Kiva-Didi: Reaching the Poorest of the Poor


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Kiva-Didi: Reaching the Poorest of the Poor

  1. 1.                 Reaching  the  Poorest  of  the  Poor       Abstract:  revolutionized  the  field  of  microfinance  by  introducing  an  online  domain  to  allow   micro-­‐lending  on  a  global  scale,  in  an  engaging  and  interactive  manner,  on  a  person-­‐to-­‐person  basis.   Yet,  microfinance  has  been  criticized  for  its  inability  to  reach  the  poorest  populations,  which   arguable  need  such  financing  mechanisms  most.  Kiva  and  its  partner  MFIs  are  subject  to  this   criticism,  as  it  falls  short  in  achieving  its  mission  to  “alleviate  poverty”,  by  missing  those  at  the   bottom.  Kiva-­‐  (Didi  ~  sister  in  Hindi)  –  a  proposed  sister  website  to,  could  bridge  the   gap  in  reaching  these  often  neglected  and  marginalized  populations.       By  leveraging  Kiva’s  existing  and  expanding  lender  base,  MFI  partnerships,  and   entrepreneurs  business  owners  (borrowers),  Kiva-­‐Didi  will  use  a  similar  platform  to  connect  users  to   the  poorest  populations,  allowing  for  an  easy  method  to  fund  essential,  non-­‐financial  support  that   target  the  root  issues  (access  to  food,  health,  education  and  employment)  that  plague  the  poorest   populations.  The  end  objective  being  that  those  at  the  bottom  can  “graduate”  to  a  level  where   accessing  microcredit  for  socioeconomic  sustainability  is  a  realistic  and  feasible  endeavor.         T s e l i   M o h a m m e d     C r e a t i n g   M i c r o f i n a n c e   I n s t i t u t i o n s   a n d   P a r t n e r s h i p s   H e l l e r   S c h o o l   f o r   S o c i a l   P o l i c y   a n d   M a n a g e m e n t   |   B r a n d e i s   U n i v e r s i t y  
  2. 2. INTRODUCTION Throughout history there have been many instances and iterations offormal and informal microfinance institutions across varying cultures andsocieties. Money-lending (or some form of currency) for later repayment, with orwithout interest, is at the heart of daily economic transactions at differing levelsworldwide. In any such agreement, there is some mutual benefit to both thelender and borrower, financial or otherwise. “Some were born out of the spirit of mutual aid, some out of a search for profit, and some out of a philosophy of charity that emphasizes self-reliance.”1 Microfinance institutions provide unemployed or low-income persons(most often women) in resource poor settings, who have limited access to basiceducation and avenues for economic gain, with financial services in credit,savings and insurance1, with the end goal of self-sufficiency. The majority oftoday’s microfinance institutions employ a credit-led approach in meeting itsmission of serving the poor. Credit-led Microfinance is a formal agreementmade between one party and another of lesser socioeconomic means, with theformer providing small loan(s) to the latter for later repayment. It can beconducted in a for-profit (interest with repayment) or not-for-profit basis.1 Yet, though the target populations of credit-led microfinance institutions(MFIs) are from low-income settings, often MFIs are not able to viably serve thepoorest communities – “those at the very bottom of the socioeconomic scale.”2 “Even in the case of MFIs that focus on reaching very poor clients, there are substantial numbers of people who are too poor to participate”2Criticisms such as this are grounded in the findings that more often, MFIs simplycannot afford to make loans to the poorest populations, for they have noincome source and are least likely to be able to repay, deeming them too risky.Additionally these populations are simply not in a position to incur debt of anykind, for such loans would actually make them more vulnerable, as it would beused for consumption (basic survival) rather than towards something foreconomic sustainability. Furthermore, the sociocultural segregation that goeshand in hand with this level of poverty proves to be a very real barrier, as others,not quite as poor, may not be willing to account for their added risk. “These choices by clients, borrower groups, and MFIs are generally sound…the result is that MFIs are limited in their ability to serve the poorest—those who need more help than any other group…”2                                                                                                                1  Rodman,  D.  Early  History  of  Microfinance.  DRAFT  Chapters  3  &  7.    CGAP.  Focus  Note:  34.  Graduating  the  Poor  into  Microfinance:  Linking  Safety  Net  and  Financial  Institutions.  2006.    2KIVA-­‐DIDI.ORG:  REACHING  THE  POOREST  OF  THE  POOR     2  
