One on One, One by One: Person-to-person Micro-lending with Kiva

Within our own personal circles of trust, most Americans are used to lending 10 or even 1000 bucks to a friend or relative. Intimacy tends to blur the agreement and it becomes difficult to quantify the “loan.” It’s not so easy to say that a child owes their parents for having been raised, or that a friend owes another friend for a gift. This blurring is set somewhat straight when individuals draw clearer boundaries between themselves. Financial intermediaries have evolved well to serve this purpose, but the evolution continues. As of 2005, a new breed of intermediary has entered the microfinance scene – online person-to-person lending platforms.

With Kiva.org [1], for example, anyone with a bank account and $25 could right now make an interest-free loan to one of 286 microentrepreurs online. You could for example choose Ester Amoo with her small food production business in Ghana or Sroeun Kim, a farmer in Cambodia. These loans are channeled through specific microfinance field partners in over 40 countries and in that way land in the lap of a given entrepreneur.

How could Kiva possibly break even on this deal? It’s actually managed to maintain itself and its 16 employees with a donation option on each loan. Almost 250,000 lenders have given through Kiva, and enough of them make this extra donation click for it the project to keep afloat. With a striking repayment rate of 99.86% for 21,721,210 dollars worth of loans so far [2], Kiva stands as a champion in the microfinance world. . For this reason, Fortune has even pegged Kiva as the “only nonprofit that matters.” [2]

E-lending, a tag for online lending, has been generally gaining momentum in the finance world and Kiva’s success has positively broadcasted microfinance as a player. As long as the feel-good factor keeps balancing out those interest free loans, this innovative lending model will keep thriving.