The Devil is in the Details Story Behind Kiva's Success

Pundits, gurus, everyday people and entrepreneurs in developing countries rave about Kiva…

The Daily Kos (a news and political blog site) gushed, “…this kind of an idea can change not just the country; it can change the world.” 

What’s not to love? …a non-profit on a mission to alleviate poverty uses Web 2.0 technology to inexpensively allow everyday people to “meet” and lend money to poor, underdog entrepreneurs all over the globe.

With that, often missed in the revelry and analysis of the Kiva story is the Devil is in the Details sub-plot.

The success of Kiva’s breakthrough person-to-person micro-loan fundraising model turns on two little-known, but critical points:

• Dramatically reducing micro-loan transaction costs.
• Building a program to identify and screen an ever increasing supply of recipient entrepreneurs and to manage the "on the ground" loan distribution and repayment process.

Kiva began modestly in March 2005 with 7 loans totaling $3,500 made to poor Ugandan entrepreneurs – notably including a goat herder, a fish monger and a cattle farmer.  

Not quite 5 years later, as of January 31, 2010, Kiva has facilitated $117,930,210 in loans supplied by 664,469 lenders to a total of 291,964 entrepreneurs. The Kiva loan repayment rate is a surprisingly high 98.27%. Among non-profits, Kiva is the ultimate Wide Open Road non-profit success story.

Micro-lending has been a much hyped and frequently discussed concept in non-profit and poverty relief circles for many years.  Widespread adoption was blocked by the costs around exchange rates, unstable economies and the real transaction and mediator fees.

Insight and good fortune changed all that. Understanding the cost barrier to mass adoption, Premal Shah, who subsequently became Kiva’s President, convinced his employer, PayPal, to provide the fledgling Kiva with free internet payment transactions. 

With those fees removed for both the lender and the borrower, the previously unthinkable became possible. Loans could be cost effectively given and repaid in small increments (Kiva’s typical loan increment is $25).

But that’s just the first part of the Devil is in the Details sub-plot…

Kiva had created exploding demand for a previously non-existent market, opportunities to lend to entrepreneurs in developing countries. The problem was on the supply side. Not enough entrepreneurs had been identified nor was there a widely established network of local micro-finance institutions (MFIs) for screening and profiling entrepreneurs and for managing loan distribution and payment collection.

It was a “Build it ourselves” versus “Do it through partners” decision. Kiva chose partners and in so doing, almost overnight, created a mass market for MFI managed loans.

The “speed to market” and “local familiarity” advantages of going through partners (MFIs) likely made it the obvious choice for Kiva from the beginning. That said, many non-profits lose precious momentum by trying to do everything in-house. Still many other charitable organizations just simply miss the high impact details that might allow them to make a fundraising breakthrough.

Indeed, the Devil is in the Details. Were it not for Kiva’s fortuitous and wise choices to find a way to minimize transaction costs and partner with local MFIs to scale the fundraising (lending) model, there is no story to tell…

…and many poor would-be-entrepreneurs would still be stuck in the dream stage.