Miller (2018)

SDG: Goal 1 – No Poverty
Technology: Crowdfunding

What was the challenge?

Two billion people in the world do not have access to formal financial services, most of them located in the developing or emerging countries (World Bank, 2018). Microfinance Institutions (MFIs) tend to operate in these countries with the aim to provide financial inclusion to people who are rejected by the traditional banks (Yunus, 1996). The initial capital injection and continued sponsoring for MFIs is often offered by ‘charitable or governmental agencies’ (Caudill et al. 2009).

Matt Flannery and Jessica Jackley interviewed entrepreneurs in East Africa and witnessed that many of the entrepreneurs still did not have access to start-up capital for their ventures. Inspired by the possibilities of microfinance and technology they tried to make micro-financing easier.

How innovators responded

Flannery and Jackley created Kiva.org, a platform that utilizescrowdfunding, or more specific a peer-to-peer-funding business model. Kiva allows lenders from all over the world to invest USD 25 or more to specific entrepreneurs around the globe in a simple a low-cost manner. The ease of lending for an individual significantly increases the pool of capital available to people in need. At the same time lenders have the option to contribute directly to specific opportunities which increases the human aspect of the lending. The money of the lenders is sent via the platform the MFIs who are in contact with the entrepreneurs. The entrepreneurs repay the loan with interest to the MFI. The MFI can keep the interest to pay for its operating expenses, and the lender receives back their loan at 0% interest.

Interface of a lending page on Kiva.org

Impact

In 2017, Kiva was able to provide a total of $152 million in loans to poor people around the world and $1 billion in loans since 2005 (Price, 2017). The repayment rate is between 98% and 99% (Waghorn, 2013). The microfinance via a crowdfunding platform, one of the emergent business models identified at the international Microfinance Symposium 2017,  seems to become more popular means of providing loans to the poor (World Bank, 2017). An example of a loan recipient is the woman Najah who lives in a refugee camp near Jericho in the West Bank where access to capital is scarce. She raises sheep and goats and sells the milk and meat. With the $2,000 loan from 69 lenders on Kiva from all over the world, she is now able to purchase more sheep and create healthy living conditions for the sheep (Baule, 2017).

The impact of Kiva in 2017 in numbers (Miller, 2018b).

Related Movie:

References

Baule, D (2018). Growing a business and caring for a family, from a refugee camp. Kiva, Retrieved from https://www.kiva.org/blog/growing-a-business-and-caring-for-a-family-from-a-refugee-camp

Caudill, S., Gropper, D., & Hartarska, V. (2009). Which Microfinance Institutions Are Becoming More Cost Effective with Time? Evidence from a Mixture Model. Journal of Money, Credit and Banking, 41(4), 651-672.

Miller, T. (2018). Exciting news! Kiva’s next chapter. Kiva, Retrieved from https://www.kiva.org/blog/exciting-news-kivas-next-chapter

Millter, T. (2018b). 2017 year in review: In uncertain times, strangers lighting up lives. Kiva, Retrieved from https://www.kiva.org/blog/2017-year-in-review-in-uncertain-times-strangers-lighting-up-lives

Price, S. (2017, July 6). Lending pioneer Kiva hits the one billion mark and launches a fund for refugees. Forbes, Retrieved from https://www.forbes.com/sites/susanprice/2017/07/06/lending-pioneer-kiva-hits-the-one-billion-mark-and-launches-a-fund-for-refugees/#2d6111b45dfe

Waghorn, T. (2013, November 4). Premal Shah: loans that change lives. Forbes, Retrieved from https://www.forbes.com/sites/terrywaghorn/2013/11/04/premal-shah-loans-that-change-lives/#7f3367aa2b07

World Bank (2017). Revolutionizing Microfinance: Insights from the 2017 Global Symposium on Microfinance, World Bank Group. Retrieved from http://www.thehinducentre.com/multimedia/archive/03217/9__World_Bank_Insi_3217604a.pdf

World Bank (2018). Universal Financial Access 2020. Retrieved from http://ufa.worldbank.org

Yunus, M. (1996). The Empowerment of the Poor. An address to the State of the World Forum, San Francisco, October.