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Social Enterprise News

April 18, 2007

Microfinance Mogul from Speaks at Columbia Business School

By Ryan Petersen '08, Article for the Bottom Line, April 18, 2007

On March 27, Matt Flannery, founder and CEO of, visited Columbia Business School to talk with members of the International Development and Social Enterprise Clubs about the future of the group's innovative microfinance portal. is a nonprofit that is revolutionizing the fight against global poverty by enabling people to connect with and make personal loans of as little as $25, to low-income entrepreneurs in the developing world. Most of the poor in developing countries are self-employed entrepreneurs and a small loan to purchase business-related items such as sewing machines or livestock can empower them to earn their way out of poverty.

How Kiva Works: From Togo to Ecuador, microfinance institutions (MFIs) around the world go to and post photos and profiles of low-income entrepreneurs in need of money for their businesses. Lenders go to and browse through profiles of low-income entrepreneurs, including: a dairy farmer in Kenya, a man who wants to open a shoe shop in Honduras, and a tailor in Bulgaria. Loans can be made for as little as $25 to the entrepreneur of a lender's choice via PayPal, a globally recognized online payment service. The entrepreneurs pay the interest rates charged by their local MFI, but the MFIs themselves receive the funds from Kiva interest-free. Lenders currently receive no interest on their loans, but Flannery has plans to begin paying interest as soon as the U.S. regulatory hurdles can be cleared.

When funds from individual lenders reach a total loan amount requested, Kiva pools the money and transfers it to its MFI partner who in turn administers it to the entrepreneur. Once loans are repaid, Kiva users can choose to withdraw their principal or lend to another entrepreneur.

Kiva's Mission: Kiva does not aim to be the largest provider of funds to the microfinance industry. Rather the organization's mission is to develop social networks that can raise people's awareness about the role of micro-enterprises in alleviating poverty. Flannery says there are easier ways to raise money than soliciting small contributions from the general public. If the goal were just to raise as much money as possible, it would be better to focus on large donations from foundations that can give tens of millions of dollars all at once.

What Kiva offers is somewhere between an investment and a donation to charity. If you look at it as a pure investment, it's the worst investment you could ever make, because the best you can do is to get your money back. However, if you look at it as purely charity, it's the best you can possibly do, because you can actually get your money back. It turns out there is tremendous demand for this hybrid model of giving.

Even after the loans start paying interest later this year, Flannery doesn't believe Kiva will ever be an attractive investment from a purely financial perspective. Rather lenders will participate primarily because they feel connected with a small-business owner in a foreign country. By allowing you to lend directly to a real-life entrepreneur, Kiva provides a level of personal connection that is simply unavailable in other forms of philanthropy and for as little as $25. Suddenly you don't have to be extremely wealthy to feel like a philanthropist.

It has been widely reported that Kiva has a 100 percent repayment rate, but Flannery says that statistic is potentially misleading. So far there have been no defaults, but Kiva has delinquent loans where the borrower is not on track to make the repayment within six months of the original due date. He says there is no question they will have defaults in the future.

Asked if there is a risk that by providing interest-free loans to microfinance institutions, Kiva might be distorting the market, Flannery responds that rather than being an external, distorting force, in fact Kiva is just another force within the market. If lenders in the developed world are willing to lend money without receiving interest, then it's not subsidized credit. Instead, the loans are the result of people acting on their own free will.

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