Enabling Entrepreneurs Through Crowdfunding: Kiva’s Matt Flannery Talks Microloans

Apr 26, 2012 at 2:42 pm Leave a comment

This post originally appeared on the Building Markets blog on December 7, 2011.

Matt Flannery began developing Kiva.org in late 2004 as a side-project while working as a computer programmer at TiVo Inc. In December 2005, Matt left TiVo to devote himself to Kiva full-time. Prior to starting Kiva, Matt spent time in Uganda, Tanzania and Kenya filming stories of micro-businesses started by Village Enterprise Fund. It was his time in East Africa that inspired him to develop Kiva. He graduated with a BS in Symbolic Systems and a Masters in Analytical Philosophy from Stanford University.

Here Matt talks about the exciting new initiatives taking place at Kiva and why the possibilities of lending through digital platforms are both inspiring and endless. (PDT apologies for the poor quality of the audio interview.)

PDT: You’re the co-founder and now the CEO of the micro-lending site Kiva, which I think most people know or at least are familiar with it. But in case they aren’t, can you just give like two sentences of what Kiva does?

Matt: Sure. Kiva is a nonprofit that I started about six years ago. What we do is, we run a global marketplace for lending for social causes. On our Web site you can lend $25 to an entrepreneur in Kenya or Nicaragua or even in the USA to help them start or grow a business. We work with a network of microfinance institutions all around the world, who essentially administer and source the loans and put them up on the Web site so that you can send them money. We’ve been around six years and right now we’ve done about $250 million in loans to about 600,000 entrepreneurs around the world.

PDT: Wow. Can you explain a little bit about the process of how it works on the field level. You said you partner with microfinance institutions. Is that how you find borrowers?

Matt: Yeah. In most of the countries where we work we’re targeting people that are unbanked. So the way to send them money is to work with an NGO or an MFI, microfinance institutions, if you want to call it that. In the communities say in the Congo to collect worthy borrowers and post them up on our Web site and when they get funded we send the money to the NGO in the Congo or in Zambia, for instance.

PDT: And the borrowers understand that they’re crowd-funded, or that they’re going to be put on a Web site and that anyone around the world can donate to them.

Matt: Yeah, we have a policy of making sure that they understand that and that they sign this agreement saying they understand that.

PDT: You mentioned that you know give loans to people within the US. Is that a new initiative?

Matt: We started doing that in 2009 as a response to the global financial crisis, and we now work in Detroit, Louisiana, New Orleans, New York, San Francisco and in Texas also. It’s spreading slowly but surely around the US.

PDT: So that came directly out of the financial crisis?

Matt: It certainly influenced our timing of that. It was always our intention. It took about three or four years to get around to doing it, with all of the complications and special regulatory issues in the US.

PDT: So that made it difficult to start the project? Is it a lot different than setting up loans in other countries?

Matt: Well since we’re based in the US and since it’s a highly developed country with a highly developed legal system, there’s all sorts of different regulations we had to comply with to be able to work here. So it took a little bit longer, but it’s been really going well. Today actually, we launched a new service this morning called Zip, which allows people to post themselves up to the Web site, and you send them money to their PayPal account. There’s a lot of people in the US, even if you can’t get a loan from the bank, you might have a PayPal account so we’re using crowdfunding to start small businesses and lend to them more directly in the US. And also in Kenya, we’re doing that through mobile payments providers in Kenya where borrowers can get loans now directly on their phones from their Web site.

PDT: Is there any ideas about taking this further than just entrepreneurs, in other words, expanding to do, providing loans for education or some other type of sector or industry?

Matt: Yes. Education is a very promising category for us. We launched this last year, and we had maybe somewhere less than a million dollars of education loans on the site. But it’s a category that we really want to expand. It’s been slow to start because student loans really don’t exist in most countries. They exist in the G-20 countries, and so we’re having to both create a new market and fund the market ourselves, which is something we’re not used to do. But we’re trying.

PDT: What are some of the biggest challenges that you’ve faced both in setting up Kiva in the first place and then also some of the challenges that you’re facing right now?

Matt: Over the years, due diligence has been a big challenge. So if you’re working in a place like Haiti or Afghanistan, how to figure out the right NGOs to work with has always been a challenge. But we’ve looked into that and have worked with over one hundred and thirty organizations around the world and have gotten pretty good at that. Another challenge, that’s one of the main challenges, another challenge is raising awareness. We have a million users, but Facebook has hundreds of millions of users. So how can we break through into the mainstream of public consciousness and really become relevant to every person?

PDT: Do you use a lot of social media in order to get the word out?

Matt: Yes, I am a Twitter user. I have almost 400,000 followers. Kiva has 400,000 followers. We have thousands of Facebook friends. One of the main ways to grow is people referring each other to the Web site over Facebook or Twitter. That’s one of the main ways we grow now. Our viral growth has been really cool.

