For those not familiar, Kiva (www.kiva.org) is a person-to-person micro-lending site that allows individuals, primarily from developed countries, to lend directly to entrepreneurs in the developing world. The borrowers are in places like Cambodia, Bolivia, Azerbaijan, Lebanon, Peru, and Tanzania — and primarily borrow to allow their very small businesses to expand and hire.
Kiva was created in 2005 and originally funded 7 loans for a total of $3,500 which were all paid in full. Since that time, there have been close to 90,000 loans made via the site, valued at over $62 million, and funded by more than 450,000 personal lenders. The current Kiva loan repayment is over 97%.
There are so many reasons why I love and support Kiva:
1) Loans, as opposed to charity, promote dignity, accountability and transparency.
2) The “middlemen” are cut out. And, phew, is it about time. Kiva is a great example of what the new world of finance will look like in the coming years. As opposed to big, fat, amorphous Wall Street bankers standing between borrowers and lenders, buyers and sellers of money connect directly via a transparent Internet platform. This greatly reduces the cost of capital and allocates it to where the marketplace, as opposed to your politician or your good old neighborhood’s old boys network, determines where it is best served. It is a wake-up call for America. 97% repayment rate! From the poorest of the poor? Maybe the executives at Citigroup or AIG or GM should fly in some Kiva borrowers (first class of course) to tutor them on accounting and finance?
3) It is more proof, if proof is needed, of the core advantages of small versus big and of owner-operators versus a managerial class.
Now this is not to say that investing in micro-businesses in the developing world is a true capital appreciation alternative to traditional vehicles. Yet. But Kiva is a glimpse of the new, flat, transparent, and fully accountable 21st century world economic order.
Watch for the many nascent peer-to peer lending sites out there (Virgin Money, Prosper, LendingClub) and the various investment and business brokerage marketplaces (RaiseCapital.com, BizBuySell, The Private Equity Exchange) to take off in the coming years. Entrepreneurs will benefit via easier, faster and cheaper access to capital. And investors will have access to a whole new world of investment alternatives.
Now that is a stimulus plan I can support.