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

Exercise 94

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.

Do you think the Kiva.org model of giving loans would work for larger loans, or even for other kinds of businesses?

Step 1 of 2

K has been working diligently with its host microfinance institutions in implementing loans and serving the underserved community of society around the world. It has already itself as a strong platform serving the impoverished section of people and helping them to gain access to financial services. But still there is a large section of people around the world, who lacks access to formal financial sector, even the most basic deposit account.