  3. 3. Exclusion of the poorest, whether it is by their choice not to incur debt, orby their perceived “too risky” label, is a reality in the arena in microcredit. Kivaand their MFI partners are no exception to this reality, as they serve low income,entrepreneurial populations, who have the ability to pay back their loans. To better reach the poorest populations, microcredit is not necessarily theanswer. “Safety Nets”, described as programs that tackle root issues, providingnon-financial support such as food aid, guaranteed employment, financialtraining and/or basic health services2, could be the first step in serving thosecaught in the vicious cycle of extreme poverty. Such social strategies are oftenlinked to financial services, so this first step can lead to beneficial relationshipswith MFIs that are in a position to serve their needs, as they “graduate” to thenext level of economic sustainability. CGAP, a well-respected policy and research center focusing on financialaccessibility to the world’s poor, highlights this notion in its 11-step guide, KeyPrinciples of Microfinance3: “Microcredit is not appropriate for everyone or every situation. The destitute and hungry who have no income or means of repayment need other forms of support before they can make use of loans. In many cases, small grants, infrastructure improvements, employment and training programs, and other non-financial services may be more appropriate tools for poverty alleviation.” has been hailed a revolution in the field of microcredit, with itsintroduction of an innovative, online platform to allow micro-lending on a globalscale, in an engaging and interactive manner, on a person-to-person basis.Kiva’s unique micro-lending system places it in an inimitable position, as it canleverage its brand and reputation, established user base, and distinctiverelationships with various field partners (MFIs) to extend its reach to the poorestof the global poor. This paper proposes that Kiva institutes Kiva-Didi.org4, a sister website Kivia-Didi will target the poorest populations globally, those too poor toaccess conventional microfinance. Leveraging Kiva’s existing and expandinglenders base, field partners (MFIs), and borrowers (small business owners), eachwill play an important role in the design and implementation of Kiva-Didi.   “The microfinance sector needs to explore new approaches if it is to extend the impact of its services to the poorest…leave preconceptions behind, start talking to each other more, and engage in mutually beneficial, collaborative efforts.”2                                                                                                                    3 Consultative  Group  to  Assist  the  Poor.  Key  Principles  of  Microfinance:  6.  Microfinance  is  not  always  the  answer.  Retrieved  from:    4  Didi  (n)  ~  Hindi  meaning  sister  KIVA-­‐DIDI.ORG:  REACHING  THE  POOREST  OF  THE  POOR     3  
  4. 4. ABOUT KIVA was launched in October 2005 as a non-profit organization with asimple mission: “connect people through lending to alleviate poverty.”5Consisting of just seven Ugandan entrepreneurs needing loans, with close friendsand family of co-founders Matt Flannery and Jessica Jackley as the initial lenderbase, Kiva’s beta launch proved to be a success. Since its inception, in itsrelatively short existence, Kiva has received much publicity, minor criticisms, andmany nominations and awards in innovation, charity, and socioeconomicentrepreneurship6. Its rapid growth and success can be attributed to its uniqueplatform and forward-thinking, innovative approach to microcredit and socialgood. Its thriving formula, which combines advances in technology and socialmedia, knowledgeable staff and voluntary labor, and on-the-ground fieldpartners (MFIs), achieves the perception of person-to-person lending, which haspropelled to the forefront of the microcredit field. "If you look at, people with a very modest amount of money can make a huge positive impact all around the world… Through, people around the world can become micro-bankers to developing world entrepreneurs, who have their own ideas..." ~ President Bill ClintonAbout Field Partners “We view our ideal portfolio to be a combination of very established and more commercial MFIs and less established MFIs. Our ability to take risks and dip into the long tail is what differentiates us from the microfinance investment funds.7 Kiva has developed a sustainable partner base by targeting “Tier 2-4”MFIs, which it describes as non-commercial MFIs that seek to benefit from thepartnership by gaining “access to favorable debt and creditworthiness”7, andincreasing their reputation and clientele base. By targeting these MFIs, Kiva istapping into a large pool of MFIs that work in wide variety of countries,communities and cultures. This mutually beneficial partnership is a keycomponent in Kiva’s strategic operations, allowing for an on-the-groundapproach to achieving its mission. Kiva maintains a high level of transparency between its lenders and fieldpartners, and uses a sophisticated and thorough system to rank8 (1-5 star rating)its field partners, allowing their lender base (users) the ability to make a moreinformed loan decision.                                                                                                                