M: Business 3rd Edition by O. C. Ferrell, Geoffrey Hirt, Linda Ferrell

Exercise 92

Sending food and money to disadvantaged communities meets immediate needs, but ending long-term poverty is more difficult. Kiva.org is one business that seeks to tackle this problem head on. Founded by Stanford graduates with an interest in business and technology, Kiva was first designed to lend money to impoverished Ugandan entrepreneurs. It soon expanded its reach to include other developing countries. Kiva is a microfinance business, which means it provides small loans—as little as $25 for equipment, for example—to individuals to start their own businesses.

Kiva partners with microfinance institutions worldwide. These field partners approve entrepreneurs and send their profiles to Kiva. The entrepreneurs’ profiles are then posted on Kiva’s website, and people who want to lend to an entrepreneur send their donations through the site. Kiva’s field partners distribute the loans, work with the entrepreneurs, and collect repayments. Kiva.org does not earn returns on investments for lenders, but it does charge interest rates of between 23 and 48 percent. These interest rates cover loan costs, transaction costs, defaults, and inflation rates—and are much lower than rates charged by informal lenders or predatory lenders who typically supply loans to those who do not qualify for bank loans.

Kiva and over 560,000 lenders have succeeded in providing loans to over half a million entrepreneurs since 2005. The company has given $200 million in worldwide loans, but Kiva wants to go even further. It has established a five-year plan, aiming to reach $1 billion in global loans, help 2 million entrepreneurs, and achieve organizational sustainability. The buzz about Kiva is positive, and Kiva.org ’s future looks bright as microlending continues to receive favorable press.

What is unique about the way Kiva.org is organized that sets it apart from more traditional businesses?

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Micro finance refers to financial services that are rendered to budding entrepreneurs, individuals or small businesses that lack access to the traditional avenues of banking facilities. K is founded with the mission to avail financial access to help the underserved community, by allowing anyone to help a borrower grow a venture. It is K’s unique business process that has enabled it to stay apart from the traditional business of money lending.