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Kiva, first P2P microfinance system



1. Sander Van Damme:

"The system is quite simple: Kiva is in contact with several field partners all over the world which are currently funding microfinance projects but lack the funding to scale up and reach more customers. Kiva then looks for individuals in developed countries that want to provide interest-free loans to these institutions and help them reach their social goals. Lenders select projects online that they want to refinance. This means the loans have already been disbursed to micro-entrepreneurs and the choice of funding is therefore not made by the lender but rather by the field partner itself. Kiva sends these funds to the microfinance institutions who can subsequently lend these funds to other borrowers; the lenders' payback however depends on the projects they have chosen and whether or not these entrepreneurs perform well. In return for this free loan, the field partner puts information about the borrowers, their performance and how the loans impact the people's lives on the internet portal.


Although the Western lender makes a free loan to the MFI, this does not imply any obligation for this organization to also give low interest rates to its borrowers. In fact, Kiva borrowers end up paying an average of 35,25% in interest to Kiva field partners (Kurnia, 2010b).

Unlike Kiva and Babyloan which offer no return to investors, Rang De, being established in an emerging market, chose to offer its lenders a 2% return on their investments. The further functioning of their operations is pretty much the same as Kiva though. Whereas Rang De's business model is based on small fees charged on the borrowers' repayments, Kiva and Babyloan are fully dependent on donations and volunteers. When making a loan to a Kiva entrepreneur, the website suggests you also make a donation (15%) to support the organization's operative costs. Besides this monetary help, they also very much depend on volunteers to help translate borrower statements, keep the website up to date, etc." (


Remember, these are loans, not charitable donations. 100% of the loan amount goes to the selected business; so far, no businesses have defaulted on their credit. Because these are loans, the "same" money can have a socially beneficial effect over and over again. A $50 loan, once repaid, can be immediately loaned out again, helping another start-up. Over time, multiple new businesses can receive microcredit support from a single initial loan. "

The introduction by Worldchanging commentators show the peer to peer ethos at work, in their rejection of NGO-mediated microloans:

"But the notion of do-good institutions doling out money to recipients has something of a 20th century character. While there are open-source models for microfinance, they generally seem to be intended to assist the creation of more microcredit NGOs." (

Detailed Profile

From May 2007 in Open Business at

"Kiva lets individuals connect with and loan money to unique small businesses in the developing world. By choosing a business on, lenders can “sponsor a business and help the world’s working poor make great strides towards economic independence.” Throughout the course of the loan (usually 6-12 months), lenders receive email journal updates from the business they’ve sponsored. As loans are repaid, they get their loan money back.

Who: The team behind Kiva worked at TiVo, PayPay and Google before developing the service in late 2004. Kiva partners with many existing microfinance institutions (MFIs), who work on the ground in developing countries.

Borrowers: Before an entrepreneur appears on Kiva they have first been vetted by a Field Partner for loan application approval. Each of Kiva’s Field Partners use their own application procedure which Kiva has reviewed and approved. This ensures that loan funds are actually going to genuine entrepreneurs who will use the loan for the purpose they specified. Kiva does not send loan funds directly to the entrepreneurs; instead, each loan is managed by a microfinance institution. The full value of the loan goes to the entrepreneur, but the Field Partners do charge interest. However, Kiva requires Field Partners to fully disclose their interest rates, and doesn’t partner with organisations that charge exorbitant rates. Kiva claims that allowing MFIs to charge interest enables them to bear transaction costs and currency risk, and achieve self-sustainability.Kiva is also the first organization PayPal is supporting by providing free payment processing, reducing the transaction costs significantly.

Lenders: Kiva’s loans do not provide a financial return on investment, but lenders do get the investment back at the end of the loan term of investment — which range from 6-12 months. There are no tax implications because there is no possibility of earning interest. For lenders, it’s a sustainable, high impact, high engagement way to get involved with just a little amount of money, and carries minimal financial risk.

Unless you’re extremely rich, an accredited investor, or a big institution, you can’t really invest in microfinance institutions, so lenders and charitable donors are limited to giving to organizations that already have a lot of money. The smaller organizations that are working hard to serve their communities and to loan money to people are typically capital-poor. Kiva allows individuals to access a long tail of organisations and individuals, which can potentially be more rewarding and efficient for lenders.

