Microfinance
2006-07-25
IntoContext II
Filed Under:
This week was an acceleration of everything Kiva.
It started with a mention in the WSJ (thanks to GOOD Magazine) and hastened with a feature story in BusinessWeek. The BW article created a new level of public interest in Kiva from finance-oriented peoples. A brickload of emails were sent, and Fiona is catching up with those as I write this. Meanwhile, record loan dollars are flying through Kiva to working entrepreneurs in the developing world.
These articles, and the ensuing reaction, proved that the path is not too great between paper and web. These articles were read in living rooms, airplanes and bathrooms. Apparently, a great number actually got up from their seat, went to a computer and made a loan. It is turning out to be a record setting week and it's great to be all together in one place to watch it happen.
Perhaps a more amazing thing happened, however. Cale and Jon presented their findings to Kiva and Microsoft. For those of you who don't remember everything ever written in this blog, Cale and Jon, funded by Microsoft, spent June in East Africa studying the microfinance institutions (MFIs) there who work with Kiva. They came back with tons of video, pictures and observations. The focus of their research was MFIs and how they work with Kiva. In what ways does working with Kiva help them? In what ways is it hard?
One large point is that they are generally enthusiastic about what Kiva is doing for them, and see Kiva as having the potential to really helping them grow. Kiva, as compared to other sources of capital, is very attractive financially. Kiva provides debt at much better rates than are available for most MFIs in that part of the world.
A more subtle point centers around the characters and personalities that work for MFIs like those they visited. In their findings, there are 3 main characters in an MFI in relation to Kiva: The Director, the Credit Officer and the Techie. The Director of an MFI is in charge of operations, is very connected to the outside world, and is looking out for the health of the organization. The Credit Officer (CO) is the person who actually visits the loan recipients every day and is extremely connected to the community. Thus, the CO spends less time in the office and more time in the field. The Techie is the computer expert of the organization and often plays a consulting role. For Kiva to succeed in truly helping grow MFIs, it must be intimately familiar with these personalities.
One role that particularly fascinated Cale and Jon was that of the CO. The CO spends most of her time traveling back and forth between three places: Home, the Field, and the Office. Often times these places are separated by marathon lengths, and often the only mode of transport is bicycle. One cycle of work involves a trajectory from home to client to office and back home. This commute can take days. Kiva introduces more work because all data needs to be recorded on a computer, which is only found at the office. Once at the office, getting online is a chore that can take hours and hours. Interestingly enough, the COs almost always had cellphones that worked in the most remote areas.
The big idea here is to use cellphones to record journal and payment data straight to the Kiva website. This has the potential to cut out one leg of the the marathon cycle. The technology already exists and is in use. Cale and Jon are headed back in August for the final leg of their research. The plan is to outfit them with camera phones so COs can make the first Kiva updates from the field. Jeremy had already put the code in place so that the Kiva website can receive text messages and update the site instantaneously. It's an idea that could greatly ease the workload of our partners. There are a bunch of difficulties to overcome, but it's definitely worth trying.
If you are interested in helping Cale and Jon, we are looking for phones. You know anyone that works for a cell phone company? Are you able to donate to this next leg of their project so that they can bring more phones with them? If so, let me know, or write to contactus@kiva.org .
It started with a mention in the WSJ (thanks to GOOD Magazine) and hastened with a feature story in BusinessWeek. The BW article created a new level of public interest in Kiva from finance-oriented peoples. A brickload of emails were sent, and Fiona is catching up with those as I write this. Meanwhile, record loan dollars are flying through Kiva to working entrepreneurs in the developing world.
These articles, and the ensuing reaction, proved that the path is not too great between paper and web. These articles were read in living rooms, airplanes and bathrooms. Apparently, a great number actually got up from their seat, went to a computer and made a loan. It is turning out to be a record setting week and it's great to be all together in one place to watch it happen.
Perhaps a more amazing thing happened, however. Cale and Jon presented their findings to Kiva and Microsoft. For those of you who don't remember everything ever written in this blog, Cale and Jon, funded by Microsoft, spent June in East Africa studying the microfinance institutions (MFIs) there who work with Kiva. They came back with tons of video, pictures and observations. The focus of their research was MFIs and how they work with Kiva. In what ways does working with Kiva help them? In what ways is it hard?
One large point is that they are generally enthusiastic about what Kiva is doing for them, and see Kiva as having the potential to really helping them grow. Kiva, as compared to other sources of capital, is very attractive financially. Kiva provides debt at much better rates than are available for most MFIs in that part of the world.
A more subtle point centers around the characters and personalities that work for MFIs like those they visited. In their findings, there are 3 main characters in an MFI in relation to Kiva: The Director, the Credit Officer and the Techie. The Director of an MFI is in charge of operations, is very connected to the outside world, and is looking out for the health of the organization. The Credit Officer (CO) is the person who actually visits the loan recipients every day and is extremely connected to the community. Thus, the CO spends less time in the office and more time in the field. The Techie is the computer expert of the organization and often plays a consulting role. For Kiva to succeed in truly helping grow MFIs, it must be intimately familiar with these personalities.
One role that particularly fascinated Cale and Jon was that of the CO. The CO spends most of her time traveling back and forth between three places: Home, the Field, and the Office. Often times these places are separated by marathon lengths, and often the only mode of transport is bicycle. One cycle of work involves a trajectory from home to client to office and back home. This commute can take days. Kiva introduces more work because all data needs to be recorded on a computer, which is only found at the office. Once at the office, getting online is a chore that can take hours and hours. Interestingly enough, the COs almost always had cellphones that worked in the most remote areas.
The big idea here is to use cellphones to record journal and payment data straight to the Kiva website. This has the potential to cut out one leg of the the marathon cycle. The technology already exists and is in use. Cale and Jon are headed back in August for the final leg of their research. The plan is to outfit them with camera phones so COs can make the first Kiva updates from the field. Jeremy had already put the code in place so that the Kiva website can receive text messages and update the site instantaneously. It's an idea that could greatly ease the workload of our partners. There are a bunch of difficulties to overcome, but it's definitely worth trying.
If you are interested in helping Cale and Jon, we are looking for phones. You know anyone that works for a cell phone company? Are you able to donate to this next leg of their project so that they can bring more phones with them? If so, let me know, or write to contactus@kiva.org .
2006-07-17
NPR II
Filed Under:
A couple highlights from today:
1) Kiva was on NPR in Seattle
2) The website crashed.
We are very psyched about (1) although (2) had somewhat of a negating effect on (1). We get huge spikes in traffic when we get press like that and sometimes our web hosting company is not ready for it.
Despite that, this was a thoroughly eventful morning. I am up in Seattle with Jessica -- who is an MBA intern with Amazon for much of the summer. We are staying right near Pike Place Market. Last Thursday I got the call from NPR up here. It just so happened I was in town.
It was quite humbling when I learned that I was sharing air time with Alex Counts (Head of Grameen Foundation USA) and Dr. Raj Shah (Director of Financial Services and Agriculture for the Gates Foundation). Dr. Shah was in studio and Alex was calling in.
Compared with my last experience on NPR, this was a much longer discussion. In addition, the conversation was live and the subject wasn't simply Kiva -- it was microfinance in general. I did my best to contribute when I felt I had something unique to add while deferring often to Alex and Raj on most points.
