The Genius of Kiva

I had the pleasure this past Friday to moderate a conference at Pepperdine on social entrepreneurship that featured Matt Flannery, co-founder of Kiva, one of the leading microfinance organizations on the Internet. There is so much I could say about Kiva and Flannery’s remarks, but let me just highlight a few points that were raised by his discussion.

First, the Internet is radically changing the way we do human rights. Flannery’s vision was to use the social networking phenomenon to empower people to do good. Kiva links micro-borrowers with micro-lenders and allows both of them to create community. Each micro-lender has a portfolio of borrowers that tells a story of his or her venture philanthrophy and each borrower has a photo and short bio that tells potential lenders why they should lend them $100 bucks to start their business.

Second, money and age are not obstacles. When Matt and Jessica Flannery started Kiva four years ago in their late twenties, they had nothing to start with other than a wonderful idea, a certain skill set, some good contacts, and a passion to bring their dream to reality. Money and experience were not at their disposal. Matt spent countless hours at a donut shop writing code hoping his idea would bear fruit. Four years later, Kiva has facilitated over 40,000 micro-creditors to loan over $40 million to over 5,000 entrepreneurs throughout the developing world.

Third, ignore the naysayers. The lawyers, the venture capitalists, and the mainstream banks all dismissed Kiva. Matt said he lost months of time launching Kiva because he listened to them and was unduly cautious about implementing his idea. If you are wildly successful, as Kiva has become, you can always hire the lawyers and accountants to help you backfill what was missing when you began.

Fourth, the new media can replace venture capital. Kiva’s first big break came from free publicity on a blog, Daily Kos. It then spread to other new media outlets and finally reached major newspapers and magazines. A few short months later, Kiva was being promoted on Oprah and by President Clinton’s global initiative summit. Matt emphasized that this media exposure was the equivalent of the venture capital he needed to launch his project.

Fifth, the Internet drastically reduces the problem of overhead costs. Every dollar that every lender provides goes straight to the micro-borrower. Each lender is invited (but not required) to make a tiny donation to Kiva to defray overhead costs. Eight out of ten lenders do so and this more than meets Kiva’s overhead costs.

Sixth, there is a space for charitable lending. This is a space in between profit-seeking lending institutions and tax-deductible charitable donations. Although Kiva is a non-profit, the micro-lenders neither make money on their loans nor deduct their loans on their tax returns as charitable donations. If the loans were interest-bearing this would inject significant government regulation on the program as a profit-making lending institution. The interest-free nature of Kiva avoids that intense regulatory oversight. But because micro-lenders require the borrowers to pay them back, they are not making a tax-deductible gift. The incentive of a tax break is less critical because the micro-lender is scheduled to (and almost always does) receive the money he loaned back when the term of the loan expires.

Finally, although this point was tangentially raised by another conference speaker, Jonathan Greenblatt, it is clear that organizations such as Kiva are so successful because they fulfill important needs of both lenders and borrowers. Using Maslow’s hierarchy of needs, many of the borrowers’ needs are met through micro-financing, including basic physiological needs, a degree of financial security, as well as higher order needs such as a sense of community and the esteem that comes from success. Conversely, many of the higher order needs of the micro-lenders are also being met, particularly a sense of community, respect, and self-actualization.

It really is quite ingenious. If don’t already Kiva, you should.