This Is How Kiva's Microloan Model Reaches Those Who Need It Most

Micro loans are small business loans provided to borrowers who would otherwise not have access to conventional loans. These are most commonly people from underserved communities who lack a verifiable credit history and/or collateral, or steady employment.

Banks and credit lenders that provide micro loans then charge a lower interest rate, compared to more traditional loans. This helps borrowers manage repayments while not jeopardizing their business’s growth.

Why Kiva Is Different

Kiva differs from other micro loan lenders in that it has adopted a crowdfunding model that allows individuals to contribute toward micro loans on the Kiva website. As a non-profit endeavor, neither Kiva nor the individual lenders collect any interest on the loans they help to process.

Kiva then relies on a network of Field Partners to administer the loans on the ground. While these Field Partners do collect a small interest on repayments, such interest is kept comparatively low. This is because much of the loan capital is provided by Kiva and its lenders.

These Field Partners, which number more than 300, include micro finance organizations, schools, non-profits, and social enterprises. Kiva does not charge any interest or fees of their Field Partners, allowing loans to be kept affordable. Additionally, Kiva monitors its Field Partners to ensure they are both financially viable and that their loans are designed to support positive outcomes for borrowers.

The Kiva Process

The process begins with a borrower applying for a loan. This can be done directly through the Kiva website or through one of the Field Partners. The borrower’s profile is uploaded to the Kiva website with photos, a biography, and a business plan. Lenders can then browse the Kiva website and select which entrepreneurs to fund. Their contributions, which can be as low as $25, are sent to Kiva by credit card or PayPal.

Once the fundraising process is complete, Kiva gives the capital to one of its Field Partners to distribute to the borrower. The borrower then proceeds to repay the loan. Once the lenders have been repaid, they can choose to fund new loans, donate the money, or withdraw.

For US-based businesses and international social enterprises, direct funding is possible without the need for a Field Partner. In these instances, Kiva transfers the loan funds directly to the borrower’s account and zero-interest repayments apply. In many cases, Field Partners will disburse funds to borrowers before the loan is posted on the Kiva website. This allows borrowers to access funds immediately, with lenders subsequently contributing to the loan fund.

Loans on Kiva usually have 30 days to successfully raise the required funds. The applications that fall short of their target do not normally affect the borrower, since most loans are distributed before the loan profiles are even posted on the website. The crowdfunded money is therefore used to backfill the loan that has already been distributed. If the target is not subsequently met, Field Partners will source other funding avenues to make up the difference. This is what Kiva calls its flexible funding model.

The website also has a fixed funding model, by which the targeted amount of funds must be raised within the allotted timeframe in order for the borrower to access the loan. If the loan application falls short or expires, the funds are then returned to the lenders.

Kiva by the Numbers

Since being founded in 2005, Kiva has provided a platform for approximately 1.8 million individual lenders to lend business funds to around 3.5 million borrowers across more than 80 countries in five continents. In total, more than $1.42 billion in loans have been facilitated through Kiva, with an overall repayment rate of 96.6 percent.

In its 2018 annual report, Kiva reported distributing around $158 million from 639,607 lenders to 400,704 borrowers. Of that, 83 percent of Kiva loans were distributed to female borrowers. The top-funded countries in 2018 where the Philippines ($14.6m), Kenya ($10.7m), and Peru ($9.8m). Agriculture was the most-funded industry at $40.3m, followed by food ($34.8m), and retail ($25.9m).

Because Kiva transfers 100 percent of its crowdfunded loan donations to borrowers and Field Partners, the organization and its 110 employees are funded primarily by tips. Whenever a lender makes a loan donation, they are encouraged to provide a tip (with a suggested amount of $3.75). This model covers around 60 percent of Kiva’s costs. Other funding comes in the form of donations, corporate partnerships and grants.

Kiva Continues to Innovate

Kiva has already made a major impact on the micro lending industry and an even greater impact on the lives of many individuals. Instead of resting on its laurels, however, Kiva continues to look at ways to innovate.

Premal Shah, the co-founder of Kiva, explained in an interview with Forbes that one way the organization is looking to innovate is by better matching repayment schedules to the economics of the borrower’s business. Shah uses farmers as an example of borrowers who could struggle with traditional weekly repayments during certain seasons but would be able to afford larger repayments after harvest season.

Additionally, advances in business and consumer technology are sure to factor into Kiva’s future innovations. As Shah said: “There's still a long way to go in terms of improving access to capital.”