Some high level themes of the call:
-- The American public and press is skeptical about the high interest rates of microfinance
-- Microfinance practictioners at all levels have to constantly justify these rates
-- One problem Grameen and Gates are addressing is the high cost of capital to an MFIs
-- The commercialization of MF is a primary topic everywhere you go these days
One thing I'd like to note is that Kiva is contributing to lowering the cost of capital faced by MFIs. Our lenders loan at 0% today. In the future, we may offer slightly higher interest rates to our lenders. Still, we have the opportunity to seriously reduce the rates that MFIs get money -- which hovers around 10%. Some of our partners currently borrow at 18%! (outside of Kiva)
Here's a more detailed paraphrase of the call:
1) There are pitfalls to credit. Is it always a good thing for poor people?
Alex Counts:
-- The only alternatives are to starve or to work for yourself. Most businesses
are very undercapitalized. Many are extremely happy to take $60-$70 and expand.
2) How can $60 - $70 make a big difference?
Alex Counts:
-- Chicken business example : a loan helps a small chicken farmer scale up. Many women end up having a poultry farm years later with hundreds of chickens.
-- Scaling up can help a woman send her child to school
3) How in the past would a poor woman in
-- Manila money lender example: Loan sharks often charge 20% interest per day
4) How has the work of Dr. Yunus led to the Grameen Foundation USA?
Alex Counts:
-- About 10 years ago there was a Microcredit Summit. Alex was living in Bangladesh and was tasked with founding the GFUSA in the USA. GFUSA is tasked with taking the Bangladesh experience to other places in the world.
5) Is it right that the Gates Foundation is looking into supporting microfinance?
Raj Shah:
-- We realized that traditional MFIs are very important but not alone. Commercial and public banks are getting involved as well. These provide credit, savings and insurance products as well.
-- Over time we will need a broad range of distribution channels.
6) Tell us about some of the successes of MF over the world?
Raj Shah:
-- Impressed by the stories in Bangladesh.
-- Data shows that almost 5% of clients every year move out of poverty.
-- In Malawi, OI Malawi offers finger print smart cards for safe savings plans. Alternatives are predatory and way too expensive.
7) Are they really paying 20%-30% interest rates? That sounds like a lot?
Raj Shah:
-- The alternative is informal lending which is several hundred percent annualized. 20% might seem high but it is much better than the alternatives.
8) Are these the interest rates that Grameen Foundation USA is charging?
Alex Counts:
-- When organizations scale, the rates come down significantly
-- Hopefully rates for rural MF can be as good or better than the rates commercial businessmen get in cities.
-- Technology can help reduce rates. Grameen has a tech center in Seattle which can help reduce the rates.
9) Kiva actually connects people in this country
Matt Flannery:
-- Kiva is the first website that allows a first world lender to loan to an entrepreneur in an impoverished region.
10) I'm doing this to help someone?
Matt Flannery:
-- Most users do it for charitable reasons, but we would love to allow lenders to make a return eventually.
-- Kiva Beta started in Uganda, all of our family and friends got repaid. Kiva chose 0% interest rates because of potential regulation.
11) People don't do it to make a return?
Matt Flannery:
-- Tells the story of posting businesses on the internet from Uganda
-- We chose 0% because of regulatory concerns
-- Kiva desires to offer a return on it's loans in the future.
12) It's also commercial banks. Are they seeing this as a business opportunity?
Raj Shah:
-- I think so. In some cases you can make enough money for this to be a
commercially viable business. In many cases the banks are partnering with MFIs.
13) Does Grameen want to put themselves out of business?
Alex Counts:
-- Vision is the poor woman has multiple options to get credit.
-- CitiBank is the largest bank in the world and is getting into this sector and
partnering with traditional MFIs. The banks have a lot of money and the MFIs have a rural network. These very sophisticated partnerships are not putting MFIs out of business but they are leveraging.
14) Caller: Everywhere they tell us 20% loans are bad. I think these rates are outrageous?
Alex Counts:
-- The rates are coming progressively down.
-- If you ask the poor, they prefer having this option. Having more options is better.
15) Matt, it sounds like you at Kiva are experiencing high repayment rates too?
Matt Flannery:
-- The high repayment rates are nothing new. Grameen has demonstrated high repayment rates for years.
Alex Counts:
-- Grameen is trying to educate the wholesale lenders that the poor can repay,
-- Grameen wants to reduce the wholesale cost of capital.
Raj Shah:
-- Cost of capital and cost of labor are two huge costs
-- Both of these are coming down. Citibank is lending to BRAC at 11%,
-- Equity Bank in Kenya uses mobile units to go to the poor and provide them
with banking by using jeeps.
16) Is MF Central to alleviating poverty?
Matt Flannery:
-- It is a key part of the toolbox to alleviating poverty, not the only piece.
Alex Counts:
-- Cited Grameen Study which shows great hope for MF in reducing poverty.
-- Most clients in all studies showed huge improvements in escaping poverty.
-- The body of research is quite encouraging.
17) Raj, how big a part does MF play?
Raj Shah:
-- It clearly plays a big part. Moving someone from extreme poverty to moderate poverty is huge.
-- 9/10 times, clients pay school fees with the modest profits they make. It can make a huge impact for future generations.
-- It's an important too but it is not the only tool.
18) Is there a zero sum here. Does money to MF take away from money that goes as donations to other development programs?
Matt Flannery:
-- MF is a sustainable form of helping. It is a contribution that is more leveraged and can help entrepreneurs into perpetuity.
Alex Counts:
-- One of the big problems is the health situation in developing countries. Pure health projects will often get someone healthy. However, if they are still poor they will soon fall into sickness again. If they have a sustained income, they can lift their standard of living so they don't get unhealthy as often.
19) Does MF just ease the pain, but not solve poverty?
Raj Shah:
-- This is right. It helps about 1/3 of people move out of poverty. At the end of the day, we think about how you help the most people with a set of financial services.
-- We don't talk much about the precarious life of a poor household. Households might have to choose between saving a life, paying school fees or returning a loan.
Alex Counts:
-- Listeners should remember that a shift from extreme poverty to moderate poverty is a huge life change. It means being able to not have to make choices about which 2 members of a family will eat. Or of which child of three can go to school.
20) Caller: How do I use my money to help MF? Kiva is 0% interest...
Matt Flannery:
-- There was no easy way to invest. There are a couple options for larger amounts: Calvert and Accion.
-- Kiva is different because it is lower amounts
-- Kiva is working to provide a return soon.
21) Is the GFUSA only offer donation options?
Alex Counts:
-- Yes, currently that's the only instrument.
-- Last year, with Citibank, GFUSA started a pledge program for loan guarantees. They are turning $30 million in pledges to $180 in loans from Citibank. 6-1 leverage.
22) The size of the Gates Foundation is huge. Will Gates be investing more in MF?
Raj Shah:
-- Deutsche Bank and Blue Orchard offer debt instruments at lower interest rates.
-- There will be more organizations like this over time.
-- The Gates Foundation is looking at doing a range of things. Goal is to reach a high proportion of those households that make $2 or less per day. Gates has started to make a number of new grants and investments. We are fortunate to work with Accion , Grameen and Calvert
23) How much will Gates spend on MF?
Raj Shah:
-- We don't have that specified yet.
24) What other services does MF provide to the poor?
Raj Shah:
-- Savings products. Malawi smartcard example. Saving is important to build assets in a meaningful way. Clients value savings tremendously.
-- Insurance is very important. Much poverty is attributed to illness and health costs.
25) Alex, what are some other products in MF that are not loans?
Alex Counts:
-- Insurance is important to dealing with risks. Just an hour ago we evacuated an operation from Beirut. It's very difficult to hedge risks as a poor woman.
-- Life insurance is important. Death is a constant companion. People don't want to leave debt to the family, thus insurance helps them insure against that.