PDT: I’ve heard some arguments that microfinance is a bit too small to really substantially reduce poverty. Does Kiva have any plans to expand to provide slightly larger loans for small and medium-sized businesses?

Matt: In the US we provide loans of up to $10,000. In most countries around the world it’s around $5,000 or $3,000, depending on the place. Those are sort of the largest sizes for microloans around the world. We’re also looking to get into the small- or medium-size base because we think our capital can really be well-used to help fund that missing middle that exists around the world – the gap between small business consumer lending and medium-sized business. Actually probably within a month, we’ll have our first truly medium-sized businesses up on the Web site, all over the world starting in Zambia.

PDT: Are there different challenges that you face trying to get to that missing middle or is it kind of similar to providing microloans?

Matt: I think there are unique challenges. It’s a different market. We’re going to start learning about it little by little by sticking our toes in it. Microfinance, one of the ways that it was really able to scale, was that we found this incredible idea, called the group lending model, which is essentially, you can tell somebody in a village: get together twenty friends, people that you trust and we’ll lend you as a group.’ Then you mutually guarantee each other so that if one of you gets sick, the others will cover the group and you’re mutually guaranteed to pay back the loans all together. That’s really enabled microfinance to go from something very small to something that is serving hundreds of millions of people around the world. Now with SME financing we haven’t really found a device like that that enables it to scale fast. You sort of have to pick every SME one at a time, which slows it down, slows down the growth quite a bit.

PDT: I’m curious to know what are some of the most fascinating stories, or most inspiring stories, that you’ve heard of people who’ve been helped through Kiva?

Matt: I meet people all the time. I don’t have any particular stories. This fall I went to two places. I went to New Orleans and saw 15 borrowers get loans on one day. We had a launch party in New Orleans. Many people in the post Katrina economy have really been left out of the financial system and have no collateral to give. The cool thing about crowdfunding is you diversify the risk so much. So 200 people can lend to one person and if that person pays back ninety percent of their loan, all those 200 people might lose a few dollars and so the risk is really spread out. Because of that wee can do new and cool things. And so it’s really cool to see all these people to realize they’re not actually excluded, that they’re included in the global community, the digital community with this financing mechanism. They want to pay back the community because a) they want to do it again and b) they want to give back. So they want that community to have a chance to use that money that they pay back into the system to help somebody else. And that’s a really cool dynamic when you see people wanting to repay money-lenders not out of coercion or fear but out of generosity and kindheartedness. So that’s really cool.

I just went to Peru as well. I met with people outside of Lima that operate their landfills and recycling centers in the slums outside of the city in a really desolate area with no plants, vegetables or no vegetation. It’s cool to see the resourcefulness of people, that in spite of really shocking poverty people are excited about their business. And it’s often women who are carrying their entire family on their back doing things like selling garbage or selling scrap metal and raising a family that way. But they don’t feel like they’re poor, they actually feel pretty excited and hopeful about the future. It’s neat to see that the Internet can matter to people who are sort of at the end of the world in terms of globalization, people who have really been left out of globalization, getting included in this new way. It really makes me happy.

PDT: Yeah, that’s great. Can you talk a little bit about the Kiva fellows program, which I think is you send people who are interested abroad to kind of tell those stories? How can someone get involved, and how does it work?

Matt: We’ve been shocked by an outpouring of volunteers and their support and the generosity of people. We have about one hundred volunteers a year that go out and live all over the world to support our work in the field, whether it be in Senegal or Pakistan. We’re always looking for more. You can apply on kiva.org. You can see a link about the fellows. Chances are you’ll make it and it’d be great to work with you.

PDT: And do these fellows also work with the microfinance institutions in those countries? So they’re also trying to find borrowers, is that correct?

Matt: They’re not trying to find borrowers. They are just supporting the work that MFIs do. Typically it’s helping them with their linkage to Kiva, so helping to tell the story of borrowers, helping to measure social impact. This year in particular, they’ve been working on social performance measurements. They go into a place and measuring to what extent an organization is trying to alleviate poverty, or to what extent do they care about women’s issues, or to what extent do they care about clean water and sanitation issues, all sorts of social issues in the population.

PDT: Now that we are approaching the holiday season, does Kiva tend to get more lenders around this time?

Matt: In general, it’s often very cyclical or seasonal. At Kiva we probably see an increase in late November and December. It’s definitely a time when people give gifts. It’s a fairly easy gift. You can buy it online and get it instantly. So we get a lot of last minute gift-giving.

PDT: That’s really all the questions I have for you, unless there’s anything else I missed or that you want to talk about specifically?

Matt: No that’s great. Good luck with everything.

PDT: Thank you for taking the time to talk with me.

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Entry filed under: Economic Development. Tags: , , .

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