Pop!Tech’s second session focuses on “innovation from the bottom up”, grassroots approaches to social change. Andrew Zolli points out that “for every dollar of US foreign aid, 14% makes it to its intended recipient.” If top-down aid isn’t working, perhaps “bottom up is where the action is.”
To explain the idea of bottom-up aid, the first speaker is Jessica Flannery, co-founder of Kiva, a very popular peer to peer microcredit lending site. Flannery leads off her talk with a segment from Oprah, explaining the model and the tool – Oprah quotes a 99.7% repayment rate on Kiva’s microloans – Flannery clarifies that the rate is for all microcredit loans across the industry (which leaves open a question of what Kiva’s repayment rates are.)
Like almost everyone in the microfinance field, Flannery is inspired by Nobel prize winner Muhammed Yunus. She describes herself as a “random white girl from Pittsburgh” who wanted to find a way to help with development – hearing Yunus speak was a “full-body experience”, and microcredit was an idea that changed her life. She found a job in East Africa that allowed her to interview microcredit recipients, hearing about the successes and challenges that borrowers experienced. She felt that the stories of these borrowers were so powerful that she wanted to enable the world as a whole to hear.
Kiva’s model, built with her husband, Matthew, brings three groups of people together – lenders (primarily individuals who can lend groups of money in amounts as small as $25), entrepreneurs (the borrowers who use loans to start a business) and partners, organizations on the ground in developing nations who vet partners, monitor loans and help ensure repayments. The Kiva system matches lenders to entrepeneurs through partners. The loans carry interest rates from 10-25%, and partners keep the interest – they’re able to reinvest it in expanding the size of groups they work with, in using more technology or in giving larger loans. Kiva itself is a non-profit, sponsored by foundations and sustained, in part, by an administrative fee paid on some loans. Flannery tells us that Kiva could have incorporated as for-profit – they chose to become a non-profit for ease of setup.
Flannery just finished an MBA and tells us that her most interesting revelation was the importance of incentives – she explains the incentives of the system for each participant. For partners, where the incentives are least obvious, the incentive is lowering the cost of loan capital from about 10% to 1-2%. Much of the focus is on making technology easy for these partners, allowing them to document projects through digital photography and blogging, but making these tools usable offline. She points to some of the people she’s made loans to: a popcorn seller in Samoa, a butcher in Afghanistan, a Bulgarian taxi driver and a Ghanaian produce seller. She feels a personal connection to each of these recipients and believes that this is the most important part of the project – connecting lenders and borrowers in a way that allows the two to meet and understand each other, building a relationship, not just a financial transaction.
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Ethan – thanks for the post. I serve on the leadership team at Kiva with Jessica and look forward to meeting you someday.
Default rate currently stands at 0.3% on $1.6M in completed loans.
Delinquency (Loans at risk > 30 days) rate currently stands at 2.24% on $10.5M in active loans.
We’ve issued refunds for a number of loans that have had unintentional errors (MFI staff double posted) or where we discovered embezzlement / fraud and should have caught it earlier via better due diligence / audits. Our refund rate is 2.62%.
To see our loan performance statistics, look at the “All Kiva Partners” column on this page:
We have a lot to learn, but with the right minds, I think we can manage the risk and really create something meaningful.
Again, thanks for the post.
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I’m so glad to hear what Jessica said about the very focus of Kiva, “.. the most important part of the project – connecting lenders and borrowers in a way that allows the two to meet and understand each other, building a relationship, not just a financial transaction.” To connect intimately with other humans is one of our primal needs. Kiva provides a powerful channel to allow this connection occur in a meaningful way (i.e., for all parties involved)- the extent of meaning is only limited by the purity of intent of the party involved. Thus Kiva plays a key role in setting an example of how to effectively enhance the global connectedness in a practical and businesslike manner. [Toronto, Ontario, Canada]