Mudita Journal

Supporting 3rd World Entrepreneurs

September 8, 2006 · Filed under: Current Events
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From a recent article in BusinessWeek:

Ann Brown and Maria Martinez have never met, but last March Brown loaned Martinez $50. It was part of a $400 loan Martinez needed to get her clothing store up and running in Danli, Honduras. She used the cash to buy colorful hairbands, bright shirts, frilly button-downs, and baby onesies. Sales have picked up, and now Martinez is paying Brown back in monthly installments via the Web site on which they found each other, Kiva.org. “When I was starting my handbag business, a neighbor wrote me a check for the startup capital,” says Brown, who sells bags at the Pike Place Market in Seattle. “I had nothing, and that made it possible for me.”

Friends and neighbors have been lending one another money forever, but as the Web makes virtual neighbors of strangers, Kiva, which is Swahili for “agreement” or “unity,” is harnessing the power of social networking to support microenterprise in the developing world. From Honduras to Uganda, microfinance institutions post MySpace-like profiles of people who need capital to start or expand their businesses. Then lenders — aka you and I — can sift through pages of business ideas and grant loans in increments as tiny as $25. PayPal processes the transactions for free, and lenders receive monthly repayments. The lender is out the money if entrepreneurs don’t pay up, but microcredit has earned a reputation for high payback rates. In the five months since its launch, says Kiva, the site has had no defaults. It has processed $200,000 in loans, disbursed among 450 entrepreneurs.

That might not seem like a lot of money. But a little goes a long way. A $500 loan through Kiva has changed Elizabeth Omalla’s life. The widow from Tororo, Uganda, supports 11 people by selling fish. Thanks to the loan, which she already has repaid, Omalla now sells more varieties of fish and, as she blogs on Kiva, has been able to “take my children to school, buy two cows and five goats, and open a savings account.” It’s this one-to-one interaction that has microfinance advocates praising the model. Says Alex Counts, president of Grameen Foundation, the pioneering microcredit institution: “Kiva could raise awareness about microfinance among people who might not otherwise learn about it.”

Simply fascinating! Keep reading…

I particularly like that the Kiva.org program is not outright charity. They say that 96% of the loans are repaid.

The lender (i.e., you or me) does not receive interest on his loan. It’s an act of generosity, lending money with no interest — yet it strikes me as far more likely to lead to beneficial results than do ordinary charity handouts or government entitlement programs.

I look forward to seeing how this industry develops over the coming years. I think it could become huge, for good cause — and with good effects.

Hat tip: Philosopher Stone.

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  • David Ball

    Thanks for the reminder; when I first heard of Kiva they had a shortage of borrowers but I see now it is not the case. After seeing this here I just made my first little loan. It’s a great idea and it seems to be quite well executed.

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