Kiva

Advanta doubles funds to Kiva loans

wiseclerk 1 Comment

Credit card issuer Advanta entered into a partnership with Kiva. The initiative is called KivaB4BProject and Advanta will match the loans made by business card holders with up to 200 US$ per card. Card holders simply select a business owner to sponsor through Kiva and make a grant using their Advanta Business Card. Advanta matches that grant, dollar for dollar, and Kiva distributes the total resulting funds.

The loans funded by this project can be seen on this Kiva lender page. Already contributed to more than 500 loans.

When the project was announced at Advanta's headquarters, Advanta flew in Kiva borrower Senerita Lilli a dressmaker from Samoa to share her story. 

Kiva to reach 25 million US$ loan volume

wiseclerk 1 Comment

Kiva.org, which allows everybody to help funding microloans to entrepreneurs in developing countries, will achieve the milestone of 25 million US$ loan volumn within the next two days.

Launched 2005 the amazing growth curve can be seen on this Kiva stats page. The growth accelerated in 2007 driven by major media coverage. Up to now more then 260,000 individual lenders have funded more than 37,000 loans in 42 countries.
The current default rate is only 0.11%. While Kiva lenders do not receive interest, borrowers pay interest to the local Kiva Field partners (microfinance institutions).

Kiva, founded by Matt and Jessica Flannery (picture), is  a non-profit which currently has 16 employees paid by optional 10% lenders can donate on top of loans. Apart from them many volunteers aid the Kiva cause.

A February 2006 survey showed that Kiva donors were evenly distributed between 25 and 60. Slightly over half were males, and 65% made more than $50,000 a year. But a $25 cap on individual donations is causing the demographics to spread; more older, younger, and less-well-off people are signing up. Kiva has about 15,000 to 20,000 visitors a day coming to the site now.

While lenders may withdraw funds via Paypal upon repayment, 90% decide to reinvest the money into new loans.

(Picture courtesy Kiva.org)

Keystone Study – Online Philantrophy Markets

wiseclerk

A very interesting study that mainly concentrates on donations covers aspects of social lending too. Among the 24 online philantrophy markets examined are Kiva and MyC4. The study gives great advice what users (donors and lenders) expect from the market (the service) as functionality.

The study comments on Kiva:

Kiva’s entire business model was, from the start, faced with seemingly insurmountable logistical issues. From verifying the legitimacy of entrepreneurs’ claims straight through to delivering repayments to investors. In addition the challenges of distance, cost, and time were considerable. By partnering with carefully-selected microfinance institutions (MFI) already working in a particular area, however, Kiva has been able to overcome all of these hurdles. … And each MFI’s reputation as an accountable, socially responsible organisation must be unimpeachable with Kiva or another highly regarded organisation such as the US Peace Corps. Partnering with MFIs also overcomes the communication issues encountered working with small businesspeople in developing countries. Whereas very few small business owners in developing countries have Internet access or English language skills, all of the MFIs must have these in order to work with Kiva. This compromise enables individual stories from entrepreneurs, relayed by MFIs, to reach investors both before a loan is disbursed and after its effects are felt. Though loan repayments have been generally taken as a ‘proxy for success’ in the MFI industry, it is these personal stories, says Kiva’s Ben Elberger, which are
most important to most of its donors: ‘The lenders are more interested in the qualitative results than the quantitative…They are more interested in learning what happened to the entrepreneur than they are in getting their money back.’ Thus, the information provided by Kiva’s partners in each of their business’s journals is very rarely financially detailed; rather, it tells the story of how the loan will (or has) impacted on the day to day life of the business owner.

What does the future hold for Kiva? One of its primary goals has become strengthening their partner MFIs, helping them reach a more sustainable financial position so that fluctuations in funds received from Kiva will not impact their overall ability to lend. It is also developing an internal reporting system, but identifying common indicators for MFI and businesses has been extremely difficult, and it is unsure that such a framework is even possible. The biggest variable for the future, it says, is to what degree the public’s moral attention to sustainability and development will last.

MyC4 is given as example for the useful integration of Web 2.0 technologies to create an interactive market.

While a long read (over 50 pages without appendix) I believe it to be interesting for all p2p lending services especially the product development and marketing managers.

Download the study

P2P lending trends to expect in 2008

wiseclerk 4 Comments

2007 was a year of launch and growth for most players. What trends in peer to peer lending can be expected in 2008?

More competition and entering more national markets (probability 100%)
In many markets multiple p2p lending services will compete for the attention of lenders and borrowers, especially in the largest market: In the United States Globefunder.com and Loanio.com will launch. In other markets, where there is no national p2p lending service established yet (e.g. Canada, New Zealand, Spain), p2p lending will be introduced by the launch of a service.

