How Kiva Became "the eBay of Microfinance"

Kiva is a social experiment with many imperfections, but it remains "one of the most beautiful things on the Internet," said Premal Shah, president of the nonprofit organization. "We are an eBay for microfinance institutions," he told students in the Evening MBA and Weekend MBA programs during a talk sponsored by the student-led Net Impact Group at Gleacher Center on May 9.

Now just 30 months old, Kiva was not prepared for the massive interest sparked by former President Bill Clinton’s endorsement of the organization on "The Oprah Winfrey Show" in September 2007, Shah said. Without spending a dime on marketing, Kiva is connecting entrepreneurs around the world to almost $100,000 daily in interest-free loans through capital provided by Internet users, he said.

“Just until very recently, we kept running out of businesses to finance on our website,” he said. “Our risk models did not allow us to post more businesses. Rarely in philanthropy do you see people saying, ‘No, we can’t take your money.’ In our case, it was really perverse and weird. I’m glad we’re finally at a point where equilibrium has shifted to a normal marketplace.”

There are five “Web 2.0 principles” that underlie the Kiva model: trying to create an addictive user experience, providing radical transparency, “crowd-sourcing” against the model’s constraints, increasing returns on data as the company grows and ages, and wagging a “long tail” to reach microfinance institutions Wall Street does not, Shah said. “By crowd-sourcing, we limited our costs by pointing out our constraints to the Internet community, which chipped in in different ways,” he said.

Providing radical transparency to the point of being “almost confessional” inspires a sense of authenticity among Kiva users, Shah said. For example, the company explains that 100 percent of a person’s donation goes to borrowers, but the donor is invited to contribute separately to cover administrative costs, he said. In fact, seven of 10 donors contribute an additional 10 percent of their loan for those costs, Shah said.

“On our website we show not only when defaults happen, but also when there is false data,” he said. “As our auditors uncover this information all over the world, we want to put it right back on the website and email you. Last year, we had $250,000 embezzled in Uganda. We emailed 5,000 people who had loaned the money to tell them what had happened. The most shocking thing to me was that people loved that we told the truth and that we were checking on their money.”

In addition to loaning money or buying gift certificates, MBAs can help Kiva by joining a lending team competing against other teams, serving as a Kiva fellow in the field, volunteering as a translator or editor, promoting Kiva as part of their daily Internet use, or simply working for the organization, Shah said. “We’re hiring like mad,” he said. “We have 10 to 15 open jobs on the site and we’re expanding very fast.”

Net Impact invited Shah to speak because microfinance is an exciting and growing field that students are interested in, and because Kiva is an innovative organization successfully capturing the popular imagination and making a positive social impact, said evening student Vijaya Govindan, who co-chairs the group. “It shows students that they can pursue a career in finance and make a difference in doing so,” Govindan said.

Students launched the Net Impact Group to support, educate, and provide a network for students interested in sustainability, social and environmental issues, corporate responsibility, civic leadership, and nonprofit and public management. 

— Phil Rockrohr