JOHN ZIPPERER: How would you describe Kiva to a typical Northside reader and interest them in your organization?
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| photo by Beth Byrne |
What’s interesting is that once she gets that loan, when she buys the cow and then she actually starts that dairy business, over a period of usually one year she’ll start paying back that loan. Then when you get money back, you can choose to re-lend that money to somebody else, so that $25 can help someone now maybe in Cambodia. Or you can pull that money out of the system.
So Kiva’s this interesting new model of taking the internet and microfinance, and combining [them] together. It’s not a donation, but it’s not exactly a commercial investment. It’s something in between. It’s a way for you to connect with someone across the planet to help alleviate poverty.
ZIPPERER: Kiva started in 2005. The Kiva web site says that “As of November 2009, Kiva has facilitated over $100 million in loans.” Wikipedia says it’s over $160 million as of September 2010. How fast is lending growing? And why is it growing – how is it attracting more supporters?
SHAH: Kiva is growing at a rate of $1 million every six days right now. We’re up to $177 million. So it’s hard to keep the stats up to date. What’s interesting is that in the first year, we raised about $500,000 on the web site. In year two, we raised about $15 million. Year three, it went up to $40 million, and then in year four it went up to $100 million and now we’re up to $177 million.
Essentially what’s driving that is that most people who get their money back – and there’s a 98-percent repayment rate on the web site – are choosing to re-lend it to someone else, as opposed to pulling their money out of the system. So there’s this huge recycling effect, on top of new people every day, every week, maybe 3,000 or 4,000 people signing up for Kiva for the first time, putting in money and giving the system a try.
ZIPPERER: You said $25 increments, so obviously it’s a low-level entry for someone to get involved in it. What’s a typical amount of money people get involved at, or do they first dip their toes in and later add more, not just recycle what they already have in there?
SHAH: That’s what we’re seeing. The average person might dip their toe in with $25 or $50, and then we’ve seen people put as much as seven figures into the system. I think what it is is, like anything, you want to inch your way into it and figure out, “Is this real? Does this really work?” Then when people realize how easy it is, it becomes rather addictive.
ZIPPERER: Do the lenders ever feel any sense of ownership or kinship with the people beyond just the transaction. Do they want to meet the people? Do you ever have any problems with wanting to rein them in and say, “No, look at some other folks, too”?
SHAH: You know, one of the most interesting things that’s happened in Kiva’s history is that we launched in the United States. It gave lenders the opportunity to help somebody locally, not just abroad.
ZIPPERER: When you said you launched in the United States, you mean for borrowers, not just the organization founded here?
SHAH: Yes. Literally businesses in San Francisco, for example, are getting loans on Kiva.
What was really interesting is that now that there wasn’t this kind of, you know, geographical distance, you could actually drive and visit the local business, or you could actually communicate with them via e-mail, because a lot of businesses here in the U.S. were more online than, say, businesses in Uganda. What we’re starting to see is interactions where a small business owner will actually be looking for computers to expand their business. In addition to getting a loan, somebody might actually ship them computers.
There’s a small business here in San Francisco – it was like a board-game store – and essentially they were listed on the Kiva web site. It also drove up a lot of traffic to their store. A lot more people actually went to the store. The Yelp reviews cross-post to Kiva. It’s really interesting how, in a networked world, one of the biggest problems for businesses is actually getting customers. By being listed on Kiva, there’s this opportunity for you now to not only lend locally, but buy locally. We’re starting to see this emerge more and more.
ZIPPERER: So like Warren Buffet owning part of Dairy Queen and going to eat there –
SHAH: Yeah, and he drinks Cherry Coke. There’s something really exciting – you can imagine, the logical extension of something like Kiva is that people who are in hardship everywhere, who don’t have access to credit or have a hard time getting credit – in the U.S. for example, 20 million people are underserved by the current financial systems – that you could actually fund a bakery in the Tenderloin, you could fund a salon in Oakland, and literally visit and frequent these businesses and help drive a lot more economic vitality to these places.
ZIPPERER: A lot easier than going to get milk from the cow of the woman in Uganda.
SHAH: Yes.
ZIPPERER: Do you worry that you might have people who would rather – is there a diversion of funds to local things rather than international, or does that even matter?
SHAH: The great thing about Kiva is that it’s a marketplace, almost like eBay, if you will. And you have the choice.
What we’ve seen is, this is a fear, that if we put up people in the United States, will it cannibalize money that goes to the developing world? What we’ve seen is actually the opposite.