-- Businesses in a box. The cellphone business in Bangladesh is something we are trying to scale
26) Matt, other examples?
Matt Flannery:
-- MFIs can serve as trainers. They can provide information about how to run your business. For example, if you are fish seller you can get training on inventory management from the MFI on how to store fish so they don't perish.
27) Caller: What are UNDP and World Bank doing for MF?
Raj Shah:
-- They are doing two things. 1) Projects that provide technical assistance like CGAP 2) Investing in MF. Most development banks provide capital to places like Deutsche Bank and Blue Orchard.
-- World Bank has brought a lot of technical expertise on things like crop insurance and drought insurance.
-- Gates would like to see these orgs get much more involved in regulatory issues,
Alex Counts:
-- It's mixed. We have tried to lobby the World Bank to allocate 2% of the budget to MF but it remains at 1%.
-- Often the government creates banks that give free loans and distort the markets.
28) Matt, is competition good?
Matt Flannery:
-- In general, it's a great thing.
-- There is a worry about distorting markets when donating to an MFI and is something to watch out for,
1) Kiva was on NPR in Seattle
2) The website crashed.
We are very psyched about (1) although (2) had somewhat of a negating effect on (1). We get huge spikes in traffic when we get press like that and sometimes our web hosting company is not ready for it.
Despite that, this was a thoroughly eventful morning. I am up in Seattle with Jessica -- who is an MBA intern with Amazon for much of the summer. We are staying right near Pike Place Market. Last Thursday I got the call from NPR up here. It just so happened I was in town.
It was quite humbling when I learned that I was sharing air time with Alex Counts (Head of Grameen Foundation USA) and Dr. Raj Shah (Director of Financial Services and Agriculture for the Gates Foundation). Dr. Shah was in studio and Alex was calling in.
Compared with my last experience on NPR, this was a much longer discussion. In addition, the conversation was live and the subject wasn't simply Kiva -- it was microfinance in general. I did my best to contribute when I felt I had something unique to add while deferring often to Alex and Raj on most points.
Some high level themes of the call:
-- The American public and press is skeptical about the high interest rates of microfinance
-- Microfinance practictioners at all levels have to constantly justify these rates
-- One problem Grameen and Gates are addressing is the high cost of capital to an MFIs
-- The commercialization of MF is a primary topic everywhere you go these days
One thing I'd like to note is that Kiva is contributing to lowering the cost of capital faced by MFIs. Our lenders loan at 0% today. In the future, we may offer slightly higher interest rates to our lenders. Still, we have the opportunity to seriously reduce the rates that MFIs get money -- which hovers around 10%. Some of our partners currently borrow at 18%! (outside of Kiva)
Here's a more detailed paraphrase of the call:
1) There are pitfalls to credit. Is it always a good thing for poor people?
Alex Counts:
-- The only alternatives are to starve or to work for yourself. Most businesses
are very undercapitalized. Many are extremely happy to take $60-$70 and expand.
2) How can $60 - $70 make a big difference?
Alex Counts:
-- Chicken business example : a loan helps a small chicken farmer scale up. Many women end up having a poultry farm years later with hundreds of chickens.
-- Scaling up can help a woman send her child to school
3) How in the past would a poor woman in
-- Manila money lender example: Loan sharks often charge 20% interest per day
4) How has the work of Dr. Yunus led to the Grameen Foundation USA?
Alex Counts:
-- About 10 years ago there was a Microcredit Summit. Alex was living in Bangladesh and was tasked with founding the GFUSA in the USA. GFUSA is tasked with taking the Bangladesh experience to other places in the world.
5) Is it right that the Gates Foundation is looking into supporting microfinance?
Raj Shah:
-- We realized that traditional MFIs are very important but not alone. Commercial and public banks are getting involved as well. These provide credit, savings and insurance products as well.
-- Over time we will need a broad range of distribution channels.
6) Tell us about some of the successes of MF over the world?
Raj Shah:
-- Impressed by the stories in Bangladesh.
-- Data shows that almost 5% of clients every year move out of poverty.
-- In Malawi, OI Malawi offers finger print smart cards for safe savings plans. Alternatives are predatory and way too expensive.
7) Are they really paying 20%-30% interest rates? That sounds like a lot?
Raj Shah:
-- The alternative is informal lending which is several hundred percent annualized. 20% might seem high but it is much better than the alternatives.
8) Are these the interest rates that Grameen Foundation USA is charging?
Alex Counts:
-- When organizations scale, the rates come down significantly
-- Hopefully rates for rural MF can be as good or better than the rates commercial businessmen get in cities.
-- Technology can help reduce rates. Grameen has a tech center in Seattle which can help reduce the rates.
9) Kiva actually connects people in this country
Matt Flannery:
-- Kiva is the first website that allows a first world lender to loan to an entrepreneur in an impoverished region.
10) I'm doing this to help someone?
Matt Flannery:
-- Most users do it for charitable reasons, but we would love to allow lenders to make a return eventually.
-- Kiva Beta started in Uganda, all of our family and friends got repaid. Kiva chose 0% interest rates because of potential regulation.
11) People don't do it to make a return?
Matt Flannery:
-- Tells the story of posting businesses on the internet from Uganda
-- We chose 0% because of regulatory concerns
-- Kiva desires to offer a return on it's loans in the future.
12) It's also commercial banks. Are they seeing this as a business opportunity?
Raj Shah:
-- I think so. In some cases you can make enough money for this to be a
commercially viable business. In many cases the banks are partnering with MFIs.
13) Does Grameen want to put themselves out of business?
Alex Counts:
-- Vision is the poor woman has multiple options to get credit.
-- CitiBank is the largest bank in the world and is getting into this sector and
partnering with traditional MFIs. The banks have a lot of money and the MFIs have a rural network. These very sophisticated partnerships are not putting MFIs out of business but they are leveraging.
14) Caller: Everywhere they tell us 20% loans are bad. I think these rates are outrageous?
Alex Counts:
-- The rates are coming progressively down.
-- If you ask the poor, they prefer having this option. Having more options is better.
15) Matt, it sounds like you at Kiva are experiencing high repayment rates too?
Matt Flannery:
-- The high repayment rates are nothing new. Grameen has demonstrated high repayment rates for years.
Alex Counts:
-- Grameen is trying to educate the wholesale lenders that the poor can repay,
-- Grameen wants to reduce the wholesale cost of capital.
Raj Shah:
-- Cost of capital and cost of labor are two huge costs
-- Both of these are coming down. Citibank is lending to BRAC at 11%,
-- Equity Bank in Kenya uses mobile units to go to the poor and provide them
with banking by using jeeps.
16) Is MF Central to alleviating poverty?
Matt Flannery:
-- It is a key part of the toolbox to alleviating poverty, not the only piece.
Alex Counts:
-- Cited Grameen Study which shows great hope for MF in reducing poverty.
-- Most clients in all studies showed huge improvements in escaping poverty.
-- The body of research is quite encouraging.
17) Raj, how big a part does MF play?
Raj Shah:
-- It clearly plays a big part. Moving someone from extreme poverty to moderate poverty is huge.
-- 9/10 times, clients pay school fees with the modest profits they make. It can make a huge impact for future generations.
-- It's an important too but it is not the only tool.
18) Is there a zero sum here. Does money to MF take away from money that goes as donations to other development programs?
Matt Flannery:
-- MF is a sustainable form of helping. It is a contribution that is more leveraged and can help entrepreneurs into perpetuity.
Alex Counts:
-- One of the big problems is the health situation in developing countries. Pure health projects will often get someone healthy. However, if they are still poor they will soon fall into sickness again. If they have a sustained income, they can lift their standard of living so they don't get unhealthy as often.