Community: Sponsorship has always been a high overhead business. Kiva creates a similar interpersonal connection at much lower costs due to the instant, inexpensive nature of internet delivery. The individual nature of Kiva’s loans and the feedback that lenders receive all the way through the course of their loan makes for more personal and social transactions.

Typical transaction: Varies widely between $200 - $1200. The majority of loans are a smaller range of $800 - £1000.

Business model: Kiva is a non-profit social venture, that currently has financial support from a number of angel investors, including Silicon Valley donors, and corporate sponsors including Microsoft Research. However, Kiva says “self-sustainability is critical and we intend to be fully self-sustainable by 2008. This will be achieved through the implementation of a number of income streams which may include optional transaction charges to lenders and low debt capital fees to Field Partners.”

Kiva’s loans are personal agreements between lender and borrower. There is no note or security involved.

Establishing trust: Kiva partners with existing microfinance institutions. In this way, they gain access to outstanding entrepreneurs from impoverished communities world-wide. The partners are experts in choosing qualified borrowers, and usually have many more promising projects than funds. Through Kiva, the partners upload their borrower profiles directly to the site so that users can lend to them.

Users receive emails throughout the loan term updating them on the progress of the business, and letting them know each time a repayment is made. Each project also has a business page on the website, with a journal which can be commented upon.

Loans are not guaranteed, but are statistically low-risk. Microfinance loans worldwide are generating repayment rates of 97%. To date, Kiva’s repayment rate is 100%.

Performance: Kiva has processed over $6 million in loans, distributed to more than 60,000 people. It is growing fast — in April alone over $1 million was loaned. The current repayment rate is 100% (although of course many loans have not come to term yet).

Problems or limitations: Kiva doesn’t fully cut out the middleman — it does bring investors and recipients closer together but there is another layer of interest-collecting MFIs on the ground. However this is not necessarily a drawback. Part of the aim of Kiva is to help not only borrowers but MFIs as well." (


Warning: Kiva does not really practice peer to peer donations


"Kiva, a nonprofit organization, promoted itself as a link between small individual lenders and small individual borrowers like Maryjane Cruz in the Philippines, who recently sought a $625 loan to support her family’s farm.

But Mr. Roodman’s blog post said that lenders like Mr. Kristof were not making direct loans. Borrowers like Ms. Cruz already have loans from microfinance institutions by the time their pictures are posted on Kiva’s Web site.

Thus, the direct person-to-person connection Kiva offered was in fact an illusion. Kiva’s lenders were actually backstopping microfinance institutions, and since Kiva and other online giving and lending models pride themselves on their transparency, Mr. Roodman and others suggested it might better explain what its lenders’ money — about $100 million over four years — was really doing." (

Guy Kawasaki on lessons learned:

"Guy Kawasaki, in his blog has highlighted 6 points that we can learn from Kiva, one of the most successful, non-profit p2p funding organization.

Here’re his points;

1. Create meaningful partnerships. Most entrepreneurs create partnerships to impress investors, journalists, customers, and parents. Hence, most partnership as bull shiitake. The best test of a partnership is whether its existence requires that you change numbers in a spreadsheet. No changes = b.s. partnership. In the case of Kiva, it has sixty seven partnerships with micro-finance organizations. It is these organizations that provide the “leads” for lenders to fund.

Also, Kiva has partnerships with PayPal (free transactions), Google (free traffic) as well as with Yahoo!, Micorosft, MySpace, and YouTube. As you can imagine, these kinds of partnerships do make you reboot Excel.

2. Catalyze and support evangelism. Like Apple, Harley-Davidson, and Tivo, evangelism starts with a great product, and Kiva has one. When you have a great product, then evangelists will appear, and Kiva has 250 active volunteers—what I would label “evangelists.” Kiva has really institutionalized evangelism if you ask me.

3. Find a business model. You’d be surprised how many people wave their hands or avoid the topic of business model completely. Kiva’s model is a minimum $2.50 voluntary fee that lenders pay when checking out their “shopping cart.” If I understand this right: lenders receive no interest and pay a voluntary fee to Kiva in order to loan money. And you thought Google had a great business model—wow, as Wayne and Garth said, “We’re not worthy.”

