Kiva and the Microloan Phenomenon

Microloan programs like Kiva have proved themselves to be helpful and sustainable.

Photo: westonjd / Shutterstock, Inc.

Think you have to have big bucks to donate to charity? Think again!

Microloan nonprofits like Kiva.org offer the average Joe an opportunity to donate where it counts. Boasting a 4-star overall rating from Charity Navigator, Kiva provides microloans for people in need who want to serve their community or start their own small business. So far, 2.3 million borrowers in 82 countries have been loaned a total of $930.7 million.

Kiva was founded in 2005 in San Francisco with the goal to alleviate poverty in a new way. It was one of the first truly successful microloan ventures of its kind. Kiva employs staff in the US, Nairobi, and around the world.

“We envision a world where all people hold the power to create opportunity for themselves and others,” Kiva says on their website. Their microloan method benefits both the borrower and the lender: the borrower gets a professionally-managed loan they can pay back over time instead of just a one-time handout, while the lender can donate in increments of $25, making charity involvement more possible for more people.

Since microloans are, first and foremost, loans, those who donate often want to know if and when they’ll be repaid. Interestingly, Kiva has a very high repayment rate—generally about 97 percent. So not only are people able to use the funds to create sustainable businesses and better their communities; they’re eventually able to pay back donors as well. And that gives donors the opportunity to donate another microloan to another would-be entrepreneur. Farmers, artisans, students, shopkeepers, builders, restaurant owners, and others all benefit from the funds Kiva donors provide.

Potential borrowers are vetted before being declared eligible for microloans. Kiva Field Partners in the borrowers’ home countries do background checks and get all the details about the borrowers’ plans for the money before officially setting up with the Kiva website to solicit donations.

Researchers have become intrigued by the microloan process as embodied by nonprofits like Kiva. Teams at the University of Michigan determined in a recently released report that Kiva’s structure, which allows lenders to join teams that all work toward funding a single individual, is extremely effective.

The study, which looked at 60,000 Kiva lenders using the Kiva website’s forums to communicate and form teams, found that team membership didn’t just correlate with increased donations—it actually caused them. Forum posts including a chosen borrower, a fundraising goal, and a link to the borrower’s page produced an average of 11 more loans a month. And new lenders who joined teams donated an average of $392 more than those who didn’t.

The microloan strategy of nonprofits like Kiva not only allows more people to become involved with charities and donations; it also provides much more financial support to people across the world who desperately need it.

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