Who am I?

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I am not religious, but I don't mind calling myself spiritual. Religion, I believe, has, over the millennia, been used as a prop to perpetrate a lot of human suffering. Faith is what matters. I don't believe in the definition of God as a creator. According to me, my God resides within me. Some call it conscience, some call it the sub-conscious, some call it the soul. I don't mind calling it God. So by definition I am not an atheist or an agnostic, but by essence, I may as well be. My God does not reside in a temple, church, mosque or gurudwara. It is right here, within me.

Friday, December 30, 2011

Kiva.org - Making a Change

I wrote this paper as a part of the curriculum for Rural Marketing on the topic 'A Marketing Model functioning outside India, impacting the bottom of the pyramid'.


Kiva Microfunds (commonly known as Kiva.org) is an organization which allows people to lend money via the Internet to microfinance institutions, which in turn lend the money to small businesses and students. It basically funds the working capital needs of the entrepreneurs in villages, who either have their own shop, want to start up their own business, aim to increase the scale of their business or just want the money to educate themselves. 

It is a non-profit organization, which has its headquarters in San Francisco. It is supported by loans and donations from its users and through partnerships with businesses and other institutions.  

Administering Loans

Kiva primarily functions by interfacing with the lenders on its online presence called Kiva.org. With a mission to “connect people through lending to alleviate poverty”, and leveraging the internet and a worldwide network of microfinance institutions, Kiva lets individuals lend as little as $25. Kiva does not keep a cut of the loan. Nor does it charge an interest rate to these microfinance institutions.  

Kiva works with microfinance institutions on five continents to provide loans to people without access to traditional banking systems. These MFIs are called “Field Partners”, and they are the ones who administer loans in the field. Kiva relies on a world-wide network of 450 volunteers who work with the Field Partners, edit and translate borrower stories, and ensure the smooth operation of countless other Kiva programs.
The people behind Kiva include volunteers, Kiva Fellows, Field Partners and the board, and a team of employees (shown above) and contractors. The Kiva headquarters are located in San Francisco, California.


Most of what Kiva lends is primarily funded through the support of lenders making optional donations. Funds are also raised through grants, corporate sponsors and foundations. 

History – Kiva through the years

Kiva was started by Matt Flannery with his wife Jessica, in 2005. In its first year, the site featured a spinach farmer in Cambodia, a hot dog stand man in Nicaragua, a carpenter in Gaza, a bee keeper in Ghana, and a fish seller in Uganda. Behind each of these businesses lay a story. These stories are at the heart of Kiva’s goal and strategy: the human connections Kiva claims to build between lenders and borrowers have brought new lenders to the microfinance movement, and fostered in them a new awareness and connection to the people who briefly use their money. By telling stories, Kiva allows MFIs that lack access to capital markets to efficiently raise money and serve more clients.

Matt Flannery claims to have been primarily influenced by Dr. Mohammed Yunus – Nobel Peace Prize 2006 laureate, and founder of the Grameen Bank. By sticking to their idea of “Sponsor a Business”, Matt Flannery wanted to focus on progress rather than on poverty. During the early days when he did his research, he found out that there had always been a historical tension between the donor/lender desire to “know where my money goes” and the recipient organization’s need for efficiency.

Another challenge that Kiva faced early on was the question of whether it was better to be seen as a charity or as a business. This was a challenge of perception. Flannery noticed that people seemed to think in these big categories, and breaking existing mental models proved harder than it seemed.

Also, commercialization of microfinance institutions was another trend to be watched. If microfinance was going to have a significant impact on world poverty, the argument went, then MFIs needed to be integrated into the global economy and tap into the capital markets. But an online survey showed that 50% of the potential users of Kiva would not lend on the site if Kiva adopted the for-profit model. Rather than compete in the commercial investment fund game, Flannery wanted to get individuals who had never even heard of microfinance into the mix.    

Legal Hurdles at the Outset

In the US, there are a number of regulatory bodies that pay attention when you offer investment products to the public. Such bodies protect investors from losing their money on scams. Most notable among these is the US Securities and Exchange Commission (SEC). The SEC maintains a definition for what is and what is not a security. If the SEC says that you are issuing securities, they require that such securities meet a long list of requirements. One of those was that the businesses being invested into comply with US accounting standards. This was not always true for a goat herder and a fish seller in rural Uganda.

Another issue was that Kiva wanted to center around loans, not donations. They preferred to call their users lenders, not donors, as Kiva would actually return their money, possibly with interest. Thirdly, under the US Patriot Act, there was high scrutiny around flow of funds to other countries. Since the initial MFIs that Kiva wanted to focus on were in Africa and Asia, there was uncertainty regarding such scrutiny. 

