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5 Facts About Kiva: Empowering Small Business Owners Globally

Facts About Kiva For more than 1.7 billion people worldwide, accessing loans remains an elusive and toilsome experience that results in financial marginalization and an inability to pursue business growth. That is why Kiva, a nonprofit organization, has made it its mission to combat poverty by providing microloans to entrepreneurs who lack access to traditional financing. Kiva’s innovative lending model enables anyone to lend as little as $25 to a borrower of their choice, giving individuals a direct link to provide support for small businesses and entrepreneurs globally. While there are several interesting facts about Kiva, the following five highlight its position as a key instrument for positive change in eradicating global poverty.

5 Inspiring Facts About Kiva 

  1. Origin: Kiva’s story began in 2005 when its founders, Matt Flannery and Jessica Jackley, were inspired by the hardworking entrepreneurs they met on their trips to underserved countries like Tanzania, Uganda, India and South Africa. Witnessing their struggles to make ends meet, Flannery and Jackley were determined to find a solution. As fate would have it, their determination led to the birth of Kiva. Based in San Francisco, Kiva has revolutionized the process of granting loans to underserved entrepreneurs by becoming the first peer-to-peer microlending platform in the world. Through its innovative lending model, Kiva has connected lenders to borrowers globally, providing a new and easily accessible way of supporting small businesses and entrepreneurs worldwide.
  2. Name: The name, Kiva, is a derivative of the Swahili word “kibvua,” which means “agreement” or “unity.” The founders of Kiva chose this name to represent the collaboration between lenders and borrowers, as well as the unity that emanates from people coming together to support each other’s goals. This name is also perfectly symbolic of the organization’s core values of inclusivity, community and cooperation while serving as a unique and fitting crest.
  3. Impact: Since its establishment in 2005, Kiva has achieved remarkable success, having granted more than $1.87 billion in loans to 4.6 million borrowers globally. Kiva’s innovative lending model has enabled upwards of 2.2 million lenders in supporting small businesses and entrepreneurs around the world, funding a total of $1 million in loans every three days. Kiva has received support from advocates like Oprah, former President Bill Clinton and Pulitzer Prize-winning journalist Nicholas Kristof. And as a result of the organization’s incredible endeavors, it has continued to leave unmatched levels of positive impact on impoverished regions around the world.
  4. Success: Another important fact to note about Kiva is its spectacular success rate over the years. Across all transactions, for all countries and demographics, it continues to back businesses that need loans globally. Kiva has maintained a high average loan size that is above $400. It has also kept the standard number of loans per lender at more than three. These transactions, although somewhat small for the lender, have had huge impacts on the borrowers on the other side. The effectiveness of Kiva’s lending model is evident in the remarkable 97.97% repayment rate for all loans provided to partners. This highlights the role of its microloans in empowering borrowers to grow their businesses and repay loans successfully.
  5. Diversity: Through Kiva’s efforts, marginalized and underrepresented minority groups have also received the attention that they would not have received otherwise. More than 80% of all Kiva loans go to women from countries around the world. These loans support female entrepreneurs, farmers, students and parents globally. Additionally, Kiva operates in more than 70 nations across the globe, including areas that may not typically receive the same level of focus or attention as others. Kiva not only assists entrepreneurs but also makes provision for the basic needs of individuals affected by disasters, conflicts, refugee crises and more.

Pillar of Hope

These facts about Kiva indicate that the organization stands as a shining pillar for innovation in the face of impoverishment. Through its revolutionary system, entrepreneurs and everyday people across the globe can get the financial support they need to thrive through dire economic situations. Kiva continues to push forward against the tide of poverty and help millions of people sail across waves of hardship and toward the more friendly shores of financial security and prosperity.

– Sanjith Sambath
Photo: Flickr

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How Private Sector Jobs Can End Poverty

Private Sector JobsThe private sector makes up nine out of 10 jobs in the global market and with about 735 million people living at or below the extreme poverty line, it is essential that this vulnerable population has access to private sector jobs. The private sector, also known as the citizen sector, is owned by private corporations rather than the government and companies all around the world make up the majority of the economy with private sector jobs. Companies within the private sector can greatly benefit from providing people living in poverty with jobs as an investment that will lead to global poverty reduction.

