We all know how powerful the internet has become especially in the context of how convenient and ubiquitous it is in our daily lives. However, rarely do we talk about the power of the internet and its potential for helping the less fortunate members of our society. While surfing the internets this weekend I serendipitously came across this website Kiva.org and I was blown away by the concept and more importantly its vast potential. I’ve heard about micro-lending especially in light of recent nobel-prize winner Muhammad Yunus, the banker/economist from Bangladesh, but I didn’t realize that there was already a presence on the internet.
The concept is actually quite simple - Kiva facilitates micro-lending or loaning money to the working poor by ordinary people leveraging the power of the internet.
Kiva lets you connect with and loan money to unique small businesses in the developing world. By choosing a business on Kiva.org, you can “sponsor a business” and help the world’s working poor make great strides towards economic independence. Throughout the course of the loan (usually 6-12 months), you can receive email journal updates from the business you’ve sponsored. As loans are repaid, you get your loan money back.
Kiva is just like any e-commerce website except the catalog in this case is a list of small mom & pop businesses that are in need of capital and the buyers are ordinary people who are willing to loan them the money. The businesses are owned by the working poor in developing countries who are in need of funds to grow their business and in the processes put themselves on a path for economic independence. The key word here is “loan” and not charity or donations. The lenders are not traditional financial institutions lending money and charging interest either, instead anyone can register on the website, pick one or more businesses they want to sponsor and lend the money via typical E-Commerce payment methods i.e. all major credit cards as well as PayPal. The total capital required by most of the businesses listed on the website is between $500 - $1200 and the minimum amount one can lend is $25. Once the full amount is raised, it is then disbursed to the business that needs the capital only after an agreement is made to repay the loan back usually within 6-18 months.
This is a clear example of how technology can be leveraged to help the less fortunate get on their feet and become self sufficient. It is also apparent that they have a successful “business model” in place. The overhead is next to nothing because the people loaning money do so directly via the website i.e. the website is just a vehicle to bring the two parties together. Secondly Kiva has established some key relationships with selected micro-finance institutions in those developing countries. Kiva lends the money to these institutions at zero percent interest and they in turn lend to screened applicants (who would normally not have access to credit) usually at a rate of 16 percent or less compare to almost 35 percent worldwide average for micro-finance loans.
As with every noble cause there are skeptics who will question the validity of such an operation. However if you take one look at their press page any skepticism you might have will quickly disappear.
Great stuff indeed.