Kiva today has reached the milestone of 50 million US$, doubling the loan volume in the last 8 months. I have been lending on Kiva for nearly 2 years now and so far all of my borrowers have repaid me (unlike my MyC4 borrowers). Kiva is doing a very good job in keeping defaults low.
1 loan every 32 seconds
The current – impressive – statistics for Kiva are:
Total value of all loans made through Kiva:
$50,023,035
Number of Kiva Lenders:
363,222
Number of loans that have been funded through Kiva:
70,357
Percentage of Kiva loans which have been made to women entrepreneurs:
77.96%
Number of Kiva Field Partners (microfinance institutions Kiva partners with):
93
Number of countries Kiva Field Partners are located in:
42
Current repayment rate (all partners):
98.76%
Current default rate (all partners):
1.24%
Average size of loan for funding:
$449.02
Average total amount loaned per Kiva Lender (includes reloaned funds):
$137.81
Average number of loans per Kiva Lender:
3.70
The growth is stimulated by a large, active supporter base, that comes up with creative marketing ideas. Did you know that you can build a beard to support Kiva?
Here is what founders Casey Wilson and Courtney McColgan wrote about launching:
Dear Friends,
We are delighted to report that Wokai.org is now live! Just two years ago, we were students in Beijing, dreaming about starting a microfinance organization.
Now, thanks to our advisors, chapters, designers, donors, families, field partners, friends, interns, investment committee, lawyers, pilot participants, programmers, volunteers and so many more, this idea has transformed into a dynamic international organization with an amazing website, to empower people in China to lift themselves from poverty.
We needed you and you were there, and for this we can’t thank you enough. Over the next two years, 44OO families from all across rural China will receive loans through Wokai. These loans will enable people to start and grow businesses in their communities. With the proceeds, they will send their children to school, and invest in their housing and health and brighter futures.
In the words of an entrepreneur we met in Ningxia province, “Microfinance allowed us to go from existing to living … existing is merely finding enough food to eat, but living is truly feeling the substance of life, our hearts, and minds.â€
MyC4.com has a great concept with an ambitious goal: ‘Let’s end poverty by 2015’. Lenders can invest in African businesses of small entrepreneurs. MyC4 gained a lot of positive media coverage and received awards.
The realization of this concept is an enormous task, facing many hurdles. Since MyC4 is transparent and lenders earn interest problems do impact the user experience. Current user discussions deal with issues like defaults, currency risks, transaction costs, pending time, information accuracy and communication.
While I am sure that Kiva has to overcome similar problems, the difference is that on Kiva these issues are more dealt with in the background and the average user is not or less aware of them.
Like Kiva, MyC4 partners with local microfinance institutions (called ‘providers’ on MyC4 – see overview of provider results) that screen loan applicants. These partners are trying hard to validate the business of the applicant as good as possible, but conditions and environment complicate the task.
Furthermore the partners are on a learning curve – a process that MyC4 supports. Data accuracy of the loan details listed by the provider sometimes is questionable – this was one of the causes MyC4 cancelled some Ivory Coast loans earlier.
Example: an active listing that raises questions
Alima Thiam, retail shopkeeper in Senegal, seeks a 13,873 Euro loan.
: About : Married and a mother of 2 children, Alima has been trading items for 8 years. Her business grew so fast that in April 2007, she was able to open her first store. Her business is still growing at a fast pace and she needs additional working capital to increase her inventory of goods and add new items.
Objective of the opportunity: With a loan of €13873, Alima seeks to increase her stock provided that it would guarantee more interesting sales. She wants to buy her goods early to avoid paying higher prices, hence keeping her costs down. She will use the increased margin to introduce new items.
The information provided in the listing raises the following plausibility questions:
The relation of the loan amount to the yearly income seems very high
The listed collateral – an Audi 80 – is given with a value of 9,711 Euro. This seems a very high value for a very old car model. (independent of issues whether the collateral could really be secured in case of default)
The location pictured does not look like it is in proportion to the amount of goods that could be bought for the loan value.
What reasons could have caused possible inaccuracy of information in this loan listing?
Githa Kurdahl, doing an internship with Ivoire Credit has described her findings regarding inaccurate descriptions in an excellent post on Oct. 21st. In summary she pointed out the following causes:
mistakes due to manual calculations
mistakes in translation
lack of business records
exaggerated projections
optimistic borrowers
mismatch between European and African business context.
The Industrialisation Fund for Developing Countries (IFU) and CSR Capital have decided to invest a total of DKK 15 million (approx. EUR 2.2 million) in Africa through MYC4. The Danish Development Minister Ulla Tørnæs supports the decision.
“This is an extremely important milestone for MYC4. That IFU and CSR Capital now invest through MYC4 is an endorsement of our initiative as a serious tool in the fight to eradicate poverty in Africa through the marketplace myc4.com,” says CEO of MYC4 Mads Kjær and continues:
“We hope this will inspire financial institutions, pension funds and companies to invest in Africa through MYC4. We are already well under way, but to make a significant difference for the development in Africa, this kind of investors play an important role.â€
Political support Danish Development Minister Ulla Tørnæs warmly welcomes IFU’s initiative to invest in Africa through MYC4.
