Kiva microloans, uncovered.

When you lend out a loan on kiva, upon repayment, you get the entire amount back. One of the most frequently asked questions about Kiva’s work is – how can Kiva do this work without charging lenders anything at all?

These past few days, we have been undergoing training at Kiva’s HQ in San Francisco. The office has a very silicon-valley-tech-start-upy-feel to it, which is really cool. Here’s a snapshot of front desk!

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Kiva has been extremely transparent with us, explaining every part of their operations in details down into the weeds. Kiva runs on the donation-model where they rely on lender contributions to Kiva (on top on any loan) to sustain their operations cost. Today, for every dollar of loan made on Kiva, about 5% extra is donated by lenders to fund Kiva’s operations; and since Kiva is running so lean, the donation revenue just about offsets overall costs. One critical piece of this pie is a “gift” offered by Paypal. A little history – the co-founder of Kiva used to work at Paypal, and miraculously managed to get Paypal to offer a 0% transaction fee on all credit card transactions made on Kiva. This means that when you make a $25 loan, the full amount flows through the system as the payment processor Paypal does not take a cut. Amounting to somewhere between 1.5-3%, this cost saving courtesy of the goodwill of Paypal plays a significant role in the overall workings of Kiva. Kudos to Paypal!

Another development brewing at Kiva is a new product called Kiva Zip. While loans flow from a lender to Kiva, to a microfinance institution (MFI) on the ground, to the borrower in the “classic” Kiva model, Kiva Zip loans flow directly from the lender to the borrower. Right now, due to resource constraints, Kiva Zip is only available in the US (widespread knowledge of P2P crowdfunding) and Kenya. Why Kenya? As a forefront leader in the mobile payments space, through Kiva Zip, your loan can directly reach a lender in Kenya via his brick-mobile phone. Probably a Nokia 3210. This is the technology revolution.

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I have also been tremendously impressed by the overall culture of the company. Despite being a non-profit, they continue to innovate and test out new ideas with an almost start-up like mindset and approach. As the company matures, they have also tried to become more sophisticated in the MFIs and types of borrowers they would like to have in their marketplace. When Kiva first started, in order to reach scale, they needed to get as much “supply” as they could to meet the “demand” from lenders. The “quality” of the supply was not monitored as closely in the initial growth stages. Think about a Kiva loan from you as a loan with 0% APR, or other terms, risk-tolerant capital. Today, Kiva is thinking about how they can encourage their field partners (MFIs) to post loans that are more “risky”, which a risk-tolerant source of capital could serve better. Examples of this includes student loans with longer repayment terms (ie. 10 years – no repayments during first 4 years in school plus an additional year of job-hunting, then repayments from year 6-10), first-time entrepreneurs, conflict-zone loans etc. It is a form of “market intervention”, but generally re-designing systems to serve more catalytic loans. Here is a sweet video that explains the objective of these high social impact loans!

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