19) Does MF just ease the pain, but not solve poverty?
Raj Shah:
-- This is right. It helps about 1/3 of people move out of poverty. At the end of the day, we think about how you help the most people with a set of financial services.
-- We don't talk much about the precarious life of a poor household. Households might have to choose between saving a life, paying school fees or returning a loan.
Alex Counts:
-- Listeners should remember that a shift from extreme poverty to moderate poverty is a huge life change. It means being able to not have to make choices about which 2 members of a family will eat. Or of which child of three can go to school.
20) Caller: How do I use my money to help MF? Kiva is 0% interest...
Matt Flannery:
-- There was no easy way to invest. There are a couple options for larger amounts: Calvert and Accion.
-- Kiva is different because it is lower amounts
-- Kiva is working to provide a return soon.
21) Is the GFUSA only offer donation options?
Alex Counts:
-- Yes, currently that's the only instrument.
-- Last year, with Citibank, GFUSA started a pledge program for loan guarantees. They are turning $30 million in pledges to $180 in loans from Citibank. 6-1 leverage.
22) The size of the Gates Foundation is huge. Will Gates be investing more in MF?
Raj Shah:
-- Deutsche Bank and Blue Orchard offer debt instruments at lower interest rates.
-- There will be more organizations like this over time.
-- The Gates Foundation is looking at doing a range of things. Goal is to reach a high proportion of those households that make $2 or less per day. Gates has started to make a number of new grants and investments. We are fortunate to work with Accion , Grameen and Calvert
23) How much will Gates spend on MF?
Raj Shah:
-- We don't have that specified yet.
24) What other services does MF provide to the poor?
Raj Shah:
-- Savings products. Malawi smartcard example. Saving is important to build assets in a meaningful way. Clients value savings tremendously.
-- Insurance is very important. Much poverty is attributed to illness and health costs.
25) Alex, what are some other products in MF that are not loans?
Alex Counts:
-- Insurance is important to dealing with risks. Just an hour ago we evacuated an operation from Beirut. It's very difficult to hedge risks as a poor woman.
-- Life insurance is important. Death is a constant companion. People don't want to leave debt to the family, thus insurance helps them insure against that.
-- Businesses in a box. The cellphone business in Bangladesh is something we are trying to scale
26) Matt, other examples?
Matt Flannery:
-- MFIs can serve as trainers. They can provide information about how to run your business. For example, if you are fish seller you can get training on inventory management from the MFI on how to store fish so they don't perish.
27) Caller: What are UNDP and World Bank doing for MF?
Raj Shah:
-- They are doing two things. 1) Projects that provide technical assistance like CGAP 2) Investing in MF. Most development banks provide capital to places like Deutsche Bank and Blue Orchard.
-- World Bank has brought a lot of technical expertise on things like crop insurance and drought insurance.
-- Gates would like to see these orgs get much more involved in regulatory issues,
Alex Counts:
-- It's mixed. We have tried to lobby the World Bank to allocate 2% of the budget to MF but it remains at 1%.
-- Often the government creates banks that give free loans and distort the markets.
28) Matt, is competition good?
Matt Flannery:
-- In general, it's a great thing.
-- There is a worry about distorting markets when donating to an MFI and is something to watch out for,
2006-05-08
A Chip on My Shoulder
Filed Under:
I am somewhere in the process of making the transition from donut shop code-warrior to CEO. It won't be a seemless transition, so my colleagues will hopefully concede me a few stutter steps. The last 2 years were a slow, incremental birthing of a vision Jess and I first had in Africa. Every few weeks, another piece of the organization steadily came together. It was like we were coloring in the lines of a silhouette we saw long ago. Doing it alone was isolating and inefficient. However, having intimate knowledge of every corner of a web site and an organization is hard to give up.
The core feature set of Kiva 2.0 is live on the web and looking fantastic. Less frequently do I stay up until sunrise -- just in time to release a new feature. A few times lately, I have instead awoken to see the amazing work of Kiva's dev team. To see so many people now contributing is a joy.
For instance: partner pages, like this one. That's an important aspect of where we are going, and how we view ourselves. Kiva is creating an open market for international, person to person, micro-lending online for the sake of alleviating poverty. Our (MFI) partners post the profiles of their client entrepreneurs directly to the site (sort of like auctions), and people like you and I can loan to them. Important agents on the site are the MFIs. They, as well as their clients, are in the process of developing online reputations with Kiva. The reputation will be a factor of their payback rate, content quality, content frequency and more. Lenders like you and I can decide where to place loans based on these reputations.
I am a broken record on this blog: Kiva can scale. I can't stress that enough. If you are someone out there in the micro-finance industry and you don't believe me, write me a note and we can talk. A few months ago, Kiva was being scrutinized by a major influencer in Silicon Valley. This influencer asked me: Can you scale? I said "yes". The influencer then proceeded to interview a host of pundits and experts from the most respected American MF-related organizations. Emails were flying around about Kiva. As they do, alot of these emails ended up in my inbox, even if they weren't written to me. What did they say? Among other things, they said "Kiva can't scale"! Many also questioned my inexperience. If only people talked to me before the were so quick to judge...
Why can we scale? The primary reason is that it makes financial sense to work with Kiva. MFIs pay, on average somewhere in the range of 8-18% interest on debt they receive from local and international sources. This is a large part of the reason that clients (poor borrowers) pay in the range of about 30% on their individual loans. Kiva is, right now, providing them with debt at 0% (with help from PayPal who has agreed to give us free payment processing). In the near future we will allow our partners to choose to get their debt at non-zero rates. Partners will be able to choose the rate of return they want to send to the lender. Kiva won't dictate these things and is merely a connector.
Some MFI experts might argue that posting pictures, payments and journal entries is unwieldy and unrealistic to expect. How can an MFI, some with 100,000s of clients, plug into a system like that? There are many ways to respond, and I will write more of them down later. A key thing to note is that there IS an extra cost for most to work with Kiva. Sure, it costs something to post up a picture and other info online. However, I would argue that, for many, this cost is MUCH less than the cost of accepting traditional, commercial debt.
Case Study: One of our partners pays its loan officer $10 per Kiva post. An average Kiva loan is around $600 or so. That $10, then, is less than 2% of the total loan. For them, Kiva costs them 1.5 - 2% per loan. That is something that, at scale, can significantly improve their business model. Ultimately, savings like that go to help a microfinance institution grow and serve more of the poor.
Do I sound like I have a chip on my shoulder? Probably, and I should let it go soon. I wonder how I can do that...
The core feature set of Kiva 2.0 is live on the web and looking fantastic. Less frequently do I stay up until sunrise -- just in time to release a new feature. A few times lately, I have instead awoken to see the amazing work of Kiva's dev team. To see so many people now contributing is a joy.
For instance: partner pages, like this one. That's an important aspect of where we are going, and how we view ourselves. Kiva is creating an open market for international, person to person, micro-lending online for the sake of alleviating poverty. Our (MFI) partners post the profiles of their client entrepreneurs directly to the site (sort of like auctions), and people like you and I can loan to them. Important agents on the site are the MFIs. They, as well as their clients, are in the process of developing online reputations with Kiva. The reputation will be a factor of their payback rate, content quality, content frequency and more. Lenders like you and I can decide where to place loans based on these reputations.