“Danida has been the facilitator for MYC4. Through the Public Private Partnerships, Danida has supported the development of MYC4. I am glad to see the interest and support for the new marketplace. It shows the economic potential for investments in Africa,” says Tørnæs.
DKK 10 million from IFU, 5 from CSR Capital IFU is an independent fund under the Danish Foreign Ministry. IFU’s purpose is to promote economic development in developing countries in partnership with the Danish industry, and now the fund invests DKK ten million in Africa through MYC4.
“With the investment IFU wants to contribute to poverty reduction and business development of small and medium enterprises in Africa,” says Investment Manager Kasper Svarrer from IFU.
In addition, the private investment firm CSR Capital invests DKK five million through MYC4. CSR Capital focuses specifically on social and environmentally sustainable investments:
“Good investments and development can and must go hand in hand in order to create the basis for sustainable economic, environmental and social growth and welfare in any society”, says CEO of CSR Capital Sven Riskær.
Californian non-profit United Prosperity developed a new twist to social lending – it is a peer to peer guarantee website. Instead of lending money directly and thus needing to transfer it internationally the “social guarantor” provides a cash collateral. This enables the small entrepreneur in the developing country to get a loan from a local bank, which he otherwise would be unable to obtain.
Bhalchander Vishwanath, founder and CEO of United Prosperity answered my questions on the new service.
P2P-Banking.com: What makes the guarantee model better then other lending models (e.g. Kiva or MyC4)?
Bhalchander Vishwanath:
Maximum impact: Due to United Prosperity’s innovative guarantee model which involves risk sharing with the bank, $1 in guarantee by the social guarantor could lead to $2 to $5 in loan to the borrower thus maximizing their dollar’s impact.
Local linkages: Our guarantee facilitates the creation of local linkages between domestic banks, MFIs and poor entrepreneurs. In the course of repaying the loan, both the entrepreneur and the MFIs develop credit histories that will enable them to access more funds at a later date with a lower guarantee percentage, or even without a guarantee. MFIs also get to form relationships with banks and offer other products like savings, insurance, money transfer etc. through the bank.
No foreign exchange risk: Since the loans from Bank to MFI and MFI to entrepreneur are in local currency, there is no foreign exchange risk involved. Most of the smaller MFIs do not have forex hedging capability and our model overcomes that.
Reduced interest: Our guarantee reduces the interest the bank will charge the MFI since the bank’s risk is lower. Some of the interest benefits get passed on to the borrower.
Scalability: There is enough money available in the developing countries. Our guarantee frees up those funds. It utilizes capital available effectively and in the long term it is a more scalable model.
Manages risk better: We get the additional benefit of monitoring of the loan by the bank which is not available with other person to person models.
P2P-Banking.com: How does “$1 in guarantee by the social guarantor could lead to $2 to $5 in loans” work? What determines the applicable ratio?
Bhalchander Vishwanath: The ratio is dependent on several factors. These include the MFI’s or borrower’s prior credit history with the bank or other banks, various banks internal guidelines, their focus on lending to Microfinance institutions and so on. For example for a given MFI we have seen two different banks asking for different guarantee percentages.
P2P-Banking.com: Does the Guarantor earn any interest?
Bhalchander Vishwanath: Guarantors do not earn any interest on their guarantees for two reasons:
It is legally complex.
We see ourselves as a ‘social business’. Nobel Laureate Mohammad Yunus states that a social business is ‘designed to be both self-sustaining and to maximize social returns’. We have only one objective: to combat global poverty. As a result, we do not provide any financial returns or interest to our social guarantors and hope to attract social guarantors who share our objective.
P2P-Banking.com: Does the Guarantor actually have to pay money into an account, or does this only occur if the borrower fails to pay back the loan?
Bhalchander Vishwanath: The guarantee we offer to banks is a cash secured guarantee. Thus the guarantor has to pay the money upfront. Once the loan is paid back, the money can be withdrawn. Continue reading →
Non profit Wokai.org will allow contributers to donate to give microfinance loans to borrowers in China. Like Kiva and MyC4, Wokai partners with local MFIs which identify and screen potential microentrepreneur clients. Selected clients are then posted on the Wokai website through profiles that outline their business ventures and loan request. Contributers can select borrowers to fund and pay via Google Checkout, the money is then transferred to the MFI who disperse the capital to the microentrepreneurs. Field partners charge interest rates typically ranging from 8-20% to cover the high costs associated with providing loans, training, monitoring and support services to our borrowers. At the end of the loan-cycle the money is collected and re-issued by the MFI for new loans – so there is no payback to the contributers.
Wokai has not launched yet, but I could participate in a pre-launch test drive. The platform has more social networking features then other platforms allowing for discussions and users asking questions to the MFIs/borrowers.
Wokai began in the fall of 2006 when Wokai co-founders Courtney McColgan and Casey Wilson met while studying advanced Chinese at Tsinghua University. The idea of Wokai gradually transformed into a plan of action and, with the help of a team of supporters, evolved into a startup nonprofit.