The Role of the Private Sector in Poverty Reduction

It is crucial that the private sector takes responsibility for providing jobs, even in situations that require extensive training and infrastructure, as an investment in people living in poverty will lead to competition within the market as well as exponential growth within the company. The Global Impact Sourcing Coalition (GISC) created a toolkit to provide private sector companies with the skills and knowledge necessary to reduce poverty through employment. This toolkit outlines the benefits of workplace inclusion for people living in extreme poverty, not only from an economic standpoint but as a social responsibility as well. Outlined in the toolkit is the importance of networking and creating opportunities for people to fight poverty.

Microlending as a Poverty Reduction Tool

The Foundation for Economic Education (FEE) prioritizes microlending from the private sector as a source of poverty alleviation. Microlending is the act of loaning out very small amounts of money to self-employed individuals living in developing countries by banks and institutions. The FEE highlights a famous example of this, Grameen Bank, founded by Muhammed Yunus in Bangladesh in 1983. The Grameen Bank makes loans of $30 to $200 per person and has been able to reach millions, majority of whom are females who use the money to buy supplies in order to make and distribute their products. This is just one example of private sector work being done to connect people with limited access to resources to the job market and create opportunities.

Social Impact Matters

Traditionally, poverty has been a focus of governments rather than private companies and institutions, however, recently, partnerships between these two have been sought as the U.N. Sustainable Development Goals are focused on poverty alleviation. These partnerships between governments and private organizations are focused in areas of development, education, health, agriculture and climate change, all of which prioritize private sector jobs to fight poverty. One motivation for the private sector to participate in expanding its labor force to vulnerable communities is that of reducing reputational risks and beneficial brand awareness. PYXERA Global looks into the opportunities provided by public-private partnerships through the lens of economic development and explains that customers are now more than ever likely to consider the social impact of a specific company when it comes to purchasing products.

Social Responsibilities of the Private Sector

In order for private sector jobs to fight poverty, it is essential that organizations and corporations take social responsibility to invest in vulnerable populations that will lead to long-term positive impacts for the global economy. Strategies to employ impoverished communities in the private sector workforce have already been put in place and will continue to be essential in both alleviating poverty and expanding the global economy.

– Caroline Pierce
Photo: Flickr

Poverty Reduction through Microloans in Tanzania

poverty reduction through microloans

Poverty reduction through microloans has been a successful strategy in many parts of sub-Saharan Africa. Between 2007 and 2016, Tanzania’s poverty rates have decreased from 34.4% to 26.8%. Consequently, microloans have become a necessity for low-income earners whose businesses are apart of informal sectors.

MYC4 is an online platform that helps individuals loan money to small enterprises in sub-Saharan Africa. Mads Kjaer, its chief executive, describes the importance of microcredit by stating how “people need access to capital to grow their informal and formal businesses that offer them a regular income and enable them to lead decent lives.”

As a result, governments now appreciate the impact of microfinance. They are encouraging investments by opening up the industry to foreign capital and improving policing mechanisms for customer protection. With micro and small enterprises making up approximately 32% of Tanzania’s GDP, microcredit strategies have played an essential role in reducing poverty through progressive business approaches.

New Microfinance Act in Tanzania

In 2018, the parliament of the United Republic of Tanzania passed a Microfinance Act that illustrates the framework under which microfinance institutions operate. The Act allows for enhanced regulation of the microfinance sector for the mainland of Tanzania and Zanzibar. But with only 16% of Tanzania’s population banked, 27% is financially excluded. Microfinance options and the accessibility of mobile money have expanded financial inclusion to nearly half of Tanzania’s population. For example, as of 2017, financial NGOs, mobile money and microloan providing institutions served 48.6% of the population.

Nonprofits that are Helping

Opportunity Tanzania, a nonprofit organization that provides loans, savings, and insurance to impoverished entrepreneurs, has helped over 3,625 clients in Dar Es Saalam. Its microfinancing services provide entrepreneurs and their families with a path out of poverty. Only 20% of Tanzania’s population has access to a formal bank within an hour’s walking distance of their home. Therefore, Opportunity Tanzania is now working to build a regulated bank that will offer clients savings products and provide them with a secure place to store their money.

The International Labour Organization [ILO], in collaboration with the UN joint program on Youth Employment, established a five-day training program for financial service providers to create outreach strategies that will educate youth on microfinance resources.

High population growth and substantial poverty are still present in Tanzania. However, the expansion of microloan services play a crucial role in supporting entrepreneurs and creating more job opportunities for youth. In short, poverty reduction through microloans is an important avenue for growth in Tanzania.

– Erica Fealtman
Photo: Unsplash

What is Microfinance?

