Kiva is a peer-to-peer micro lending program that facilitates loans among the creditors of the citizen and extremely low-income entrepreneurs in developing countries. Through the Kiva platform, anyone can lend $25 or more to support an entrepreneur and the specific progress of the loan may be followed by an initial grant of refund. By receiving reimbursement, the creditors may withdraw their funds from Kiva or lend again to another entrepreneur, thereby continuing the cycle of credit.
In April, Kiva members loaned $4.5 million to entrepreneurs, up 56 percent year-over-year and a record month for Kiva. From inception in 2005, the micro lending program has lent $75 million was lent to support more than 180,000 people in 44 developing countries. President of Kiva, Premal Shah, says this new initiative to include U.S. companies increasingly makes sense since financial markets have deteriorated and traditional lending began to dry, even in the U.S.
According to Kiva, small businesses represent more than 87 percent of all U.S. companies and, on average, these small enterprises are responsible for 900,000 new jobs created per year, according to the Association for Enterprise Opportunity. This number seems small to me, but the impact of small businesses in job creation is evident. To make matters worse, says Kiva owners over 10 million companies face difficulties in raising capital, even before the credit crisis and economic slowdown.
Kiva is launching today with one's ability to make loans to 45 small businesses and entrepreneurs seeking funding for areas of New York, San Francisco, Boston, Atlanta and Miami. The companies vary in purpose and services, salons, landscaping nurseries. For example, a Queens, NY based entrepreneur provides bakery products to bodegas in New York. He is looking to raise $ 6,000 to fund the technology of insulation of their trucks.
Shah says that the idea was introduced by California first lady Maria Shriver and journalist when she visited the Kiva office last year. She asked if Kiva model could be replicated nationally to assist low-income entrepreneurs in the United States. Shah said he initially was not sure whether the Kiva micro lending international development model would fit the U.S., but after the recession, the organization saw the opportunity and necessity to provide community driven, low cost capital for small business owners in the U.S.
Traditionally, the Kiva uses micro lending partners, called "Field Partners", to evaluate whether the companies and entrepreneurs are eligible for the Kiva micro lending program. Field Partners looks at a variety of factors in the companies, including history of past borrowing, the reputation of the village or group, and the feasibility of the business idea and then facilitates the loan transactions between Kiva and the micro lending program. In the U.S., Kiva will be partnering with ACCION USA, a micro lending program that lends in 48 states throughout the U.S. and Opportunity Fund, a community development financial institution company based in San Jose, CA.
But P2P lending to U.S. companies has proven controversial in the past. Prosper, a U.S. peer-to-peer lender stopped all new lending on its site because of SEC scrutiny. Prosper, which is now back online, decided to register under the Securities Act, a process that took months. Since Prosper is a seller of investment, the organization had to be registered with the SEC in accordance with the laws of securities in the U.S. Lending Club and Loanio also faced similar problems in P2P lending programs .
Shah said Kiva is different from P2P sites, in that you can not earn a rate of return. The best you can do is get your money back at 0% interest - such as if you were to loan to a friend. Shah argues that a key factor for the SEC is to determine whether the organization is offering a 'security' - where there is an opportunity to earn a rate of return. Since Kiva loans to the working poor with 0% interest, they are clearly charitable in nature, and thus registration with the SEC is not required.
One of the attractive parts of the new micro lending program is the ability of creditors in other countries to lend to entrepreneurs in the U.S., making Kiva facilitator of economic development across both the developed and underdeveloped countries. Kiva also has signed up celebrities to join the initiative. Apparently, the actor Tom Hanks will be lending to a small U.S. company and investor Warren Buffet has been invited to contribute to the new micro lending program as well.
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