t vary too much,” he said. “We all have them, and people who live in much worse conditions than us have hopes and aspirations that are not very different to ours. They want to send their children to school. They want more for their children, just like we do. People with limited means still have the desire to move up, to put something away.” The difference is that people living in poverty do not have sufficient means to even start a savings account. Vaswani also believes that the money that potential customers save annually, about $58 multiplied by the 2.5 billion people living in financial exclusion, could be much more powerful if linked into the formal financial system rather than stashed under people’s beds.

Aside from defining the customer’s needs, financial literacy is important to the development of the financial ecosystem as well. Governments should do more in educating citizens, especially the youth, about their finances, commented Michaela Kelly, head of Plan’s Programme Delivery Unit.

As the demand for personal banking increases, the needs of potential customers will need to be assessed accordingly. While many view various forms of credit building important, savings accounts and related programs are just as important to the beginning of a financial ecosystem in developing countries. With the implementation of a financial system, both individual and macro-level, economic development will flourish and raise billions of people out of poverty.

– Kira Maixner

Source: The Guardian
Photo: Business Fights Poverty