I am a broken record on this blog: Kiva can scale. I can't stress that enough. If you are someone out there in the micro-finance industry and you don't believe me, write me a note and we can talk. A few months ago, Kiva was being scrutinized by a major influencer in Silicon Valley. This influencer asked me: Can you scale? I said "yes". The influencer then proceeded to interview a host of pundits and experts from the most respected American MF-related organizations. Emails were flying around about Kiva. As they do, alot of these emails ended up in my inbox, even if they weren't written to me. What did they say? Among other things, they said "Kiva can't scale"! Many also questioned my inexperience. If only people talked to me before the were so quick to judge...
Why can we scale? The primary reason is that it makes financial sense to work with Kiva. MFIs pay, on average somewhere in the range of 8-18% interest on debt they receive from local and international sources. This is a large part of the reason that clients (poor borrowers) pay in the range of about 30% on their individual loans. Kiva is, right now, providing them with debt at 0% (with help from PayPal who has agreed to give us free payment processing). In the near future we will allow our partners to choose to get their debt at non-zero rates. Partners will be able to choose the rate of return they want to send to the lender. Kiva won't dictate these things and is merely a connector.
Some MFI experts might argue that posting pictures, payments and journal entries is unwieldy and unrealistic to expect. How can an MFI, some with 100,000s of clients, plug into a system like that? There are many ways to respond, and I will write more of them down later. A key thing to note is that there IS an extra cost for most to work with Kiva. Sure, it costs something to post up a picture and other info online. However, I would argue that, for many, this cost is MUCH less than the cost of accepting traditional, commercial debt.
Case Study: One of our partners pays its loan officer $10 per Kiva post. An average Kiva loan is around $600 or so. That $10, then, is less than 2% of the total loan. For them, Kiva costs them 1.5 - 2% per loan. That is something that, at scale, can significantly improve their business model. Ultimately, savings like that go to help a microfinance institution grow and serve more of the poor.
Do I sound like I have a chip on my shoulder? Probably, and I should let it go soon. I wonder how I can do that...
2006-02-27
Prisma and Kiva
Filed Under:
Kiva is scaling fast, finally. In the last 4 days, we have raised over $17K in loan capital to be sent to our partners. This has been mostly through our partnership with Prisma Microfinance which operates in Honduras and Nicaragua.
Prisma has been an amazing operation to work with. I met with Dr. Kendall Mau about a month ago at Stanford to talk about a potential partnership. Kendall is known as a world-wide microfinance expert who is a specialist in helping struggling organizations become financially sound. He has one of the toughest travel schedules of anyone I have ever met and is in demand all over the world for his consulting. He is also on the board of Prisma.
Kendall and I had a relaxed conversation to explore the possibility of Kiva working with Prisma. I wasn't sure how open they would be to working with Kiva. In conversations with MFIs (microfinance institutions), Kiva has mixed results. Some are very excited about the idea of posting their businesses to the site, and some are more cautious. I think the main concern is whether an MFI can easily post content to a website on a regular basis. Some are set up to do this easily, some find it unwieldy.
I left the conversation happy that I had met a great man connected to a great organization who could potentially help Kiva a lot. Little did I know how much they could help.
A month later, Prisma completed the application process and has already posted over 30 businesses with great content. David Satterthwaite, the President of Prisma has gone out of his way to make a Kiva-Prisma partnership work for both of us, and ultimately for the working poor in Honduras and Nicaragua. Kiva lenders are already making a huge impact through Prisma.
Thanks to everyone involved. This was one of the most exciting weekends of my life. Kiva can scale.
Prisma has been an amazing operation to work with. I met with Dr. Kendall Mau about a month ago at Stanford to talk about a potential partnership. Kendall is known as a world-wide microfinance expert who is a specialist in helping struggling organizations become financially sound. He has one of the toughest travel schedules of anyone I have ever met and is in demand all over the world for his consulting. He is also on the board of Prisma.
Kendall and I had a relaxed conversation to explore the possibility of Kiva working with Prisma. I wasn't sure how open they would be to working with Kiva. In conversations with MFIs (microfinance institutions), Kiva has mixed results. Some are very excited about the idea of posting their businesses to the site, and some are more cautious. I think the main concern is whether an MFI can easily post content to a website on a regular basis. Some are set up to do this easily, some find it unwieldy.
I left the conversation happy that I had met a great man connected to a great organization who could potentially help Kiva a lot. Little did I know how much they could help.
A month later, Prisma completed the application process and has already posted over 30 businesses with great content. David Satterthwaite, the President of Prisma has gone out of his way to make a Kiva-Prisma partnership work for both of us, and ultimately for the working poor in Honduras and Nicaragua. Kiva lenders are already making a huge impact through Prisma.
Thanks to everyone involved. This was one of the most exciting weekends of my life. Kiva can scale.
2006-02-06
Zopa and the Rise of P2P Lending
Filed Under:
Zopa.com is coming soon to the US, and Prosper.com is here (as of today). These are the first ever (for profit) person-to-person lending services to set foot in our country and I predict they will have drastic effects on how individuals access capital. These are services that allow one person to lend to another person using the internet as a matchmaking service. They are able to do it because they do not structure themselves as banking or brokerage operations. Rather than borrowing at one rate and lending at another, they simply facilitate a transaction between two parties. They make money by charging a small transaction fee for the service.
Last week, we had one of our biggest Kiva meetings ever. Chelsa and I got to meet Richard Duvall, the CEO of Zopa at the Top of The Mark in SF. I had some nervousness about being a CEO across from a CEO who has been called, by Bill Gates "one of the most dynamic people I have met”. However, the nervousness was quickly dissolved when we talked. Richard is an incredibly unassuming and casual person who has had an enormous impact in a short time. We talked about the future launch of Zopa in the USA, the regulatory challenges that organizations like ours face, and how we could possibly work together in the future.
One idea that I left with is that Kiva is part of a larger space of P2P lending organizations. It is important to know how we fit into the space and how we can benefit from other companies who are making the space larger. Kiva itself, we agree, can contribute a lot by showing how P2P lending can have an impact on people who are at the very bottom of the global economy. This can bring a lot of publicity and legitimacy to the space that can benefit everyone involved. I choose to view it as a pie that can grow larger for everyone, rather than a fixed set of capital that we must all fight over.
Another idea I left with is that P2P lending, although at its infancy, is developing standardized legal and business strategies. Companies like Zopa, Prosper, Kiva and others have been on separate journeys for the past two years. In many ways, we all thought of a similar idea around the same time in different parts of the world. We all took different strategies to bring it to reality and we all faced a huge legal fence pretty early on in our efforts. Zopa climbed the fence first by choosing to portray themselves as a mere transaction agent. The lenders on the site are the legal lenders of record, and the borrowers on the site are the legal borrowers of record. Kiva circumvented the fence by offering 0% interest. Offering 0% allowed us to avoid SEC regulation which would be prohibitive to a charitable endeavor like ours. In the future, we will most likely follow the Zopa lead by legally structuring our transactions in a similar way -- and thus being able to offer interest. It remains to be seen, however, how much Kiva users desire to make a profit off a charitable loan.
The first year after we started Kiva, we never used the phrase "p2p". We would always say something to the effect of "just like loaning to your friend or family member." We were looking for a way to do a very simple thing -- lending -- on a larger scale. We went through a year of people telling us "you just can't do that" , but just started anyway. Then, we heard of Zopa, who was doing it in a big way having solved all of the difficult issues we had faced. Meeting Richard face to face was comforting. Here is someone who has been through something similar and has come out on the winning side. He is not only meeting with us, he is offering to help us in some very tangible ways.
If only we had met him in 2004, Kiva would be so much farther along. Thanks Richard.
