Kiva.org

Kiva.org

Charity Navigator Score: 4/4 stars

Amidst a famine in the 1970’s,  Dr. Muhammad Yunus, professor of economics at the University of Chittagong in Bangladesh, travelled around rural villages trying to find an answer to the widespread poverty. In a small village called Jorba, he came across a group of 42 women who earned their living weaving bamboo stools and selling them to local traders. Despite their work, the women lived in extreme poverty. The women lacked access to traditional bank loans, so in order to purchase the raw materials they needed to make stools, they relied on loans from the local traders, who lent them money on the agreement that the women would sell them the finished stools for a price barely higher than the cost of the raw materials. The traders got cheap stools, and the women got a predatory deal that kept them in a cycle of perpetual debt.

Dr. Yunus was surprised to learn that the cost of the materials needed by all 42 women was a mere $27. He promptly lent the women the money they needed to buy their raw materials himself. Free from the control of the predatory traders, the woman were able to sell their stools for a fair price, ending the cycle of debt they were chained in.

This was the beginning of the microlending model - small loans, often backed by non-profit lenders, granted to impoverished entrepreneurs to whom traditional banks refuse to lend money. This Nobel Prize-winning model is the mode of change embraced by Kiva, a San Francisco based nonprofit that believes in empowering individuals to create a better future for themselves. Kiva’s method of providing accessible loans goes beyond where a simple one-time donation would; instead of creating a dependence with handouts, microloans provide a path to self-sufficiency while allowing both actors to maintain their dignity.

Here's how it works. A borrower in need of capital to start up their business approaches one of Kiva’s Field Partners (local non-profit groups, microfinance institutions, or social organizations) in their community and applies for a loan. Once the loan is approved, the Field Partner credits the borrower the funds, (so they can begin work immediately) then posts their story to the Kiva website. From the website, the loan is crowd-funded by individual lenders, who are then repaid once the borrower repays the loan. (If the loan doesn’t reach the crowdfunding goal, the Field Partner uses their own resources to cover the loan.) Once repaid, the individual lenders are given the option to either reinvest the money into another loan on the Kiva website, withdraw it, or donate it to Kiva for their operating costs. (I should note that, while I use the word “invest”, Kiva charges 0% interest on its loans, so neither Kiva nor the individual lenders make any money off of the loans. The best an individual lender can do is break even, meaning their “investment” is not one made intending to make a profit).

In addition to dispersing loans, many of Kiva's Field Partners provide financial services to borrowers, such as savings accounts and financial literacy training, as well as health services to the clients and their families. All of this further facilitates Kiva's goal of producing sustainable economic self-sufficiency.

Kiva charges 0% interest on the money dispersed from its platform, and 100% of the money lent through the site is received by the borrower. This means that the only source of income for Kiva is through money donated for its operating costs, most of which comes from individual lenders choosing to donate the money. These operating costs totaled $16,895,877 in 2016 (the most recent year for which data is available). The costs can be broken down into $13,104,819 for program expenses, $2,531,884 for administrative expenses, and $1,259,174 for fundraising. Their total revenue that year was $17,219,880, meaning that for every $1 spent on fundraising, $13 were raised for the organization. This efficiency is a contributing factor to Kiva's 4/4 star rating by Charity Navigator. Even more impressive is the fact that on this budget of $16,895,877, Kiva facilitated $143,065,750 in loans! That's 11 cents for every dollar of loans. To their credit, Kiva has made their expense reports, along with a breakdown of all other financial information, easily accessible from their website, helping them achieve GuideStar's Platinum Seal of Transparency.

Kiva’s model has produced staggering results. Since its founding in 2005, over $1 billion in loans have been funded through Kiva. That money has reached 83 different countries and 2.7 million individual borrowers. These borrowers have used their loans to establish goat farms, weaving businesses, and empanada shops -- creating jobs and steady incomes for themselves and people in their communities. Most impressive of all, Kiva’s borrowers have a 96.9% repayment rate, meaning of those 2.7 million people who took out loans, 2.6 million successfully repaid. Also significant is the fact that 81% of borrowers were women. In many communities around the world, obtaining a business loan is even more difficult or even impossible for women. Kiva’s efforts have helped empower many of these women to create opportunity for themselves that they otherwise would not have had.    

What Kiva provides is a permanent, sustainable path to alleviating poverty. It is estimated that between 1.5 and 2.5 billion people lack access to basic financial services. Kiva’s work helps address this systemic failure, providing individuals with the tools they need to create their own change for themselves and their communities.