5  Kiva.  About  Us.  Retrieved  from:  6  Kiva.  About:  History:  Timeline.  Retrieved  from:  7  Flannery,  M.  Kiva  and  the  Birth  of  Person-­‐to-­‐Person  Microfinance.  Innovations.  MITPress.  Winter&  Spring  2007.      Kiva.  Field  Partners.  Retrieved  from:  8KIVA-­‐DIDI.ORG:  REACHING  THE  POOREST  OF  THE  POOR     4  
  5. 5. About Borrowers “Kivas goal is to reduce poverty in developing countries by giving entrepreneurs the ability to build their businesses through flexible loans.”9 provides an online platform to connect people worldwide,allowing a unique vision into the lives of struggling small business owners in thedeveloping world, who lack access to traditional banking systems. Currentborrowers’ small businesses most often fall into the following categories:• Retail: small generals stores to specific merchandizing (bikes, footwear, etc.)• Food: small bakeries and restaurants• Agriculture: crops, livestock and farming• Transportation: taxis, delivery and moving servicesAbout Lenders “Our user base was growing faster than we expected and we saw little evidence that our users wanted to earn interest on their loans. In fact, many considered themselves donors…”10 In evaluating their lender base, though Kiva founders emphasized theirservices as distinctly different from donations/charity, Kiva discovered that theirlenders thought of themselves more as donors9, rather than investors, and didnot want or expect interest with their loan repayment. Even when funds arerepaid (interest free) in full, they often choose to re-loan to another borrower,rather than withdraw it from the system.Kiva allows average persons, who may have little or no awareness or priorknowledge of microfinance and/or microcredit, to contribute small loans (micro-loans, relative to loans given by MFIs) to another person of lower financialstandings, in a secure, user-friendly manner. The simple to use platform hasgained traction over its short lifespan, as its lender base continues to expand tothrough the developed world.                                                                                                                9  Kiva.  Press  Releases.  Retrieved  from:    Flannery,  M.  Kiva  at  Four.  Innovations.  MITPress.  2009.    10KIVA-­‐DIDI.ORG:  REACHING  THE  POOREST  OF  THE  POOR     5  
  6. 6. How Works “Kiva lenders, we mean those individuals who lend money on the site; borrowers are the entrepreneurs who receive users’ loans channeled through our field partners - local micro-finance institutions (MFIs) that Kiva enrolls throughout the developing world.”10 Kiva’s approach to person-to-person micro-lending can be broken up intoa number of key steps. Basically, an entrepreneur (borrower) is given a loan by alocal MFI (one of Kiva’s field partners). A profile the borrower, including picturesand background story and full loan amount, is posted to the website. Kiva’sregistered users (lenders) make loans to borrower(s) of their choosing in $25increments (choosing to loan full or partial amount of borrower’s loan). Users’funds are sent to the field partner. Borrowers repay field partners, in accordancewith loan terms; partners send funds to Kiva; Kiva distribute funds back to theappropriate lenders; lends re-loan, withdraw or donate funds.Consider the flowchart11 below to better understand the process:                                                                                                                11  Kiva.  About:  How  Kiva  Works.  Retrieved  from:  KIVA-­‐DIDI.ORG:  REACHING  THE  POOREST  OF  THE  POOR     6  