Last week, we had one of our biggest Kiva meetings ever. Chelsa and I got to meet Richard Duvall, the CEO of Zopa at the Top of The Mark in SF. I had some nervousness about being a CEO across from a CEO who has been called, by Bill Gates "one of the most dynamic people I have met”. However, the nervousness was quickly dissolved when we talked. Richard is an incredibly unassuming and casual person who has had an enormous impact in a short time. We talked about the future launch of Zopa in the USA, the regulatory challenges that organizations like ours face, and how we could possibly work together in the future.
One idea that I left with is that Kiva is part of a larger space of P2P lending organizations. It is important to know how we fit into the space and how we can benefit from other companies who are making the space larger. Kiva itself, we agree, can contribute a lot by showing how P2P lending can have an impact on people who are at the very bottom of the global economy. This can bring a lot of publicity and legitimacy to the space that can benefit everyone involved. I choose to view it as a pie that can grow larger for everyone, rather than a fixed set of capital that we must all fight over.
Another idea I left with is that P2P lending, although at its infancy, is developing standardized legal and business strategies. Companies like Zopa, Prosper, Kiva and others have been on separate journeys for the past two years. In many ways, we all thought of a similar idea around the same time in different parts of the world. We all took different strategies to bring it to reality and we all faced a huge legal fence pretty early on in our efforts. Zopa climbed the fence first by choosing to portray themselves as a mere transaction agent. The lenders on the site are the legal lenders of record, and the borrowers on the site are the legal borrowers of record. Kiva circumvented the fence by offering 0% interest. Offering 0% allowed us to avoid SEC regulation which would be prohibitive to a charitable endeavor like ours. In the future, we will most likely follow the Zopa lead by legally structuring our transactions in a similar way -- and thus being able to offer interest. It remains to be seen, however, how much Kiva users desire to make a profit off a charitable loan.
The first year after we started Kiva, we never used the phrase "p2p". We would always say something to the effect of "just like loaning to your friend or family member." We were looking for a way to do a very simple thing -- lending -- on a larger scale. We went through a year of people telling us "you just can't do that" , but just started anyway. Then, we heard of Zopa, who was doing it in a big way having solved all of the difficult issues we had faced. Meeting Richard face to face was comforting. Here is someone who has been through something similar and has come out on the winning side. He is not only meeting with us, he is offering to help us in some very tangible ways.
If only we had met him in 2004, Kiva would be so much farther along. Thanks Richard.
2005-12-15
Africa Late Night (1)
Filed Under:
Jess and I got married in August 2003. Before that, we took a 13 week pre-engagement class at our church. Yes, that's right. 13 weeks. This wasn't even for marriage, this was just for engagement. Did we learn much? Yes. Did we follow all of the instructions? No.
One of the things they make you do is talk about things. The obvious things, the big things like kids, money, family, and well, you know. We scored pretty well on our "tests" -- pretty well.
There were, however, a few concerns. We had this workbook. It was pastel green and pink and had pictures of happy couples on the front and childish cartoons throughout. I think it had a chapter named "Life Goals". Hitting this chapter about midway through the course was like hitting a fence. We had to answer all of these questions and write the answers in the workbook. This week, we had the question: "What are your Career Goals?
Matt 's Answer: I want to live in the Bay Area and work for high tech startups.
Jessica's Answer: I want to go to Africa and do micro-finance.
Ouch. That seems like a pretty big disconnect. You can imagine the concerned look of our classmates after our presentation. Hadn't you guys worked this out yet? Despite this eyesore, we passed the class and had a great engagement.
Fast-forward to Feb 2004 -- 6 months after the wedding.
I am living in Noe Valley. My flat-mate is this cool guy David who I met on craigslist. He smokes in the backyard each night and we talk about Burning Man. I'm subletting our guestroom to him for three months. Where is Jess? In Africa doing microfinance. Where am I? In the Bay Area working for a high-tech startup. D'Oh!
Another thing that pastel book tells you is to "Spend as much time together as you can during the first year of marriage." On this point, we weren't doing the best job at the moment. Certainly, Jessica's 3 month trip to East Africa wasn't the kind of thing suggested by the book. I was going to join her for about a month -- the middle month. So I had these one-month bookends to hang out in San Francisco and talk about neon-light installation art with David. It was like nothing had changed.
What did I do? I walked around a lot. I thought about Jessica, I missed her. I found myself trolling liquor stores in the Mission. It's not what you think. I was looking for PHONE CARDS. I became a phone card expert. These are the cards they sell behind the counter next to the bad magazines. You can find them in the Mission because that is where the immigrants are.
Each phone card is different. Some have connections fees, some have disconnection fees. Some charge by the minute, some charge by the 5 minute chunk. They all try to rip you off in some way and offer rates which turn out to be HALF of the real cost. Some work especially well for Africa, but most don't. You have to read the fine print. One thing they all have in common -- cool pictures. The Africa one's are especially cool. They got zebra cards, rhino cards and pretty much any big game animal card you can think of. I collected them like baseball cards.
And then, after I picked up the best card, I would call Jessica on the walk home through the Mission. This was a great feeling. Like a prize for finding the best card at the best liquor store, I got to talk to Jessica for a sizeable amount of time. As I walked down Valencia Street, I would hear sounds of sirens (in my neighborhood) juxtaposed with the sounds of roosters (in her neighborhood). I wonder what was louder -- nighttime in the Mission or morning in rural Kenya? Both can be loud.
One of the things they make you do is talk about things. The obvious things, the big things like kids, money, family, and well, you know. We scored pretty well on our "tests" -- pretty well.
There were, however, a few concerns. We had this workbook. It was pastel green and pink and had pictures of happy couples on the front and childish cartoons throughout. I think it had a chapter named "Life Goals". Hitting this chapter about midway through the course was like hitting a fence. We had to answer all of these questions and write the answers in the workbook. This week, we had the question: "What are your Career Goals?
Matt 's Answer: I want to live in the Bay Area and work for high tech startups.
Jessica's Answer: I want to go to Africa and do micro-finance.
Ouch. That seems like a pretty big disconnect. You can imagine the concerned look of our classmates after our presentation. Hadn't you guys worked this out yet? Despite this eyesore, we passed the class and had a great engagement.
Fast-forward to Feb 2004 -- 6 months after the wedding.
I am living in Noe Valley. My flat-mate is this cool guy David who I met on craigslist. He smokes in the backyard each night and we talk about Burning Man. I'm subletting our guestroom to him for three months. Where is Jess? In Africa doing microfinance. Where am I? In the Bay Area working for a high-tech startup. D'Oh!
Another thing that pastel book tells you is to "Spend as much time together as you can during the first year of marriage." On this point, we weren't doing the best job at the moment. Certainly, Jessica's 3 month trip to East Africa wasn't the kind of thing suggested by the book. I was going to join her for about a month -- the middle month. So I had these one-month bookends to hang out in San Francisco and talk about neon-light installation art with David. It was like nothing had changed.
What did I do? I walked around a lot. I thought about Jessica, I missed her. I found myself trolling liquor stores in the Mission. It's not what you think. I was looking for PHONE CARDS. I became a phone card expert. These are the cards they sell behind the counter next to the bad magazines. You can find them in the Mission because that is where the immigrants are.
Each phone card is different. Some have connections fees, some have disconnection fees. Some charge by the minute, some charge by the 5 minute chunk. They all try to rip you off in some way and offer rates which turn out to be HALF of the real cost. Some work especially well for Africa, but most don't. You have to read the fine print. One thing they all have in common -- cool pictures. The Africa one's are especially cool. They got zebra cards, rhino cards and pretty much any big game animal card you can think of. I collected them like baseball cards.
