I am proud to be one of Matt’s friends who early on had a lot of doubts, but supported him nonetheless. He’s gone to prove me and a whole lot of other people wrong. To Matt, Premal and the whole rest of the Kiva team—keep on keeping on. The model and raising the bar for *all* social services was needed and appreciated.
Congratulations Jessica, Matt, Premal and the entire Kiva team! What an impressive path you have carved, and leveraged the willingness to create human impact around the world - while also building a “profitable” model inside the social sector. So glad you can help microentrepreneurs around the world and expand the minds and portfolios of donor-investors - here’s to decades more impact and profit!
The dilemma of whether to choose a for-profit model in this BOP space is being faced by many. For newer entrants, reading about choices Kiva made help broaden understandings. Good luck to the Kiva team…
>> the MFI partners who would distribute the loans to local entrepreneurs would still charge prevailing interest rates and earn interest income.
This is the appaling part of the Kiva loan cycle. The borrower is still charged a 20-25% interest rate—so someone borrowing $100 on a small loan is paying back $120—the $20 being a profit/operating cost for the MFI.
This is a preposterous model, and comes close to the model of the local money-lenders, which developing economies desperately need to escape from.
Kiva is doing a great job, but Field Partners (MFI) charging the poor entrepreneurs an average of 24% interest rate is a weak link in the loan Cycle. Which business in the world makes 24% profit consistently?
KIVA must do something to cut down the interest rate to no more than 5%, or to eliminated it all together and make the lenders pay the operation fees (5-10%). I am a citizen of the third world countries and I know that eliminating interest is the only effective way to help the poor people to survive but paying 24% will keep them poor and just working for the benefit if the MFI.
The dilemma really is how to approach a Profitable Social business for Microfinance.
I believe such self-sustainable business models are the best suitable to help alleviate poverty in these countries and they’ll compete in the capital markets in the near future.
I’m currently trying to develop such model and I’d welcome ideas and collaboration.
A refreshingly well-researched article, thank you very much.
Yusuf and Omar - the interest rates are high because the transaction costs of many small loans in remote areas is high, and the cost of capital for the MFI is high. I worked with two of Kiva’s MFI partners and found that local money lenders charge much higher rates, at least over 100% per year, and the MFIs were charging just enough to be a sustainable entity, which will benefit more people long-term.
“eliminating interest is the only effective way to help the poor people to survive ” - this would make many poor people dependent on unsustainable sources of finance, again not helpful in the long-term.
Well I just dont like the capitalism in this model. The people that need the help have been exploited enough. It is not innate lack of responsibilty that created the worlds poor and proverty. It is Greed and Exploitation. I did a study and it is shameful the amount of interest the poor must pay on their debt as compared to all the money the US gives other European countries and Isreal. I say, this microloan movement is just a cerebral attempt to make more capitalist around the world. Yes, some good has been done but why not think on the big level. Like, we provided desaltation plant to Isreal, Africa is surrounded by water. We built a oil pipeline across Alaska, so are you getting my drift. Lets, build a desaltation plant and a solar plant- putting people to work and becoming self sufficient so they can plant their own food. But the real problem is brain drain to the West and corrupted govenments that many of the leaders have been taught in the West. So, I say, look at the model of the Humane Renaissance Movement. A real grassroot movement that wants a global footprint. I was on the front end and wrote to Kiva in the beginning asking for a domestic loan and they kicked me to the curb. Now they are offering them after they used the Global “proverty pimp game” to raise millions of dollars. What the world needs is Love and more capitalism. Just look at America, and we have not learn yet.
Hi there, I subscribe to SSIR and recently read about KIVA. I am extrtemely interetsed in this model and the not for profit status. i would love to chat further or find out more information on your website and organisation. be great if someone could email me?
great work, v impressive
Indeed Kiva has earnt a well respected reputation around the world. I have found Kiva to be one of the easiest resources to suggest to someone interested in getting directly active in Social Entrepreneureship. This article also highlights the ever increasing problem of locating a tax status that combines for profit and not-for-profit opportunities. As more social businesses emerge the need to create a place for them in the marketplace and define the unique characterisitcs of these businesses must be met. Congratulations on focusing on your vision rather than the nay sayers!
As many people have mentioned, Kiva has done a great job mobilizing millions of dollars in terms of money lent on line - thats not something easy. Now that Kiva has a lot of lenders (and can hence open up a lot of MFIs to funds), they can maybe make a big difference in the bottom line - interest rates.
Sustainability - because kiva has a lot of floating funds, a lot of its costs are being satisfied, but they are still running on a donation model. You might want to take a look at organisations such as
- Wokai (which lends to borrowers in China http://wokai.org/) lends at interest rates of 15-20%.