MicrofinanceIn 2006, MIT Professor Muhammad Yunus was awarded the Nobel Prize for his work in the creation of the Grameen Bank. The Bank was created primarily to microfinance, or provide small loans, to the impoverished in Bangladesh. Today, over 97 percent of Bangladesh’s villages have a Grameen Bank presence, a whopping 7.5 million people have borrowed from the Grameen Bank and 65 percent of the borrowers “clearly improved their socio-economic conditions.” Yunus has even advocated for credit to be considered a human right because of the extent to which it can help people deal with their financial situations.

Prior to the emergence of this practice, the term “finance” largely carried the connotation of large banks, governments and corporations, and their respective handling of money or value. Liabilities, assets, savings, loans and other banking concepts can all be categorized under finance. So then, what exactly is microfinance?

Microfinance is the practice of bringing financial systems that are commonly used in the developed world, and applying these concepts on a much more personal and micro-scale. While we typically think of finance as a system that deals with large sums of money and organizations, microfinance is quite different because it deals with much smaller denominations of money and groups or individuals.

In practice, microfinance institutions or programs can differ in their specific models of operation. For example, Kiva is a microlending institution. It operates on donations, and any donor can personally become involved by browsing through testimonials and deciding whom to fund. On the other hand, the Grameen Bank no longer takes donations, and the Bank itself is actually 94 percent owned by the borrowers themselves. The majority of microfinance institutions deal primarily with microcredit, with most extending credit to women. About 97 percent of Grameen Bank’s loans are offered to women.

One point of criticism is the very high interest rates sometimes charged by various microfinance institutions; in some cases, the rate is over 50 percent. However, many argue that this is necessary to cover administrative and risk-taking costs. Defendants of the interest rates contend that participating in the loan program does not proportionately diminish the received benefits based on interest rate.

The benefits of providing financial services – often taken for granted – are unmistakably significant. The first benefit, as told by Mr. Yunus himself, is the mental and psychological stimulus a loan can give a person. The recipient of the loan becomes more independent and less inclined to feelings of marginalization. The second benefit is an increase in small businesses and economic activity in the villages. For some, small loans serve as the building blocks for small businesses. For others, the loans help pay for large goods or services like schooling, or healthcare costs, among other things. Providing small loans at affordable rates allows people to have more purchasing power than they might have otherwise, and to make purchases once considered not within their means.

An MIT study titled, “The miracle of microfinance? Evidence from a randomized evaluation,” was highly critical of the actual effects of microfinance versus the observed perceived effects before the study. Those conducting the study found that microfinance had some benefits for helping businesses increase profitability, and in increasing household income. They also found that household spending increased on durable goods, meaning goods that can be used more than once like cooking pots and mosquito nets. However, the MIT study found no significant changes in women’s empowerment, education or health. Finally, the study found that the adoption rate for microfinance was around 38 percent, indicating that many people still preferred to take out informal loans from other parties or family members.

Despite the critiques, microfinance has emerged as an innovative tool within the largely unchanging financial sector. By giving the impoverished access to financial services, the affected begin to have more opportunities and resources to turn to when dealing with personal or small business finances.

There are 2.5 billion people worldwide who are “unbanked” according to the World Bank. High costs, bureaucratic barriers and physical distance from banks facilitate this huge gap in the number of people with access to financial services and the total population. Microfinance has the potential to help bridge this gap by empowering the poor and providing them with more tools to help themselves. Although it may not be a miracle, it’s certainly better than nothing at all.

– Martin Yim

Sources: PBS, Kiva, Grameen Bank, MIT, World Bank
Photo: Flickr

Mongolian Microfinance: Mercy or Menace

Microlending began with the innovation of currency. Friends and family would get together and pool their money to offer help in times of hardship. Mary Coyle, director of the International Institute at St. Francis Xavier University in Nova Scotia, Canada, has found many such groups throughout history and around the globe, “In West Africa, they were known as ‘tontines;’ in Bolivia, ‘pasanaku;’ and across Mexico and Central America, ‘tandas.’”

The shift from microlending to modern day microfinance came about in the 1970s. Groups such as ACCION International in Venezuela and Yunus’s Grameen Bank in Bangladesh began to institutionalize the process. They formalized the loan process and expanded on already existing microlending practices. This enabled small businesses to generate capital instead of just paying for basic necessities.

With the initial success it has long been thought that microfinance was a long term solution to the problem of poverty. While it has brought some out of poverty, it has also kept others where they were financially before the loan and in some cases worse off.