And then, after I picked up the best card, I would call Jessica on the walk home through the Mission. This was a great feeling. Like a prize for finding the best card at the best liquor store, I got to talk to Jessica for a sizeable amount of time. As I walked down Valencia Street, I would hear sounds of sirens (in my neighborhood) juxtaposed with the sounds of roosters (in her neighborhood). I wonder what was louder -- nighttime in the Mission or morning in rural Kenya? Both can be loud.
2005-11-30
Bleeding Heart
Filed Under:
For two years I took the TiVo shuttle from the Caltrain on my long trek from Noe Valley to beautiful Alviso, California. As of recently, those days are behind me.
I developed a lively relationship with the TiVo shuttle driver, Marty. He listens to a lot of talk radio and would punctuate a point with an upward pointed index finger and a call to "read between the lines Matthew!". He's older than me and speaks with authority. We fought a lot -- and the drubbing noise of Rush Limbaugh, Michael Savage and Bill O'Reilly provided the perfect soundtrack. I'm sure the other shuttle riders loved hearing this chorus.
One term I heard a lot, from both Marty and the radio hosts, was "bleeding heart liberal". From many folks, I've learned that this is something you definitely don't want to be. If you are, you should downplay it -- especially in the micro-finance world. You need to be doing this for better reasons than a simple bleeding heart. People with good intentions have made so many mistakes. The landscape is littered with projects that sprung from bleeding hearts. It is with fear, then, that I wonder if I might possibly be one.
I'm a novice -- on so many levels. I was in Africa for three weeks. I am not an expert in Micro-finance. I don't have an MBA and I glaze over once talk turns to currency risk and waterfall debt. I am not competing with you if you are playing the game of who knows more about this industry. You win. If you took the time to find this blog, you probably know more.
So here I find myself dedicating my career to this concept. It has all been a blur since that time. So right now I find myself trying to put together the pieces. What just happened? Am I doing this for the wrong (stupid liberal) reasons? I think there is a section on our website about how we started. Maybe I will check that out...
Upon reflection, I think it has a lot to do with connecting people and crossing a boundary. It was thrilling for me to connect to small business people in Africa and realize that their stories were very similar to people I know. It was also shocking to hear success story after success story -- I wasn't necessarily prepared for that. Lastly, it was fascinating to see that the marketplace there is much like here, but a lot less efficient and lacking infrastructure. It was the similarities that got me interested.
Then I guess there are the huge disparities which made the similarities all the more striking. One day in Tanzania, Jessica and I were driving past a hillside filled with maybe 100 workers squatting on the rough terrain. When we got out of the car we realized they were all crushing rocks with hand tools to make gravel. Wow. All day every day, just crushing rocks by hand. I have never shaken a more callused hand in my life. Can you imagine what would happen if someone pulled up to that hill with a rock crushing machine? How much does such a machine cost? Certainly less than a few months of the combined labor of 100 workers.
I don't know where my efforts will lead me. I hear from naysayers most every day. I've heard dissenting voices frequently for 2 years. I hear your arguments and I understand them. I hear how you would do it differently and sometimes it makes great sense. Also, I see how there are a handful of related startups coming out in 2006 and I wish them all good luck. May we all succeed.
Finally, I admit it. This is a decision I made mostly with my (bleeding?) heart.
I developed a lively relationship with the TiVo shuttle driver, Marty. He listens to a lot of talk radio and would punctuate a point with an upward pointed index finger and a call to "read between the lines Matthew!". He's older than me and speaks with authority. We fought a lot -- and the drubbing noise of Rush Limbaugh, Michael Savage and Bill O'Reilly provided the perfect soundtrack. I'm sure the other shuttle riders loved hearing this chorus.
One term I heard a lot, from both Marty and the radio hosts, was "bleeding heart liberal". From many folks, I've learned that this is something you definitely don't want to be. If you are, you should downplay it -- especially in the micro-finance world. You need to be doing this for better reasons than a simple bleeding heart. People with good intentions have made so many mistakes. The landscape is littered with projects that sprung from bleeding hearts. It is with fear, then, that I wonder if I might possibly be one.
I'm a novice -- on so many levels. I was in Africa for three weeks. I am not an expert in Micro-finance. I don't have an MBA and I glaze over once talk turns to currency risk and waterfall debt. I am not competing with you if you are playing the game of who knows more about this industry. You win. If you took the time to find this blog, you probably know more.
So here I find myself dedicating my career to this concept. It has all been a blur since that time. So right now I find myself trying to put together the pieces. What just happened? Am I doing this for the wrong (stupid liberal) reasons? I think there is a section on our website about how we started. Maybe I will check that out...
Upon reflection, I think it has a lot to do with connecting people and crossing a boundary. It was thrilling for me to connect to small business people in Africa and realize that their stories were very similar to people I know. It was also shocking to hear success story after success story -- I wasn't necessarily prepared for that. Lastly, it was fascinating to see that the marketplace there is much like here, but a lot less efficient and lacking infrastructure. It was the similarities that got me interested.
Then I guess there are the huge disparities which made the similarities all the more striking. One day in Tanzania, Jessica and I were driving past a hillside filled with maybe 100 workers squatting on the rough terrain. When we got out of the car we realized they were all crushing rocks with hand tools to make gravel. Wow. All day every day, just crushing rocks by hand. I have never shaken a more callused hand in my life. Can you imagine what would happen if someone pulled up to that hill with a rock crushing machine? How much does such a machine cost? Certainly less than a few months of the combined labor of 100 workers.
I don't know where my efforts will lead me. I hear from naysayers most every day. I've heard dissenting voices frequently for 2 years. I hear your arguments and I understand them. I hear how you would do it differently and sometimes it makes great sense. Also, I see how there are a handful of related startups coming out in 2006 and I wish them all good luck. May we all succeed.
Finally, I admit it. This is a decision I made mostly with my (bleeding?) heart.
2005-11-07
Notes from the UN
Filed Under:
I spent today at the UN in NYC, at the "Year of Micro-Credit" Forum. Quite an experience for a chap like me. Here are some highlights:
Paul Wolfowitz: Finance is a private sector activity. Micro-Finance, as part of this, should be primarily a task of the private sector.
Simon Willis of Cisco: Virtual Collateral is an important idea in Micro-Finance (not the name of the next Hollywood sci-fi thriller). It is the idea that by simply tracking loan recipients, you are creating a situation where they have something to lose -- their reputation. Maintaining a record of identity is now within our grasp. He also adds that "Money transfer is just another form of information transfer."
There are thousands of MFIs (Micro-Finance Institutions) out there. Only a small handful have a credit history that qualifies them for true investment capital. The rest demand subsidies from aid organizations. This raises the question, how do we address the needs of Micro-Credit organsizations who have no credit?
The 100 million offered by the Omidyar family for Micro-Finance is 40% more capital than has ever been raised for Micro-Finance investment in all of history. This is causing major waves and more investment capital is sure to follow. Where can all of it be placed?
There are several thousands of MFIs in the world. Only 20 are to the level that they can raise their own money from the capital markets. There are only 100 that are considered "well-run".
Rory Stear of the Freeplay group: Only 20% of inhabited Africa has electricity. The average annual income in Rwanda is $203. Radios are key for communication in Rwanda. To power a radio for 5 hours a day in Rwanda costs $24 per year. The cheapest radio costs $12 to purchase. His company makes radios which can run for much cheaper using human (windup) power.
Princess Maxima of the Netherlands is real and not a fictional character. I saw her with my own eyes.
On the average, an MFI needs to dedicate 22% to administrative costs. Vikram Akula has lowered the overhead of his bank, SKS of india, to 6% through the extensive use of MIS systems in cooperation with Visa.