- Rang De (which lends to borrowers in India- http://rangde.org/) which lends to all its borrowers at an interest rate of 8.5% and it takes 1% of this interest to sustain its operations.
Kiva is a great project but I completely disagree with the logic of non-profits being intuitively better then for-profit’s. Its nothing more then a self-filling emotional argument. While all the barriers of a npo are actual (limited resources, sustainability issues, etc), all the perceived benefits are assumptions (npo’s are trusted more, only hard working and good people work at npo’s, etc). At the end of the day, any person or group with true good intentions to help those who need it should strictly focus on the impact of their services and be measured via their success to that. If Microsoft tomorrow decided to take on homelessness, do you think that housed person(s) benefiting from MS’s efforts would really care about the moral deeds of the company…and should they?
This article doesn’t realistically approach the shortfalls of the existing non-profit framework, frankly most are doomed or facing so many barriers that the final results are greatly reduced at a cost to those most in need. I believe that while neither the private or public structures provid the best foundations for a social entities but after truthfully considering all issues, a private firm may be the best choice holistically. Remember, a for-profit firm can establish its own bi-laws (ie, no dividends, act like a npo, etc) and not have to deal with all the limitations of an actual npo.
I’m glad I have read this very informative article about Kiva because I have been facing a a hard question of whether to advise my client to remain as a non profit or a for profit in order to do the needed borrowing to the very poor people they seek to help.
I really appreciate the model,the critics and the applausers because each has challenged me to rethink everything.
However,iam concerned that the poor people whom Kiva seeks to reach out to,might be discouraged from getting loans from the MFS through which Kiva works ,as they are more less the usual local money lenders whom the poor person would ordinarily be hesitant to approach for dear of similar high interest charges and harsh recovery measures..so I wonder how Kiva handles such concerns.
COMMENTS
BY Chetan
ON June 18, 2009 04:17 PM
Feeling great after so much on kiva. Thanks for sharing this important information.
BY Selly
ON June 18, 2009 09:51 PM
I am proud to be one of Matt’s friends who early on had a lot of doubts, but supported him nonetheless. He’s gone to prove me and a whole lot of other people wrong. To Matt, Premal and the whole rest of the Kiva team—keep on keeping on. The model and raising the bar for *all* social services was needed and appreciated.
BY RPaul Herman
ON June 20, 2009 03:10 PM
Congratulations Jessica, Matt, Premal and the entire Kiva team! What an impressive path you have carved, and leveraged the willingness to create human impact around the world - while also building a “profitable” model inside the social sector. So glad you can help microentrepreneurs around the world and expand the minds and portfolios of donor-investors - here’s to decades more impact and profit!
BY meera shenoy
ON June 21, 2009 05:45 AM
The dilemma of whether to choose a for-profit model in this BOP space is being faced by many. For newer entrants, reading about choices Kiva made help broaden understandings. Good luck to the Kiva team…
BY Yusuf
ON June 26, 2009 03:34 PM
>> the MFI partners who would distribute the loans to local entrepreneurs would still charge prevailing interest rates and earn interest income.
This is the appaling part of the Kiva loan cycle. The borrower is still charged a 20-25% interest rate—so someone borrowing $100 on a small loan is paying back $120—the $20 being a profit/operating cost for the MFI.
This is a preposterous model, and comes close to the model of the local money-lenders, which developing economies desperately need to escape from.
BY Omar
ON June 27, 2009 12:39 AM
Kiva is doing a great job, but Field Partners (MFI) charging the poor entrepreneurs an average of 24% interest rate is a weak link in the loan Cycle. Which business in the world makes 24% profit consistently?
KIVA must do something to cut down the interest rate to no more than 5%, or to eliminated it all together and make the lenders pay the operation fees (5-10%). I am a citizen of the third world countries and I know that eliminating interest is the only effective way to help the poor people to survive but paying 24% will keep them poor and just working for the benefit if the MFI.
BY eduardo
ON July 8, 2009 03:41 AM
Great article,
The dilemma really is how to approach a Profitable Social business for Microfinance.
I believe such self-sustainable business models are the best suitable to help alleviate poverty in these countries and they’ll compete in the capital markets in the near future.
I’m currently trying to develop such model and I’d welcome ideas and collaboration.
Edu
BY Kieran
ON July 27, 2009 05:03 AM
A refreshingly well-researched article, thank you very much.
Yusuf and Omar - the interest rates are high because the transaction costs of many small loans in remote areas is high, and the cost of capital for the MFI is high. I worked with two of Kiva’s MFI partners and found that local money lenders charge much higher rates, at least over 100% per year, and the MFIs were charging just enough to be a sustainable entity, which will benefit more people long-term.