  7. 7. KIVA-DIDI.ORG: Reaching the Poorest of the Poor(proposed sister website to Given the criticism that most MFIs are not able to reach the poorestpopulations, and that Kiva and their partner MFIs, definitively fall into thiscategory – will be a bridge to reaching this overlooked population.Leveraging the existing and growing user base and MFI relationships nurturedand maintained by Kiva, Kiva-Didi will provide a similar platform to engage andinvest in the socioeconomic growth of the poorest populations in thecommunities in which their field partners and entrepreneurs (borrowers) work.Kiva’s mission to “connect people through lending to alleviate poverty”12, canbe extended with introduction of this “sister site.” Kiva-Didi’s objective is to specifically target the root problems of peopleat the bottom of the economic ladder, and mitigate those problems byleveraging Kiva’s relationships with its lenders base, field partners and borrowers.In doing so, Kiva-Didi will support a systemized, staged process to guide,empower and aid individuals and their families that live in destitution, to be ableto graduate to become microfinance clients with (Kiva borrower), thusbringing them one step close to socioeconomic sustainability. Mission of Graduate the poorest individuals at the bottom of the socioeconomic ladder to become microcredit clients by the provision of essential non-financial support, in collaboration with local entrepreneurs and MFIs, using a dynamic, online platform to connect people globally.                                                                                                                12  Kiva.  About  Us.  Retrieved  from:  KIVA-­‐DIDI.ORG:  REACHING  THE  POOREST  OF  THE  POOR     7  
  8. 8. To accomplish this, will be an online platform in which users(currently lenders) will be given the opportunity to provide non-financialsupport to identified individuals (and their families) in five main categories: Training & Health & Food Education Medicine Guaranteed Supplies Livestock Employment Note: Potential icons to represent five categories on Kiva-Didi.orgGeneral examples of support:• Food Supplies: fund rice & grain for a month for family of eight in Chad• Livestock: fund purchase of a milk-producing goat for farmer in Somalia• Training & Education: fund towards girl’s continued education for year in Peru• Health & Medicine: fund malaria medication for a year for family in Congo• Guaranteed Employment: fund towards woman’s monthly salary in UkraineKiva-Didi Recipients The first step in implementing this system is the identification of Kiva-Didi’starget population. In collaboration with Kiva volunteers, field partners (MFIpartners), and entrepreneurs (Kiva borrowers), all of who work on-the-ground inwith or near poverty stricken communities, individuals that match the followingcriteria will be chosen for piloted program:• Too poor to use or access the services (microcredit) offered by Kiva’s field partners, working in their community.• Interest in non-financial support geared towards being able to use microcredit for economic sustainability.• Specific, self-identified needs that can be translated into viable option for Kiva lenders to eventually fund (background story, pictures, video), which will lead to use of microcredit.• Interest and time to commit to learning more about how microcredit and financial guidance can lead to economic sustainability.KIVA-­‐DIDI.ORG:  REACHING  THE  POOREST  OF  THE  POOR     8  
  9. 9. Role of Partners MFIs ( Field Partners)Kiva’s established field partners, those which have high ratings (4-5 stars) thathave proven to be less risky, trustworthy and have the time and capital to investin Kiva-Didi, would be the MFIs chosen to collaborate in this endeavor. Inaddition to identifying any individuals that match the above criteria, the fieldpartners would have an arm of its operations that work solely with theseindividuals, and would be responsible for administering weekly/monthly trainingsin financial undertakings (at the appropriate stage in each individual’s level),such as savings and loan management. Field partners would then be in the best position to know when therecipients who have benefited from their specified non-financial support, areready to “graduate” to the accessing microcredit through them, and allowingthem one step closer to poverty alleviation.Role of Users ( Lenders) Given that the majority of Kiva lenders thinks of themselves as donors andis undoubtedly interested in aiding poverty alleviation and economicsustainability for the poor, active lenders may easily transition to also becomeKiva-Didi users, choosing who individuals they want to fund based on their storiesand connection via similarly engaging and interactive platform.Role of Entrepreneurs ( Borrowers) In addition to identifying individuals that can be recipients on,’s borrowers are in a particularly useful position, as aentrepreneur in a growing small business, can present specific recipients withemployment opportunities, is available, again depending on the stage at whichrecipients are in the graduate process.KIVA-­‐DIDI.ORG:  REACHING  THE  POOREST  OF  THE  POOR     9  