Ninety-eight percent of American giving is domestic; only 2 percent is abroad. There are a lot of people who really won’t engage with Kiva and make a loan until there’s a domestic opportunity there. Then you follow their behavior over the next year, and what we watch is that they add two to three loans from around the planet. So essentially what I think the goal is with Kiva is to meet people where they’re at, and get them onto the system, get them lending and connecting with other people.
What is it – “the sign of intelligence is that people can hold two opposing ideas in their head at the same time”? I think people can lend locally and lend abroad, and we’re starting to see the data bear that out.
ZIPPERER: I assume the loan amounts people are seeking locally are of much higher amounts than internationally. What is a typical amount that is asked for in the United States versus a typical amount in a developing country?
SHAH: The average loan on Kiva from the U.S. is $7,000. The average loan worldwide is $400. Obviously, the loan amounts needed here to start or expand a business – say, a home-based daycare – is much greater than in Ghana. And a lot of people I think are still very drawn to lending internationally on Kiva, because they feel their $25 makes more of an impact, just because of the value of the dollar abroad.
ZIPPERER: I know a lot of non-profits of all types see support for them go up or down during economic hard times. You started in good times and it looks like your rate of expansion is growing even during this downturn. Are you immune to that or are you just in such an expansion phase?
SHAH: I think Americans and people in the developed world want to be philanthropic, but they may not have the discretionary income that they used to. Everyone knows that. The neat thing about Kiva that I think people are starting to realize is that they’re not really spending their money. Because if they need the money, they can get that liquidity; they can withdraw their money. There’s kind of an insurance, essentially; this is my pool of money that I get to recycle and help a bunch of people, and if I really need it, I can always get it out. And because the repayment rate is so high historically – 98 percent – I think that has really helped Kiva surge in the time of declines across the charitable sector.
ZIPPERER: I’m guessing the majority of your lenders are probably within the United States. What are some of the other countries that are also big sources of loans through Kiva?
SHAH: Eighty percent of Kiva lenders are from the U.S. The next 20 percent come from over 100 countries. One of the most interesting things is that we’ve seen someone in Kenya lend money to someone in San Francisco, essentially blurring the lines between which way money goes. But the next largest country [for lenders after the United States] is Canada, followed by the UK and Australia.
ZIPPERER: Do you have any competitors? Who are they?
SHAH: I honestly believe our competition is for people’s mindshare. If I look at where people are spending their time that I would love to compete with, it’s with people who play Farmville on Facebook, who are building virtual farms. Every month, 60 million people are building these virtual farms on Facebook, and every month about 60,000 people are making loans to support real farms; it’s about the same cost to do both.
So the question is, “How does Kiva make philanthropy that fun, compelling, addictive? That’s the competition for people’s attention.
ZIPPERER: You are from what they call the PayPal Mafia. What did you learn there that has helped you at Kiva?
SHAH: One thing about PayPal that I have always marveled at is, you’re watching these transactions happening on eBay between complete strangers. If you think about it, 25 years ago, the idea of buying from a complete [stranger seemed impossible]; you had the classifieds, but you’d show up and you’d pick up that television or that radio. Now people are literally not meeting, and they’re transacting, and most times, it actually works.
I think the idea that communities that are inspired by commerce or partnership but are sustained by trust can really emerge on the internet. That is something that is really exciting to me. The idea that people are making bets on people they will never meet and that as technology spreads and there’s mobile payments and so forth, I think we’re going to see some really interesting things happen that right now people believe just can’t really happen. For example, from my cell phone to someone in Uganda’s cell phone, instantaneous credit facilitation. The reason I’m going to lend to them is because they’ve had four previous loans on Kiva, so I trust that they are actually trusted in the wake of no credit bureaus and basically, this Kiva loan from the internet community is the cheapest loan in town, because people are I think better than banks, because they’re willing to supply capital on more patient terms at lower interest if there’s a sense of impact and accountability.
So if we can really get this simple and seamless, and get that last-mile problem sorted out around the planet – which will happen in our lifetime –
ZIPPERER: The last mile meaning the direct connection?
SHAH: Yes, the direct connection, getting the money to that entrepeneur and back. Think about how the television in itself has changed in the last 30 years. In the next 30 years, we’re going to see some really phenomenal things around connecting people through lending.
ZIPPERER: Today at lunch I learned that the girlfriend of a former colleague here at The Commonwealth Club is now in Africa working for Kiva, helping check on the status of loans with the borrowers. How much does Kiva rely on that young spirit of going out there and, I assume, not really making a lot of money?
