Philanthropy 2.0: Kiva.org Teams Up with Google & PayPal for P2P Microfinancing

Most of us want to be more charitable, though somehow giving to a random charity often leaves us with too many unanswered questions: Where specifically does my money really go? How much of it actually makes it to the end destination?

Enter San Francisco based non-profit Kiva.org: a peer-to-peer microfinance gateway, which combines the Nobel Peace Prize concept of microcredit with the power of the Internet to facilitate micro-lending to small business owners in developing countries. Here’s how it works:

On Kiva.org, you browse descriptions and photos of potential loan recipients and read their stories. As a lender, you can choose any of the aspiring small-business owners as a recipient of your loan money. You can loan as little as $25 to the small-business owner of your choice (the average amount given is around $70-$80) via Kiva’s PayPal interface. Your loan money is then pooled together with others’ loan money who decided to loan to the same borrower.

Once the loan amount needed is reached (usually a few hundred to a couple thousand dollars), 100% of the funds are released from Kiva to a local group that redistributes the funds to the borrower. That group also collects payments and sends them back to you through Kiva at the end of the loan’s term. You earn no interest, and defaults are possible (though there haven’t been any yet).

The local microfinance institutions cover operating costs by charging interest to the borrowers with rates averaging around 19 percent (the rates in the microfinance industry overall are close to 30 percent). You can check out more details on each of Kiva’s microfinance partners on the site. So the money flows like this:

You > Kiva.org > Local Microfinance Institution > Borrower

So far over a hundred loans have been completed, and Kiva’s repayment rate is 100 percent. Even though lenders receive no interest for the loan, about 85 percent of the funds are reloaned for a second time. So if you’re willing to give up your $25 on a long term basis, you could help finance multiple small businesses with the same money over and over again (brilliant!).

Kiva itself keeps its operating costs very low, only having spent approx. $320,000 in its first year (which mostly covers the cost of its seven employees). The organization has already raised more than $1.5 million in loans from 18,000 lenders, which have in turn helped fund over 2,600 small businesses worldwide.

PayPal offers its services to Kiva free of charge (so no fees eat away at the loan money when transferred, thank goodness), and Google provides free advertising for the organization.

Here’s what Kiva president Premal Shah has to say:

“Philanthropy used to be balls and receptions catering to high net-worth individuals… I think there’s something democratizing if you can bring technology into it and let the average person be like a Bill Gates or a Rockefeller.”

As for the name Kiva, it apparently means “agreement” or “unity” in Swahili. The founders are Matthew Flannery, a Stanford graduate, and his wife, Jessica Flannery, a Stanford MBA candidate.

Oh, and I almost forgot, if you have a blog / website / MySpace page (whatever online presence), you can put a banner on it that will rotate through current small businesses seeking funds. So even if you don’t have money to help these small businesses, you can help them by simply giving them exposure.

And if you have a particular small business you’re interested in supporting, you can have that business be the one displayed on your site (after the loan amount needed is reached, it goes back to rotating through small businesses in need randomly). So I added the Kiva banner to the right sidebar on Computers.net and have a particular business in mind.

I’m currently interested in helping Radostin Tanev in Bulgaria. He needs funds to repair his bar/club that hosts up-and-coming rock musicians. On a more random note, I’m actually a big fan of Bulgarian music. So how could I not help?

Awesome. I love the idea of a social site that connects me to random people I’d like to help…

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  • http://www.wholeotherworld.org Glenn White

    Philanthropy 3.0

    I think Kiva.org is an example of what happens when people think innovatively about information technology and charitable development. I long for the day when more charitable organizations overcome the “dirty money” mentality that often forecloses their thinking in similarly creative ways. When that day does arrive, innovators like Google and Apple will be able to work with the Kiva’s of the world, to leverage IT in even more spectacular ways.

    Imagine for example, the power of Google Earth and Google’s newly acquired YouTube video resource, wedded to Kiva’s grassroots organization and to Apple’s iTunes audio-visual vending model:

    Here, you would be talking about a micro-lending infrastructure joined to a media production component that documented locally, the progress of that small well digging project, or crafts collective, this through miniDV. This rich media content would then be provisioned to donors via some iTunes-esque facility, as a premium for donations to the respective projects. With all the convergence that’s happing with media formats, from PDAs to HDTVs, here’s a model to satisfy an industry starved for content; “reality TV” that would remediate hunger, podcasting that would heal… and profitably so.

    The Whole Other World Catalog is a first step towards linking such a media-driven charitable funding model, in this case, to an online, geo-navigable directory of cultural, ecology and humanitarian projects, where people are able to identify projects by geography and category.

  • Bob Caswell

    Glenn,

    Thanks for your thoughts. I’ll be checking out your site…