A lot of businesses in third world countries never make it off the ground because there is simply no capital for them to make use of to get started. It’s extremely difficult to open a business if you have no money to get started and you cannot borrow and money in order to get started, but a new non-profit organization might have an answer. A company called Kiva is allowing individuals to loan money to small-business owners in the third world to help them get started.
Kiva is hoping to fight global poverty by promoting economic expansion in third world countries, but they way they are doing this is rather unique. Kiva allows well off people to give small no interest loans to small businesses throughout the world. Essentially, “microfinance” companies can post the profiles of qualifying small business owners in well off countries, and anyone with a credit card can choose to help that small business owner out. Kiva takes all of the loan capital they get, and transfer it to small banks in their selected areas, and then disburse and administer the capital to the small business owners. As the entrepreneur pays back the loan, the person who gave the loan out can take their money out, or loan it out to another small business person.
PayPal doesn’t collect any fees on Kiva transactions, Kiva distributes all of the money to the entrepreneur. The lenders will not receive any sort of interest or other profit, so it is pretty much a charity. The field partner company collects the money from the entrepreneur and collects interest from the entrepreneur which pays to keep the company running. Borrowers are charged 16% interest to pay for the fees associated with running the organization.
Loaning money to a small business person across the world on Kiva is ridiculously easy. All you have to do is browse around Kiva, find an entrepreneur that you’d like to lend to, click a button, send money through PayPal, and Kiva takes it from there. If you’ve ever wanted to promote economic expansion in developing nations, this is the way to do it.
After you’ve extended a loan, you’ll receive updates in regards to the status of the loan that you’ve given out, and what the progress of the business that you’ve given the loan to. It’s really interesting to hear the stories of the small business person that you’re loaning to. After the entrepreneur pays the money back, you can take out your money or give it to another entrepreneur.
A very interesting tidbit about Kiva is that they’ve had a repayment rate of 100%, and an on-time repayment rate of 99%! Kiva requires that their partner meet what they call a “due diligence” standard. They do a very good job in qualifying borrowers, and making sure that the money they loan out just doesn’t disappear.
Kiva is a very interesting result of free market economics. It’s not economically rational to loan money out at 0%, but if you can let someone use some of your money for a period of time to start their small business in the third world, why not? You’re helping eliminate poverty in the third world, and you’ll get your money back anyway.