July 20, 2006 | Read Time: 2 minutes
With the methods of supplying capital to microfinance institutions still in flux, entrepreneurs are exploring some new approaches.
Two years ago, Matthew and Jessica Flannery spent time in rural Kenya, Tanzania, and Uganda, where Jessica worked for the Village Enterprise Fund, a microfinance institution. When they returned to the United States, they became interested in allowing individuals to lend directly to entrepreneurs in developing countries.
That led to the creation of Kiva, a Web site that features profiles of business owners in developing countries who are seeking loans.
The profiles, which include a picture, a description of the individual’s business, and the reason the loan is needed, are prepared by the microfinance institutions in 11 countries with which Kiva collaborates. Prospective lenders browse the Web site to find entrepreneurs they would like to support, and then, using PayPal, an online payment service, supply money to cover all or part of the loan request. About 20 people from Bulgaria, Cambodia, Ecuador, Kenya, and Uganda are now seeking loans, but hundreds more have already received one.
Mr. Flannery says the entrepreneurs have borrowed $200,000 total from about 1,500 individuals. For now, all loans are made at 0-percent interest — so the lenders are motivated almost exclusively by the desire to help the entrepreneurs. But Mr. Flannery, chief executive officer of Kiva, says he intends to begin allowing lenders to charge interest as early as this summer — which could attract a broader group of lenders.
‘It’s More Tangible’
Merete Rietveld, who just finished her second year of law school at the University of California at Los Angeles, heard about Kiva through an e-mail message sent out by the charity in early 2005. When she went to the site, she was attracted to the story of Rose Athieno, of Tororo, Uganda, who was seeking a loan to support her business — buying crops like millet, sorghum, and coffee in bulk, and selling them at the main market in Tororo.
Ms. Rietveld lent Ms. Athieno $100 — 20 percent of the $500 she was seeking. Ms. Athieno repaid the entire $500 loan within nine months, and made enough profit, she wrote in a journal entry on the Kiva Web site, to purchase a mattress and sheets for the first time in her 24 years of marriage.
Ms. Rietveld says she plans to continue to use Kiva — she prefers having a direct connection with the borrower, rather than putting her small donation into a much-larger pot at a microfinance institution.
“It’s more tangible,” she says, “and it also helps you learn about the issue more than if you just participated in a one-time donation.”
Instead of withdrawing the $100 that Ms. Athieno repaid, Ms. Rietveld went back to Kiva and found another entrepreneur, this time in Kenya — in effect, becoming her own tiny, but self-sustaining, microfinance institution.