Making a Beginning

The first task that Kiva owners faced was to define exactly what, in terms of investing, were they trying to do. There were a few high level goals that they were trying to focus on:
  • Allow internet users to make small loans to specific micro-borrowers around the world, possibly with interest.
  • Connect a network of MFIs to the Kiva platforms and have them post the loan applications of their borrowers to the site.
  • Create financial connection between lender and borrower whereby the lender assumes the default risk.
  • Create loans between people, not necessarily organizations, where Kiva acts as a platform and MFIs act as distributors.
Considering the role of SEC and the problems it might have created had the loans had an interest attached with them, they would have been considered securities being offered online. Thus, Kiva owners, after a year and a half of debating, exploring and researching, decided to launch Kiva.org without the interest rates on the site.

The domain name “Kiva” was initially being held by a squatter. Flannery bought it from the squatter for $600, and till date, considers these $600 the best money he has ever spent. The beta version of Kiva.org was launched with seven borrowers profiles online. All of them were funded over the weekend, where the managed to raise $3500 in a few days. Matt and Jessica were blown away! This was better than they had expected. 

How Different From Microfinance Institutions?

Kiva claims that the following two reasons are instrumental in differentiating it from the standard microfinance investment model:
  • Kiva has a risk-tolerant source of funds: Individual internet users lending small amounts at a time have a greater appetite for risk than commercial institutions or wealthy individuals using microfinance.
  •  Kiva uses the internet as a reputation-building mechanism: Through Kiva, MFIs keep a track record for borrowing and paying back in real time. Users can monitor the performance of each MFI and the borrowers associated with it. Thus, Kiva claims to give organizations the ability to prove themselves through performance in a similar fashion to how Ebay allowed lesser known individuals and businesses to become major e-commerce players through credibility scores

Camping Grounds

Kiva initially began by having tie-ups with around twenty MFI partners in a few months of its inception. But soon the owners realized that by limiting themselves to Africa, they would artificially reduce their potential partner base by 90%. While many such institutions exist in Africa, the majority are elsewhere. In fact, in 2007, Africa represented only 10.4% of microfinance worldwide; the areas of greatest concentration lie in Southeast Asia and Central and South America. Two factors have led to this situation:
  • Africa has a low population density. Microfinance has scaled best in places where crowds of people live in close quarters. Dense populations bring down the transaction costs. The lower the transaction costs, the lower the interest rates. Higher interest rates are less appealing to the poor and thus inhibit growth.
  • Microfinance does not have a very long history in Africa – it is relatively new. The first great movements of institutionalized microfinance occurred in Bolivia and Bangladesh and spread from those regions.

Kiva’s Revenue Model

Kiva divides its financials into two separate buckets – loan volume and revenue.

Loan volume refers to the capital that the lenders send to the entrepreneurs on the site: $25 at a time. One hundred per cent of this money is channelled to Kiva’s partners and then distributed to the entrepreneurs. Neither Kiva, nor its partners, as their agreements dictate, take any money out of the money stream to the entrepreneurs.

Revenue is capital that flows to the organization itself to fund their own operations – rent, servers, salaries and other expenses. They calculate the project revenue as a factor of loan volume. Today, Kiva has two streams of revenue – “optional lender fees” and float.

Optional Lender Fees are essentially small donations that Kiva’s users make during check-out on the website after making a loan. Typically, 7 out of 10 users choose to donate 10% on top of their loan to Kiva. For instance, making a loan of $100, the typical user chooses to pay $10 on top of the loan, bringing the total to $110. These small donations are tax deductible and Kiva doesn’t pay taxes on any profits made from them.

Float refers to the revenue from the interest accruing in one’s bank account. In 2007, float was a small revenue source that accounted for 1-2% of Kiva’s loan volume, but today it has grown to become a greater contributor to revenue streams.

Kiva’s Product Philosophy

People are central. The first thing one notices are faces. Money and organizations are secondary, people are primary.
Lending is connecting. At Kiva.org, money is all about information exchange. In a sense, money is a type of information. Lending to someone else creates an ongoing communication between two individuals that is more binding than a donation.
Things are always changing. Every time you load Kiva.org, it should be different. Every minute, loans are being purchased and repaid, and stories are being told about the borrowers. This can lead to a dynamic where philanthropy can actually become addictive.
Emphasize Progress over Poverty. Business is a universal language that can appeal to people of almost every background. This can lead to partnerships rather than benefactor relationships. We appeal to people’s interests, not their compassion.
Create a Data-Rich Experience. Whenever it is possible to collect data from the field, collect it. Over time, Kiva will display as much information about its partners, lenders and borrowers as possible and let the users decide where money flows.    


I end this report by shedding some light on the achievements of Kiva represented in the form of numbers, though I would like to admit that the impact that Kiva has had goes way beyond mere numbers. As on 27th December, 2011 (Kiva updates these statistics every night on its website), the following were the numbers that stamp the element of success all over Kiva:

Total volume of all loans made through Kiva
Number of Kiva users
Number of Kiva users who have funded a loan
Number of countries represented by Kiva lenders
Number of entrepreneurs that have received a loan through Kiva
% of Kiva loans made to women entrepreneurs
Number of Kiva field partners (MFIs Kiva partners with)
Number of countries Kiva field partners are located in
Current repayment rate (all partners)
Average loan size
Average total amount loaned per Kiva lender
Average number of loans per Kiva lender