SHAH: No, these are all volunteers. Kiva’s model, similar to Wikipedia’s model, is largely volunteer-run. For every one staff member, we have about 10 volunteers. There’s over 700 volunteers. This has allowed us to scale with efficiency. We don’t have a big budget; we’re a nonprofit.
That’s the difference between PayPal and Kiva. PayPal had a lot of investors. [With] Kiva, no one’s going to make a profit [as an investor]. But because no one’s going to make a profit, you see people who are inspired to help out in whatever way they can. So we see people who volunteer to translate profiles that are uploaded from Honduras from Spanish to English; we see people who have quit their job for three months and go out to West Africa and work with a local organization that needs help with their accounting systems and management information systems. Perhaps more than just the financial capital in Kiva, there’s this whole human capital element that we’re beginning to see that’s really cool.
ZIPPERER: Last question, perhaps a bit of a blue-sky one or an obvious one. But where do you see Kiva going both in terms of growth in volume of lenders and such as well as is there any morphing of its model that you could see in the next five years?
SHAH: We want to do three things in the next five years. The first is that we would like to scale to reach $1 billion and reach 2 million entrepreneurs around the world. Today we’re at $177 million, so that’s going to require some serious investment to get there. The second is that we’d actually like to be self-sufficient as a 501(c)3. What that means is that the way Kiva sustains about 70 percent of its operational budget is covered by tips on the web site. When you go to a restaurant, you tip a waiter an extra 15 percent; Kiva asks for an extra 10 percent or 15 percent; on average, we’re getting an extra 7 cents on every dollar that flows through the system. We don’t take a cut of any of the money that actually comes through the system. We pass that through.
But we’d like to get the loan volume to a place where our online tips will actually cover our operations, so we don’t have to rely on the generous support of donors right now, like Skoll Foundation or Rockefeller Foundation or Omidyar Nework. Fantastic organizations, but we’d like to do it on our own.
The third thing is to actually innovate. One thing that Google did really well [that] is by scaling quite big and having an amazing product, they were able to hire some really great people and try all sorts of things – the Google Labs approach. I don’t know if anyone’s actually doing this in the poverty alleviation space or in the social justice space, like Kiva could one day. A Kiva Labs to me would mean something like actually experimenting with other types of loan products, like student loans, which we just launched, or a water loan.
The problem right now in microfinance is that, if you’re a microfinance institution, the most profitable kind of loan you can make – and they care about profitability because they want to be self-sufficient – is if you have one client and you make repeat loans to this person. So it’s a small businessperson who takes out $200 for inventory, then $400 for inventory, then $800 for inventory. That’s a very basic, simple, profitable relationship. But if that same client comes to you and says “I’d like to get a water tank in my back yard.” Well, that’s not a very profitable thing, because you can’t continue that loan cycle, it’s just a one-time, longer-term loan. But we think the internet community will be willing to do these kind of longer-term loans that are a little more risky; things that banks would not be willing to do – if there’s impact there and accountability. So we’d like to get into more areas like that.
Ultimately, you can imagine a day where where a borrower, an entrepreneur in Kenya, pulls out their cell phone, wants to buy a cow to start a dairy business, takes a photo of the cow, maybe takes another photo of themself, SMS’s a simple statement; it gets rendered up on the Kiva web site. People from around the world – today, 90,000 people a day come to the web site, but by that time, maybe millions of people will come to the web site every day – and they’ll see this opportunity to fund this man in Kenya or this woman in Kenya. Within seconds, if not minutes or hours, this person can get their loan fully funded, take that money that’s in the form of maybe minutes on their cell phone; go to a local gas station, exchange those minutes for Kenyan shillings – which happens today – and buy that cow. Right there. Instant credit approval from the internet community.
It’s possible, and the whole thing here is that it can be done at an interest rate that is so much lower than when a bank is in the middle.
ZIPPERER: You mentioned the banks. Are they opposing groups like you? Do they see you as competition? Do they see you as lowering the rates they can charge or taking away potential customers?
SHAH: I think the banks and Kiva are aligned in that what we want to do is get inclusive financial services to the most rural, remote, marginalized people on the planet. To that end, if Kiva can help everyone get there, I think that’s where we’re aligned. I do think you run into issues of maybe channel conflict and things like that, and this is a longer-term vision. In the interim, where we are, is very much working through the local microfinance organizations and trying to build their capacity so they are also around and are viable financial institutions in the markets they serve.
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