Insurance against defaults (probability 75%)
Not totally new, since Boober.nl and Smava.de already offer some protection of the loan principal. Insurance can be implemented as a classical insurance product (supplied by an insurance company) or as a market mechanism, spreading the risk over multiple loans.

Secondary market (probability 25%)
One of the disadvantages for lenders currently is that on all p2p lending platforms, the invested money i locked in for the duration of the loan term. Prosper.com has allready announced that it plans a secondary market, enabling lenders to sell and buy loans any time. Depending on the market there are huge regulatory hurdles to allow trading of loans. For example German executives told P2P-Banking.com that on the German market a secondary market is unlikely for years to come.

Cross-market lending (probability <25%)
Aside form the social lending approaches (Kiva, MyC4, Microplace) so far all service are open only for lenders and borrowers that live in the same market. If lenders could lend to borrowers in markets with higher key interest rate than the market the lender lives in, the advantages could outweight the risks. In the European Union due to the Euro zone there would be no currency exchange risk. Again there are steep regulatory hurdles to be taken.

Variable interest loans (probability ?)
So far all loans are for fixed terms (prepayment allowed) with fixed interest rates. Variable interest loans could add flexibility. The interest rate could rise or decline following an indicator (e.g. market prime rate). Another possibility would be a mechanism where the variable interest rate would rise or fall as a result of the level of defaults of the credit grade. This could protect lenders, if the actual default ratio is higher then the forecasted default ratio.

Third party bidding management (probability?)
Just a thought. Lenders could allow a third party to manage their portfolio. Like an investment funds the lender would invest an amount of money, while the funds manager does the actual selection of loans. This could possibly be done by a sophisticated software (would you trust this?) selecting loans by statistical analysis of performance of loans with similiar parameters or by a fonds manager. The later is unlikely because the amount of time needed for each loan is too high to be covered by fees.

I'll check at the end of 2008 to see how these trends developed.

Classifying p2p lending services

wiseclerk

More and more p2p lending services are launching, each catering to different markets and different target audiences. Some derive more features from "ancestors" Prosper or Zopa, some less.

All follow the aim to allow lenders to directly lend money to borrowers without a bank acting as intermediary. This aim is sometimes not pursued strictly to the point. Smava actually partnered with a bank to comply with regulation, Zopa US partnered with credit unions, but nevertheless it serves as comprehensive definition.

Dividing p2p lending services in categories could follow several possible factors:

  • price building mechanism (auction/non-auction; interest set by platform/by borrower/by lender)
  • purpose of loan (private/business/both)
  • social lending vs. lending for profit

I think the last factor is most useful for the definition of categories. It affects all parts of the service from marketing to operations. The differentiation is in the objective the majority of the lenders had when selecting the platform. Were they attracted by the motivation to help an individual through a loan or by the motivation to earn interest? Continue reading →

Impact of Kenya’s crisis on p2p lending operations

wiseclerk

The unrest after elections in Kenya might also to some degree impact operations of Kiva and MyC4 which are funding p2p loans in Kenya. As Jessica Jackley Flannery of Kiva reports operations of the local MFIs in Kenya have been interrupted:

The situation on the ground appears to vary widely from community to community. However, one consistent report is that business is not operating as usual; most MFI operations have been interrupted or stopped altogether in the last week, whether due to imminent danger in their region or the general disruption in daily life caused by turbulence elsewhere. Thankfully, as far as we know, none of our partner MFI staff have been hurt. Unfortunately, due to the magnitude of the situation, we anticipate that many entrepreneurs will have been displaced, hurt, or otherwise adversely affected.

Please be patient as this situation unfolds. We expect possible disruptions in our Kenya MFI partners’ operations as the staff on the ground recover.

On MyC4.com the local provider Growth Africa Capital writes from Nairobi, Kenya:

It probably hasn't escaped your attention that the Kenyan elections didn't go a smoothly as we had all hoped and has resulted in a lot of unrest, violence, destruction and even deaths.

As I type (noon, 2nd January) things are slowly getting back to normal in Nairobi. The situation is also improving in Mombasa, though we are yet to get the same good news from the central Rift Valley, Western and Nyanza provinces.

We should have a full overview in terms of the wether any of the opportunities funded via MyC4 has been affected by the unrest by Monday (7th January).

Once safe to do so, we will look at the areas in Nairobi affected by the unrest and wether affordable funding will make a difference in the affected people's lives in terms of re-establishing their businesses. So stay tuned for opportunities that will help get Kenya and its enterprising people back to normal – your investment may make a huge difference.

While the situation in Kenya is somewhat unclear, the crisis is already impacting Uganda's economy. MyC4 only recently started in Kenya. The majority of loans are to entrepreneurs in Uganda. 
Ronald Isabirye of the local provider in Kampala, Uganda about the consequences: Continue reading →