Raghuram Rajan of the IMF proposes a day when we remove the word "micro" from Micro-Finance. We should look at Finance as a spectrum of services that extend to the poor and rid ourselves of the chasm between Micro-Finance and Finance. Let's not kill the plight of the poor with kindness.
Dress code is not optional at the UN if you want to fit in. I should take this to heart.
Asli Demirgug-Kunt of the World Bank remarked that in Uganda, you must earn 20x the country's average GDP per capita to open a bank account. Banks in Africa are some of the most conservative. Banks in India take on much more risk when dealing with the poor. Why is this?
Richard Weingarten, Executive Secretary of the UNDP, remarked that Africa has seen reverses in major indicators during the last decade. For instance, life expectancy has decreased to 46 years old from 50 years old in the 1990s. He adds that Sub-Saharan Africa is now the primary focus of the UNDP.
Mantra of the day: Micro-Finance must be a profitable business if it is going to survive. There is a new crop of investors out there who want to invest in this industry but are demanding increased accountability. Although this is the overriding theme for the Forum, I ran into several detractors who worry about the pitfalls of emphasizing profit to the extent which it is currently being emphasized.
Paul Wolfowitz: Finance is a private sector activity. Micro-Finance, as part of this, should be primarily a task of the private sector.
Simon Willis of Cisco: Virtual Collateral is an important idea in Micro-Finance (not the name of the next Hollywood sci-fi thriller). It is the idea that by simply tracking loan recipients, you are creating a situation where they have something to lose -- their reputation. Maintaining a record of identity is now within our grasp. He also adds that "Money transfer is just another form of information transfer."
There are thousands of MFIs (Micro-Finance Institutions) out there. Only a small handful have a credit history that qualifies them for true investment capital. The rest demand subsidies from aid organizations. This raises the question, how do we address the needs of Micro-Credit organsizations who have no credit?
The 100 million offered by the Omidyar family for Micro-Finance is 40% more capital than has ever been raised for Micro-Finance investment in all of history. This is causing major waves and more investment capital is sure to follow. Where can all of it be placed?
There are several thousands of MFIs in the world. Only 20 are to the level that they can raise their own money from the capital markets. There are only 100 that are considered "well-run".
Rory Stear of the Freeplay group: Only 20% of inhabited Africa has electricity. The average annual income in Rwanda is $203. Radios are key for communication in Rwanda. To power a radio for 5 hours a day in Rwanda costs $24 per year. The cheapest radio costs $12 to purchase. His company makes radios which can run for much cheaper using human (windup) power.
Princess Maxima of the Netherlands is real and not a fictional character. I saw her with my own eyes.
On the average, an MFI needs to dedicate 22% to administrative costs. Vikram Akula has lowered the overhead of his bank, SKS of india, to 6% through the extensive use of MIS systems in cooperation with Visa.
Raghuram Rajan of the IMF proposes a day when we remove the word "micro" from Micro-Finance. We should look at Finance as a spectrum of services that extend to the poor and rid ourselves of the chasm between Micro-Finance and Finance. Let's not kill the plight of the poor with kindness.
Dress code is not optional at the UN if you want to fit in. I should take this to heart.
Asli Demirgug-Kunt of the World Bank remarked that in Uganda, you must earn 20x the country's average GDP per capita to open a bank account. Banks in Africa are some of the most conservative. Banks in India take on much more risk when dealing with the poor. Why is this?
Richard Weingarten, Executive Secretary of the UNDP, remarked that Africa has seen reverses in major indicators during the last decade. For instance, life expectancy has decreased to 46 years old from 50 years old in the 1990s. He adds that Sub-Saharan Africa is now the primary focus of the UNDP.
Mantra of the day: Micro-Finance must be a profitable business if it is going to survive. There is a new crop of investors out there who want to invest in this industry but are demanding increased accountability. Although this is the overriding theme for the Forum, I ran into several detractors who worry about the pitfalls of emphasizing profit to the extent which it is currently being emphasized.
2005-10-28
Introduction
Filed Under:
You are finding me at an interesting time.
We just launched Kiva. Kiva is a startup focused on connecting lenders with micro-businesses online. We provide the world's first and only online micro-lending opportunity and just opened to the public 3 weeks ago. We have now started over 30 businesses in Uganda and are scaling at a rapid pace. This is too much to summarize in a blog entry, so to find out more, go here. A HUGE blog, Daily Kos, covered us today. Thank you Daily Kos. In a couple of hours, your members funded every business we currently have. It was an incredible day.
Kiva is all about connecting people. Let me now introduce you to the people who are responsible for Kiva.
Jessica, my wife, and I came up with Kiva together. Kiva is a manifestation of what can happen when two people love eachother, spend every moment together, and allow imaginations to go places together that would have never been explored alone. For this reason, among others, it has been an amazing experience.
Moses Onyango is a man I met in a Nairobi hotel 1.5 years ago, and serves as a representative for Village Enterprise Fund (VEF) in Uganda. Moses has enabled us to work successfully with our first partner, VEF. He has been simply brilliant in finding successful businesses around Tororo and Soroti Uganda. He talks about goat herding and fish mongering the way a VC talks about semi-conductors and solar power.
Brian Lehnen is the head of VEF in the US, and has opened every door for us to run a successful online micro-lending operation. I first ran the idea past Brian in March 2004. "Nothing you just said sounds impossible" he said (this was the most positive thing I had heard yet). Brian has gone out to lunch with us on a regular basis for 2 years and is the reason we went to East Africa in the first place. VEF has started over 9,000 businesses in East Africa. I have a lot to learn from this man.
This blog will most likely be a mixture of my thoughts of what is happening now mixed in with stories from the past. It will chronicle what happens as Kiva goes from a beta-round startup with an important idea to a more significant endeavor with wider reach.
Thanks for reading.
Matt
We just launched Kiva. Kiva is a startup focused on connecting lenders with micro-businesses online. We provide the world's first and only online micro-lending opportunity and just opened to the public 3 weeks ago. We have now started over 30 businesses in Uganda and are scaling at a rapid pace. This is too much to summarize in a blog entry, so to find out more, go here. A HUGE blog, Daily Kos, covered us today. Thank you Daily Kos. In a couple of hours, your members funded every business we currently have. It was an incredible day.
Kiva is all about connecting people. Let me now introduce you to the people who are responsible for Kiva.
Jessica, my wife, and I came up with Kiva together. Kiva is a manifestation of what can happen when two people love eachother, spend every moment together, and allow imaginations to go places together that would have never been explored alone. For this reason, among others, it has been an amazing experience.
Moses Onyango is a man I met in a Nairobi hotel 1.5 years ago, and serves as a representative for Village Enterprise Fund (VEF) in Uganda. Moses has enabled us to work successfully with our first partner, VEF. He has been simply brilliant in finding successful businesses around Tororo and Soroti Uganda. He talks about goat herding and fish mongering the way a VC talks about semi-conductors and solar power.
Brian Lehnen is the head of VEF in the US, and has opened every door for us to run a successful online micro-lending operation. I first ran the idea past Brian in March 2004. "Nothing you just said sounds impossible" he said (this was the most positive thing I had heard yet). Brian has gone out to lunch with us on a regular basis for 2 years and is the reason we went to East Africa in the first place. VEF has started over 9,000 businesses in East Africa. I have a lot to learn from this man.
This blog will most likely be a mixture of my thoughts of what is happening now mixed in with stories from the past. It will chronicle what happens as Kiva goes from a beta-round startup with an important idea to a more significant endeavor with wider reach.
Thanks for reading.
Matt