“eliminating interest is the only effective way to help the poor people to survive ” - this would make many poor people dependent on unsustainable sources of finance, again not helpful in the long-term.
BY Craig Bright
ON August 17, 2009 03:50 PM
Well I just dont like the capitalism in this model. The people that need the help have been exploited enough. It is not innate lack of responsibilty that created the worlds poor and proverty. It is Greed and Exploitation. I did a study and it is shameful the amount of interest the poor must pay on their debt as compared to all the money the US gives other European countries and Isreal. I say, this microloan movement is just a cerebral attempt to make more capitalist around the world. Yes, some good has been done but why not think on the big level. Like, we provided desaltation plant to Isreal, Africa is surrounded by water. We built a oil pipeline across Alaska, so are you getting my drift. Lets, build a desaltation plant and a solar plant- putting people to work and becoming self sufficient so they can plant their own food. But the real problem is brain drain to the West and corrupted govenments that many of the leaders have been taught in the West. So, I say, look at the model of the Humane Renaissance Movement. A real grassroot movement that wants a global footprint. I was on the front end and wrote to Kiva in the beginning asking for a domestic loan and they kicked me to the curb. Now they are offering them after they used the Global “proverty pimp game” to raise millions of dollars. What the world needs is Love and more capitalism. Just look at America, and we have not learn yet.
BY Kate Sutton
ON September 20, 2009 06:49 PM
Hi there, I subscribe to SSIR and recently read about KIVA. I am extrtemely interetsed in this model and the not for profit status. i would love to chat further or find out more information on your website and organisation. be great if someone could email me?
great work, v impressive
BY M.J.
ON September 21, 2009 11:25 PM
Indeed Kiva has earnt a well respected reputation around the world. I have found Kiva to be one of the easiest resources to suggest to someone interested in getting directly active in Social Entrepreneureship. This article also highlights the ever increasing problem of locating a tax status that combines for profit and not-for-profit opportunities. As more social businesses emerge the need to create a place for them in the marketplace and define the unique characterisitcs of these businesses must be met. Congratulations on focusing on your vision rather than the nay sayers!
BY Arvind Sridharan
ON February 6, 2010 11:17 PM
As many people have mentioned, Kiva has done a great job mobilizing millions of dollars in terms of money lent on line - thats not something easy. Now that Kiva has a lot of lenders (and can hence open up a lot of MFIs to funds), they can maybe make a big difference in the bottom line - interest rates.
Sustainability - because kiva has a lot of floating funds, a lot of its costs are being satisfied, but they are still running on a donation model. You might want to take a look at organisations such as
- Wokai (which lends to borrowers in China http://wokai.org/) lends at interest rates of 15-20%.
- Rang De (which lends to borrowers in India- http://rangde.org/) which lends to all its borrowers at an interest rate of 8.5% and it takes 1% of this interest to sustain its operations.
BY Rob
ON February 17, 2010 05:53 PM
Kiva is a great project but I completely disagree with the logic of non-profits being intuitively better then for-profit’s. Its nothing more then a self-filling emotional argument. While all the barriers of a npo are actual (limited resources, sustainability issues, etc), all the perceived benefits are assumptions (npo’s are trusted more, only hard working and good people work at npo’s, etc). At the end of the day, any person or group with true good intentions to help those who need it should strictly focus on the impact of their services and be measured via their success to that. If Microsoft tomorrow decided to take on homelessness, do you think that housed person(s) benefiting from MS’s efforts would really care about the moral deeds of the company…and should they?
This article doesn’t realistically approach the shortfalls of the existing non-profit framework, frankly most are doomed or facing so many barriers that the final results are greatly reduced at a cost to those most in need. I believe that while neither the private or public structures provid the best foundations for a social entities but after truthfully considering all issues, a private firm may be the best choice holistically. Remember, a for-profit firm can establish its own bi-laws (ie, no dividends, act like a npo, etc) and not have to deal with all the limitations of an actual npo.
BY Lydia Mwebaza
ON September 12, 2019 01:46 PM
I’m glad I have read this very informative article about Kiva because I have been facing a a hard question of whether to advise my client to remain as a non profit or a for profit in order to do the needed borrowing to the very poor people they seek to help.
I really appreciate the model,the critics and the applausers because each has challenged me to rethink everything.
However,iam concerned that the poor people whom Kiva seeks to reach out to,might be discouraged from getting loans from the MFS through which Kiva works ,as they are more less the usual local money lenders whom the poor person would ordinarily be hesitant to approach for dear of similar high interest charges and harsh recovery measures..so I wonder how Kiva handles such concerns.