Kiva lets users loan to U.S. businesses

Screen shot of Kiva.org's homepage


Kai Ryssdal: You probably could have figured this would happen as the recession really took hold last year, but 2008 was only the second time there has been a year over year drop in charitable giving in this country in the past half century. Giving USA released the numbers today. But with the decline of outright charity have come other ways to get money into the hands of those who need it.

Micro-finance is one of those ways. Small loans and financial services to the poor and economically underserved. It's been huge in the developing world. And it's gone online. There are a number of Web sites that help Internet users fund entrepreneurs from Kenya to Cambodia. And today one of the biggest of them -- Kiva.org -- will let users make microloans to small business owners right here in the United States. Rachel Dornhelm reports.

RACHEL DORNHELM: In January of this year, Vika Sinipata fulfilled a long time dream. She opened her own business. Assisting the elderly.

VIKA Sinipata: Usually in the afternoon I just make her tea.

On this day she is at a client's house, outside San Francisco.

Sinipata: And then I make her sandwiches.

Sinipata says she had the idea for the business after taking care of her own relatives. What she didn't have was a line of credit.

Sinipata: I've tried the route through the bank, and they want two years of experience. And especially for myself, I didn't really have much foundation in the way of experience other than my MBA, and my background in sales and it wasn't enough.

So she launched her business with her savings -- $5,000. In March, she realized she needed another $10,000 for a license from the state and more marketing materials. And that's how she became a part of an experiment on the microlending Web site Kiva.org. Kiva is a nonprofit that allows individuals to lend to entrepreneurs around the world -- in $25 increments. Until today all of its borrowers were in developing countries.

PREMAL Shah: The economy and the credit crisis was a big motivator for Kiva looking at the United States and realizing wow, there is actually quite a need for capital domestically.

Premal Shah is president of Kiva.

SHAH: So say someone in Queens, N.Y., who might want to start a salon, or someone here in the Bay Area that might want to start a day care.

Microcredit in the U.S. has existed for two decades, but it gets less attention here than in the rest of the world. The average U.S. loan is $7,000, compared to a few hundred abroad. And relative need may be perceived differently too.

Shah: I really don't know if people are going to say, "Hey, my $25 goes further in South Sudan or in Cambodia than in does in, say, Queens, N.Y." It will be really interesting to watch.

Shah says Kiva users do show strong preferences and funding rates vary depending on the borrower's gender and geography.

Shah: For example, if you're an African, I'm sorry, a Kenyan woman farmer, you get funded 10.2 times faster than a male Bulgarian taxi driver.

To test the waters, Kiva is having two U.S. microfinance institutions post their entrepreneur's profiles online. Eric Weaver is CEO of one of them -- the Opportunity Fund in San Jose. It vetted Vika Sinipata's loan. Weaver says after the credit markets seized up, they've seen more interest in microloans.

ERIC Weaver: We're seeing more people come to us who previously were bankable. You know, they've had their line of credit frozen, or their term loan was not renewed, they weren't able to increase the credit they're getting from the bank.

So would a current Kiva user be interested in the U.S. option? I called up Reverend David Taylor, in Greenville, S.C. His Eastminster Presbyterian Church currently lends on Kiva.

DAVID Taylor: Actually on our outreach team, we've had conversations about how we could do a Kiva-like loan to people in the community.

Reverend Taylor says his congregation would probably be most interested in funding U.S. entrepreneurs from their own region. People across the country may have that option. If all goes well, Kiva plans to team up with microfinance organizations in Detroit, New Orleans and beyond.

In San Francisco, I'm Rachel Dornhelm for Marketplace.

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How can I request a microloan in my state of Massachusetts

Great story. I'm glad that Marketplace is picking up on this field. I left Wall Street a year ago to work for a French NGO where I have been analyzing and funding microfinance institutions around the world. Having visited institutions in Africa, the Middle East and Latin America, I have always been curious to see how micro loans would fare in the US. The key to microfinance is that institutions are self-sustaining organizations: they don't only survive off of donations and they turn a (reasonable) profit. The reason why self-sustainability is essential is not some greedy need to make money, but rather to assure its existence in the future. Once an unsustainable institution runs out of donors, its clients (the small business owners) lose their source of funds.

I run into institutions around the world that use Kiva and it is really a wonderful idea that has proven extremely successful. It provides these small banks with surprisingly stable interest-free loans. Despite the report stating that donations in the US have dropped in the last 2 years, Kiva keeps breaking records for the amount Americans lend through it every month. Kiva has shown me that Americans are some of the most giving people in the world. A friend of mine works for a similar company in France. She says that the power of Kiva is that Americans are more willing to give relative to their French counterparts or those of any other country for that matter. As an American this makes me very happy.

Back to this particular story, I think for Kiva to be successful in the US, it needs to work with healthy institutions as it does in other countries. There certainly are a few in the US, but many are groups simply providing donations, disguised as microfinance institutions. It can be dangerous for a small business owner to confuse the two.

Thanks for the report! I listen to you guys everyday no matter what time-zone I'm in!

With so many H1Bs from India we need the same credit as for the third world countries. I guess Vika was a Java programer on H1B.

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