Kiva’s Peer Lending Creates Growth at the Fringes of Small Business

November 7, 2018

By Suzy Strutner(opens in new tab), managing editor at Grow Wire

In short:

  • Kiva is a peer-to-peer lending platform by which borrowers around the world can get loans with no interest, which they usually use to grow small businesses.

  • In most nations, Kiva works with “Field Partners” to administer loans. However, upon expanding to the U.S., they had to tweak their business model.

  • Kiva’s flexible approach--in addition to partnerships with big-name organizations and individual business leaders--helps the organization continually reach more people.

At age 18, Kiva borrower Lourdes(opens in new tab) lost almost everything. The Paraguayan teen, who worked as a maid to contribute to her family’s finances, got pregnant unexpectedly. She was ostracized by most of her family, who would no financially longer support her. 

I was in a big depression(opens in new tab),” Lourdes said in a Kiva video.

Then, her son Victor was born. Lourdes said she discovered her strength in motherhood, and she started selling empanadas for income. After realizing the potential of her business, Lourdes took out a Kiva loan for $60 USD. She continued borrowing and repaying loans, purchasing necessary items like a digital kitchen scale to grow her business. She eventually worked up to a loan of $975, which bought her a refrigerator and allowed her to move into a bigger shop. Lourdes now has more than $2,000 in savings and achieved her dream of buying land and building a house on it. 

Lourdes tells her story in a Kiva-produced video.

On the fringes of lending

Kiva is a peer-to-peer lending(opens in new tab) platform by which borrowers like Lourdes--who don’t have credit histories or access to bank loans--can get loans with no interest. 

Kiva created new models for small business growth at the fringes of lending, where the volume of need is usually high and access to money is usually low. Here, the amounts needed to create change are relatively small. 

In other words, Kiva pinpointed an area of need, and then they chose unique ways to solve the problem. 

The overall goal is to “provide funding opportunities(opens in new tab) for entrepreneurs where conventional lenders won’t,” per Kiva’s website. 

Kiva launched in 2005. By 2008, more than 1.5 million lenders had loaned more than $55 million to 130,000 borrowers in 48 countries. Press coverage including mentions on “Frontline” and “The Oprah Winfrey Show” drove much of that early growth, said Kiva CTO Kevin O’Brien. 

“The early supporters that joined us in turn advocated to others, and we grew from there,” he said. “Once people lend on Kiva, they often want to share it with others because it's a great way of doing good and getting connected with people across the world.”

When Kiva lenders share about their experiences via social media, Kiva often retweets them. 
(opens in new tab)

A “character-based” credit score

Kiva brought its lending model to the U.S. in 2009. But soon after, the non-profit realized a need to tweak it for the U.S. market. 

In over 80 countries, Kiva works with local “Field Partners(opens in new tab)” like microfinance institutions(opens in new tab) or other nonprofits to crowdfund loans, which the Partners then administer and underwrite. When Kiva tried this model in the U.S., however, its results weren’t ideal. 

Microfinance institutions have access to cheaper capital in the U.S. than what’s usually available internationally, so Kiva’s zero-interest offering was less appealing to potential U.S. Field Partners than it was abroad. Plus, Kiva didn’t see lender demand for loans in the U.S. since it was known as an international brand, said Nicole Kreutter, Kiva’s risk and credit operations manager. 

Aline, a San-Francisco based Kiva borrower, took out a loan to fund her clothing business(opens in new tab). (credit: Kiva)

So Kiva instated a process of “direct lending,” leveraging its own platform to administer, underwrite and crowdfund loans in the U.S.

Kiva serves individuals who don’t have access to traditional financial services (like credit cards or bank accounts), so its direct underwriting process relies less on traditional indicators of creditworthiness (like credit scores) and more on an individual’s character. Many U.S. borrowers “prove [their] creditworthiness by inviting friends and family to loan to [them],” the Kiva site explains. 

This can entail asking for loans on Facebook and LinkedIn or by texting and emailing friends, Kreutter said.

After a certain number of lenders--between 5 and 35--agree to make loans, Kiva deems the borrower creditworthy and gives them permission to list their project on Kiva’s main platform(opens in new tab), which includes a website and app visited by 1.6 million prospective lenders.

For U.S. borrowers, securing loans from friends and family is part of the Kiva process. (credit: in new tab))
(opens in new tab)

Early on, Kiva found this peer-vetting system boosted the likelihood of a borrower repaying their loan.

“Repayment rates were higher with folks coming in with their networks. [The process] got their own network to be supportive of them,” O’Brien said.

Partnerships with big-name organizations ...

Kiva’s partnerships don’t stop there. Currently, Kiva’s two main projects are(opens in new tab) improving its mobile app and researching how to create a digital ledger to track the lending and borrowing of money across the world. The latter ideally involves working with Kiva’s partners like the United Nations and World Food Programme, who would co-host these ledgers to create an ultra-secure record of financial transactions with funds that are more immune to “being siphoned out into corruption,” O’Brien said.

… and individuals

This willingness to team up seems particular to the nonprofit industry, O’Brien said. One of his main resources is a CTOs for Good(opens in new tab) group that he meets with regularly to share ideas. Other industries would benefit from this type of collaboration, he added. 

“[Idea-sharing] is starting to happen more in the for-profit world, but you see a bit more caginess, or not wanting to collaborate,” he said. “Even though there’s competition, there’s still room for collaboration.”

To date, nearly 2 million lenders have used Kiva to loan more than $1 billion to 3 million borrowers in 81 countries. Over the last decade, Kiva’s internal teams have supplemented that early boost in popularity to create sustained growth, O’Brien said.

“It wasn't an easy road to scale the program, but that hard work allowed us to get where we are today,” he said.

Like what you see? Follow Grow Wire on Twitter(opens in new tab) for more.

NetSuite has packaged the experience gained from tens of thousands of worldwide deployments over two decades into a set of leading practices that pave a clear path to success and are proven to deliver rapid business value. With NetSuite, you go live in a predictable timeframe — smart, stepped implementations begin with sales and span the entire customer lifecycle, so there's continuity from sales to services to support.