4. “Bank” on unproven people. What would the ideal background be of the founder of Kiva? Investment banker from Goldman, Sachs? Vice president of the World Bank? Vice president of the Peace Corp? Vice president of the Rockefeller Foundation? Partner at McKinsey? How about temporary administrative assistant at the Stanford Business School? Because that’s how Jessica started her quest. The spark that lit the fire was a speech by Muhammed Yunus, founder of the Grameen Bank and Nobel Peace Prize winner.

5. Focus on free marketing. Kiva launched in 2005 with seven businesses in Uganda. The first “marketing” was sending out an email to the wedding invitation list of Jessica and Matt. All seven businesses were funded in a weekend. Then the Daily Kos picked up their story from a hacked together press release. Then PBS’s Frontline covered the organization and loan volume went from $3,000 to $30,000 over night. No road show. No Demo. No TechCrunch 40.

6. Ignore the naysayers. The Flannerys got a lot of advice that you can’t send money around the Internet without government approval; that Kiva couldn’t scale beyond a few African villages; that a non-profit couldn’t offer an investment product; and that it would violate SEC regulations as well as the Patriot Act. Besides this, Kiva was a no-brainer." (

The 'real P2P plan' of 2012

"Microlending website Kiva’s original proposition was simple: Make an interest-free loan to someone who no bank will touch. The site, which launched in 2005, became wildly popular, as people gleefully gave a few dollars to struggling businesspeople in the developing world, and then saw that business grow and had their money repaid.

But many lenders assumed--not surprisingly, given Kiva’s marketing and web design--that the smiling face on the other end of the PayPal transaction got the exact cash they lent out. A minor kerfuffle ensued in 2009 when a blogger broadcast the fine print of Kiva’s website, revealing the nuance that a donation actually goes to take on the risk of a loan already made to that person by a microfinance institution. In other words, the person you chose to fund already had his loan. You just make it possible, retroactively.

Now Kiva is launching a program to do, essentially, what everyone thought they were in the first place. With Kiva Zip, it’s cutting out the middle man for real and offering direct lending Americans to poor entrepreneurs around the world. But it’s not to shut up the confused critics, it’s to reach the people even those microfinance partners won’t cut a check to.

“This is very much a pilot,” Kiva president Premal Shah proudly admits of the new project that his microfinance organization launched quietly this month. “Microfinance is meant for the edges of the banking world,” he explains. “Kiva Zip is on the edges of Kiva.”

“It’s really expensive to reach rural Kenyans,” he offers as an example. “Sixty-five percent are outside the reach of microfinance institutions and banks. Literally outside the reach of a branch.” Kiva Zip uses mobile money transfer to cut the cost of loan delivery, and an evolving system of trust ratings to screen the potential borrowers.

The pilot is up and running in Kenya and in Kiva’s home city of San Francisco. In Kenya, the loans are distributed via M-Pesa, the ubiquitous system of mobile phone money transfer. No home visit needed, or fewer anyway. In the U.S., Kiva Zip will use PayPal.

But turning to new tech to lower loan costs is only part of the pilot. The other is how a web surfer in the U.S. can sort out which Kenyan farmer--or Mission District baker--is the right bet. Borrowers can’t just sign themselves up for loans on Kiva Zip; a Kiva approved “trustee” has to nominate them. “Instead of using a microfinance institution, we’re using a trust network,” Shah explains." (

More Information

  1. mesoloans = Mezzanine Finance
  2. Open-source based software support for microfinance projects, at
  3. Social Lending
  4. Is Kiva Misleading the Public? (by Sean Stannard-Stockton, from Tactical Philanthropy Advisors)
  5. Real P2P microfinance: Zidisha, a smaller microlender, has been using the peer-to-peer direct lending model for poverty fighting with a default rate of 0.38 percent. So far they’ve distributed about $100,000 since 2009. Kiva moves $1 million every four days.
  6. Hartley, S. (2010) Kiva Crowd-Sourced Microfinance and Cooperation in Group Lending, working paper available at, 82 pp.