  10. 10. How Kiva-Didi Works Kiva-Didi’s innovative, social strategy will be collaborative and mutuallybeneficial to all parties involved. Though there is a level of risk and trust involved,Kiva-Didi is dedicated to maintaining transparency and accountabilitythroughout its operations and partnerships. The following is an overview of may operate: STAGE 1: • Identified Recipient(s)’ background story and specified non-financial support (5 categories) requested is posted to • Kiva-Didi Users (registered lenders of choose Recipient(s) and the specific non-financial support they would like to fund. • Funds are sent to Field Partner. • Field Partner distributes the non-financial support to Recipient. STAGE 2: • Field Partners begin weekly trainings on financial undertakings. • Recipient secures guaranteed employment from Entrepreneurs. • Recipients progress updated on, including new non- financial requests (guaranteed employment). STAGE 3: • Field Partners continue financial training on monthly basis. • Recipients’ progress evaluated and when ready, graduates to receive loan from Field Partner. • Transition to as Borrower.KIVA-­‐DIDI.ORG:  REACHING  THE  POOREST  OF  THE  POOR     10  
  11. 11. Challenges To pilot and accomplish its objectives, there will be manyhurdles to overcome. The initial capital, time and vested efforts necessary topilot Kiva-Didi in terms of its online platform, may not be very much, but the stepsnecessary to collaborate get the buy-in of its field partners and entrepreneursinvolves much time and commitment. The process involves a high level of risk, asthere is no assurance or time-allotment guarantee that the non-financial supportprovided to the poorest populations will be enough to over their daily hardships,demographic impediments (geographic location, weather, etc.) and/orsociocultural barriers. Most significant to the success of piloting is open and clearcommunication and collaboration, with distinct objectives and benchmarks, tomonitor, measure and evaluate outcomes, in a flexible and malleableenvironment that can accommodate and adapt to the contextual settings ofrecipients and partners (field partners and entrepreneurs).Benefits: In gaining buy-in from all parties that will be involved in this piloted system,the demonstrated benefits to each if committed to its implementation, despitethe admitted risks and challenges, are highlighted below. Kiva: • Expand reach to further its mission of to alleviate poverty. • Requires little investment to develop and launch, a sister site to, that will be the online platform for the pilot. • Leverage systems already in place – on-the-ground volunteers and field partners, and growing lender base. • Additional individuals for lenders to access, given the seasonal flow and spikes in demand from lenders13. Recipients: • Empowerment, motivation and means out of poverty cycle. • Self-specified non-financial support and link to financial training. Entrepreneurs (Kiva Borrowers): • Opportunity to expand small business with subsidized labor. • Invest in own community and stimulate economy.                                                                                                                13  Flannery,  M.  Kiva  at  Four.  Innovations.  MITPress.  2009.  Pgs  30-­‐31.  KIVA-­‐DIDI.ORG:  REACHING  THE  POOREST  OF  THE  POOR     11  
  12. 12. Field Partners: • First link to an expanded network of clients. • Promotion and further opportunity for reputation and brand building. • Expand services (financial training) and expertise. • Further relationship and partnership with Kiva and affiliates. Lenders/Users: • Expanded network of individuals from which to choose. • Gain understanding of barriers faced by poorest populations. • Knowledge of progress of individuals over time.Marketing and Communications: In launching there are several ways that Kiva can publicize itto gain traction and to jump-start the system. For example:• Do a Press Release detailing – purpose, who it targets, how it works, why it is important and how it aligns with its overall mission.• Share the press release with all registered users (lender base), highlighting that the site is accessible via their’s user account.• Link to from in on every page of site, including the opportunity to make donation to another individual when a loan is made.• Feature a “graduate-to-be” of the month on Kiva.orgSUMMARY Kiva’s commitment to economic sustainability for poverty alleviation,through person-to-person micro-lending; its maintained partnerships with highlyranked, growing MFIs; network of small business owners; and its dynamic, onlineplatform, are key components already in place, which can be leveraged topilot Given the criticisms of MFIs in reaching the poorest of the poor, Kiva is in aunique position to bridge this overt gap in social service. As was tomicrofinance, could be an innovative and, most importantly,economically sustainable break-through in meeting this global need.KIVA-­‐DIDI.ORG:  REACHING  THE  POOREST  OF  THE  POOR     12