Kiva expands loan offerings stateside

Kiva.org President Premal Shah.

TEXT OF INTERVIEW

TESS VIGELAND: Microfinance has been around for several years now. In 2006, Muhammad Yunus won the Nobel Peace Prize for his work providing tiny loans to businesswomen in poor areas of Bangladesh. Now, there are lots of ways for individuals to lend to entrepreneurs around the world.

One of those is through Kiva.org, the first online microlender. In its first four years of existence, Kiva loaned only to businesses outside the U.S. This year, it announced the start of online lending stateside.

Premal Shah is the president of Kiva. Premal, let's start with how you go about getting a loan through Kiva?

SHAH: To qualify for a loan in the U.S., there's kind of three criteria. First is, it needs to be for a business purpose, the loan. It can't be for personal use. Second, you need to be able to demonstrate a capacity to repay. And then third, you need to have been declined by a bank when you ask for a small loan or clearly don't meet the requirement.

Vigeland: That's happening a lot.

SHAH: It's happening a lot. In fact, you know, to get a little technical here: If you have a FICO score below 750, it's very hard to get a loan for you small business.

Vigeland: Are you concerned at all that opening up to recipients in the U.S. could dilute the money that's currently going overseas?

SHAH: This is something that the staff of Kiva was really concerned about. I think one way to think about this is, when a store starts adding other things to their shelves, ideally you're still going to buy bread, but you might also buy milk as well. And hopefully, more people will start lending on Kiva as a result of more choice. And ultimately, it's up to you. When you go to the Web site, if your values kind of tell you that you want to lend abroad, because there's a greater impact, that's absolutely up to you.

Vigeland: Let's talk about what lenders get out of this effort. First of all, can you tell us a little bit about how things are going for lenders? What's the rate of repayment?

SHAH: After three and a half years, 500,000 people have been made a loan on the Kiva Web site and that amounts to $75 million. That's funded about 180,000 entrepreneurs in almost 50 developing countries. The 51st country is the United States. And the repayment rate is right now 98.2 percent. To put that into perspective, consumer credit cards in the United States, the repayment rates are around 94 percent.

And then microfinance in the United States, the nonprofit microfinance institutions that we decided to partner with, they experienced a repayment rate of about 90 percent. So, we think that the repayment rate may drop a little on the Kiva Web site with some of the U.S. loans, but not significantly. And it's cool to be able to lend, help someone and at least get some money back.

Vigeland: One thing that you don't get back under this program is any sort of interest. I remember a couple of years ago when we first profiled your organization, there was some debate about that and there were some talks going on with the IRS. Any developments there?

SHAH: It's not about earning a rate of return, it's about more effective philanthropy. It's not a hand out, it's a hand up. You get to invest in their businesses and business partner and if you get your money back, then you can re-lend it to someone else or you can withdraw that money. That seems to satisfy a lot of people and today, one of the big problems at Kiva, is occassionally we run out of loans for people to fund.

Vigeland: Really?

SHAH: Yeah. The Internet community and word of mouth spread about Kiva is pretty phenomenal. So what happens is, the Internet traffic on our site is scaling almost parabolically, where our ability to go and find good high quality microfinance institution partners around the world and to vet them, that's always scaling linearly. So it's taking us a little while to build a good base of entrepreneurs for the Internet community to fund.

Vigeland: Do you see microlenders eventually competing with banks on a larger scale?

SHAH: Right now, the macro picture is something like 10 percent of those who actually need access to loans, who are unable to access it from traditional commercial banks are being reached today. So there's a long ways to go. The bigger problem is that people, there's just not enough capital and there's not enough capacity in there local organizations to reach enough of these entrepreneurs around the world. So I think it's going to be a while before the banks feel any threat from any of the local microfinance institutions.

Vigeland: Premal Shah is the founder and president of Kiva.org. And we'll have a link to their Web site on ours. It's Marketplace.org. Thanks so much for coming in today.

SHAH: Thank you.

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