Kiva funding the tiniest businesses

  • Article by: MATT MCKINNEY , Star Tribune
  • Updated: June 21, 2008 - 4:52 PM

In fields and sewing circles across the world, entrepreneurs are getting microloans with help from donors at a novel website.

Mickey Mikeworth knows farmers around the world, although she's not one of them. She dabbles in transportation projects, too, but she's no engineer. Her secret: Kiva, a website that allows Mikeworth, a Minneapolis financial adviser, to lend money to entrepreneurs in some of the poorest places on the planet.

"I've done everything from mushroom farming to transportation to medical clinics," she said.

Steered by Irondale High School graduate Premal Shah, the website has become a lifeline for thousands of families across the developing world as they struggle to feed themselves amid rising concerns of a global food crisis.

The site allows Mikeworth and thousands of others to make loans of as little as $25 to any of hundreds of prescreened individuals in dozens of countries.

A carpenter in Cambodia gets wood and better tools. A sewing collective in Peru gets materials it otherwise couldn't afford. Many of the loans go to farmers who want to modernize their farms in one way or another.

The needs are great. Experts now believe we can't donate our way out of the food shortage breaking out across the globe. A report issued this month from the Government Accountability Office (GAO), the investigative arm of Congress, criticizes the United States and other developed nations for falling short on a pledge more than decade old to halve the percentage of the world's population that faces malnutrition.

Too much emphasis is placed on emergency food aid while funding for development has remained flat, the GAO found. The United States has disinvested from agricultural research projects.

Those projects were a mainstay of global efforts to increase agricultural productivity. The cuts have ranged from programs at the University of Minnesota to programs at the World Bank.

"What we have been doing both literally and figuratively is eating into our seed corn," said C. Ford Runge, an economist at the University of Minnesota.

That historical trend, along with new pressures from the rising cost of staples such as rice and palm oil, has put relief agencies under pressure to serve many of the same populations targeted by Kiva, which serves as an innovative but much smaller counterpart of traditional aid organizations.

Giving women a shot

Kiva (www.kiva.org) took 15 months to raise the first $1 million in loans, said Shah, the president, who grew up in New Brighton. Today the website raises $1 million every 10 days. It has had 300,000 lenders assist 50,000 businesses in 42 countries. And now it struggles to find enough capable entrepreneurs to meet the supply of available loans.

This is how it works: The website, run by a group of 30 people in San Francisco, acts as a conduit between individual lenders and established microloan agencies such as Grameen Bank, run by Bangladeshi Muhammad Yunus. Yunus and the bank were jointly awarded the Nobel Peace Prize in 2006 for their microlending work.

The money comes to Kiva, and the website then wires it to the nonprofit working in country, which hands it over to the entrepreneur. The in-country agency then conducts weekly checkups on the loans and oversees repayments, sending notices back to Kiva and the individual lenders.

The site funds itself by asking the lenders if they'd like to make a donation to Kiva, usually suggested at 10 percent of the amount lent. Half of the budget comes from foundation grants provided by the Rockefeller and Kellogg foundations.

About $31 million has been lent since Kiva's inception, and about a quarter of the loans have come due. The website boasts a 99.3 percent repayment rate. About 3.5 percent of payments have been past due.

If a loan goes bad, it most likely happened because of illness or an accident, Shah said.

The loans carry an average 22.37 percent interest, but can vary from country to country. That compares with an average of 83.85 percent for the typical local moneylender in the countries where Kiva offers loans, it said. Interest payments do not go to the lender, but to the in-country agency administering the loan.

The fees cover the costs for monthly in-person visits to make collections (mail or Internet payments are not common in many areas) and for the initial screening of each entrepreneur, which requires interviewing someone with no credit history.

Many of the businesses are tied to agriculture, and a healthy minority are clothing or food sales.

"Most of our borrowers are women -- 77 percent -- and for many it's the first time that they've been given a shot at something," said Shah.

The website has sort of a Facebook edge, with entrepreneurs posting their photos and sending out frequent updates on their business by e-mail.

"It can be social, almost as addictive as Facebook," said Shah.

Winning over a cynic

That's what happened to Todd Andersen. The Minneapolis financial consultant pulled up Kiva's website after hearing about it from his wife. The site's novel approach made him wary.

"I'm part romantic, part cynic. I think there's reasons to be cautious with this type of organization," he said. He checked the site's repayment rates and looked at the lending organizations that partner with Kiva in far-flung cities and remote villages to distribute the loans.

His cynicism faded as he looked through the list of people asking for loans. A group of Peruvian women who wanted to expand their sewing collective had posted a picture of themselves. The picture, still on the site, shows a group of women staring straight into the camera. They look proud, and utterly responsible.

Andersen, who characterized his previous efforts at philanthropy as "disciplined but not overly generous," went nuts. At last count he had made 27 loans of $50 each in a little over a month. He checks in on the loans regularly to see how people are faring.

"I love the concept. It's not a handout; it's a hand up," he said. "I'm addicted enough that I generally glance at the site in the morning, then if I happen to have a down time in the evening I'll check it again," he said.

He learns with each visit how each business is doing, how much of each loan has been repaid, and other any other news the entrepreneurs care to share.

The unexpected relationships that come out of the site have limits. Andersen said he wouldn't consider visiting anyone, for example.

"It seems a little invasive for everybody," he said.

Now that the website has established itself, the founders have begun thinking of what comes next.

"It really seems to be working, which is amazing. We've just started dreaming a little bit more," Shah said. So far, about 80 percent of loans have come from the United States, with the rest scattered across 70 other countries.

The website plans to start offering loans to U.S. entrepreneurs later this year. "We've just started dreaming a bit more," said Shah. "What if someone from Malawi was making a loan to someone in Louisiana?"

Matt McKinney • 612-673-7329

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