In 2009 two studies were released on the use and impact of microfinance on those that were lent money, conducted by Karlan & Zinman in Manila and Abhijit Banerjee, Esther Duflo, Rachel Glennerster and Cynthia Kinnan of J-PAL in Hyderabad, India. Neither study found that key factors of poverty had been directly impacted, though it was established that those in the Hyderabad study shifted their spending from temptation goods to durable goods. Another study in 2010 by Duflo and Co. in rural Morocco found similar results. There was no major change in poverty, but those that already had businesses did diversify.

These results have done little to curb the continued lending of XacBank in Mongolia. XacBank reported to the U.S.-based nonprofit Microfinance Information Exchange total assets of 594 million dollars and a gross loan portfolio of 393 million dollars with approximately 77,345 borrowers. The company helped a Mongolian baker turn a 100 dollar enterprise into a 75,000 dollar operation. The company and its investors have touted that many people across rural Mongolia have been helped in such ways.

This was put to the test by research done by Orazio Attanasio, Britta Augsburg, Ralph De Haas, Emla Fitzsimons and Heike Harmgart. All are affiliated with London-based institutions: the European Bank for Reconstruction and Development, the Institute for Fiscal Studies and University College London. The study was a random selection of three rural villages across Mongolia. Loans were explained, applicants were screened as individuals and groups and then finally money was offered. Only 50 percent of those offered loans took them.

The findings were in line with the three previous studies. “Although the loans provided under this experiment were originally intended to finance business creation, we find that in both the group—and in the individual-lending villages, about one half of all credit is used for household rather than business goals. Women who obtained access to microcredit often used the loans to purchase household assets, in particular large domestic appliances. Only among women that were offered group loans do we find an impact on business creation.”

With such little change in the poverty rate, some wonder why we would continue this trend of microlending. It has proven to help some, but the vast majority either can’t access the funds or are turned down due to credit issues.

Hope comes from the Norwegian Nobel Committee, when they spoke of Yunus and his work: “Yunus’s long-term vision is to eliminate poverty in the world. That vision cannot be realized by means of microcredit alone. But Muhammad Yunus and Grameen Bank have shown that in the continuing efforts to achieve it, microcredit must play a major part.”

– Frederick Wood II

Sources: UNDP, NY Times, MicroCapital, The World Bank, Center for Global Development, NPR, PBS
Photo: Bloomberg Business Week

Jeopardy’s Bob Harris Writes About Microlending

Jeopardy’s Bob Harris Writes About Microlending

For many fans of Jeopardy, the name Bob Harris is synonymous with knowing things. Because he’s a thirteen-time champion of the game show and general outspokenness, many respect his opinions. Thus, his new book is making waves in the literary community and may initiate some important dialogue about how to deal with international poverty.

It all began when Harris, a writer and radio commentator by trade, was given the opportunity by ForbesTraveler.com to review some of the world’s finest luxury hotels. However, instead of simply pocketing the earnings, Harris decided to lend the money via kiva.org while continuing to travel around the world to take a look at all the lives that the money had affected. His experiences were compiled into a book titled The International Book of Bob. The book, in addition to shining a light on microlending, shows the juxtaposition of the world’s wealthiest and poorest people. Harris writes of ATM machines that emit gold ingots and Asian construction workers who live like indentured servants in Dubai for the chance to send money back to their families.

In an interview, Harris explains the fundamentals of microlending:

“Microlending was pioneered more than 30 years ago by, among others, Muhammad Yunus and the Grameen Bank in Bangladesh. Charity certainly has its place in poverty alleviation, obviously — when there’s been a disaster, or when there’s epic need — but in many places, the people have small enterprises, and they know what they can do to solve their own problems. They’re in the middle of their businesses and they simply need a small loan.

But if you’re a fisherman, and you simply need to patch a hole in your rowboat, you can’t go to Citibank for a bridge loan in Cambodia. So who do you go to? Prior to microlending, your alternative would be maybe leaning on your family or villagers, or going to black-market money lenders, and paying an exorbitant interest rate. When you go to kiva.org, the vast majority of donors are finding people on the website to whom they can put $25 toward a loan; that money goes overseas to a local lender and the recipients pay the loan back, then you get paid back.”

Speaking once again about kiva.org, Harris says “Now there’s this place on the Internet — where total strangers go, to be nice with other total strangers so they can all collectively be generous to yet more total strangers whom they will never meet — and somehow my name is in the middle of that. That’s magical.”

– Samantha Mauney

Source: Huffington Post
Photo: Telegraph